DESPITE the Federal government's efforts to 'protect' farmers from changes to allow the holding of vacant land, it appears many growers will still be collateral damage from reforms that were not intended to hit producers, but prevent land banking.
The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 was introduced in July and passed in the House of Representatives, but was amended in the Senate to give farmers an exemption before becoming law.
Even with the amendments designed to cater to primary producers, it appears many will still be slammed with a reduction of, or even denied, deductions given for having vacant land.
RSM Australia Tax Services associate director Tracey Dunn said many farmers have already found themselves caught in the crossfire.
"Contrary to the reassurance provided by the government, farmers are not 'exempt' from the laws introduced to deny deductions for vacant land," Ms Dunn said.
"We are already seeing situations where farmers are facing the denial of deductions, either because they are unable to satisfy the affiliate/connected entity trust, or a residential property is situated on one of the farm titles.
"The special rules introduced in the amendment actually made the loss of deductions a bigger issue for farmers, particularly where a residential property is located on the land."
The special rules or exemptions for farmers read they can still claim deductions if:
The is land under lease, hire or license to another entity; and
You, your affiliate, or an entity of which you are an affiliate or your spouse, or any of your children under 18 years of age, or an entity connected with you is carrying on a primary production business; and
The land does not contain residential premises; and
Residential premises are not being constructed on the land.
But Ms Dunn said the law failed to protect farmers on two accounts.
"Firstly, farming families who are not dealing at arm's-length (perhaps due to exceptional circumstances such as drought or flood) are required to satisfy the special rules in order to access deductions," she said.
"Where the land is not leased to a child under 18, or a spouse, the affiliate or connected entity rules must be passed.
"This is proving problematic."
Ms Dunn believed it was the Treasury's view that most farming families will pass the affiliate test if their dealings are in relation to the land, "but this is not how the affiliate test operates under the law".
"Where the influence of the family member leasing the land is only in relation to the land used in the relative's business, rather than over the entire farming business, the affiliate test will not be passed," she said.
"The connected entity test is extremely complex and requires considered attention to determine if entities within the farming family pass - this may result in significant cost to the farmer."
The other factor affecting producers was a denial of deductions where a residential premises is on the land that might be occupied by one of the family members.
"We were presented with the issue recently where land was held in a trust controlled by the son and leased to a farming business carried on by the parents," Ms Dunn said.
She said the land leased was on two titles, with the main parcel being about 1300 hectares and contained a residential property used by the son, while the other block was about 250ha and had no significant or substantial structures.