Update on Changes to Farm Dwelling Expenditure

For more information on how this might effect your farm,

contact our taxation team

Brad Phillips

Principal

03 211 3782

021 317 151

bradp(at)mdp.co.nz

Craig McCallum

Tax Advisor

03 928 5158

027 698 9511

craigm(at)mdp.co.nz

Kathryn Ball

Consultant

03 211 3774

027 454 8414

kathrynb(at)mdp.co.nz

If you are a farmer this WILL affect you....

In our last edition of Topical Taxes we discussed Inland Revenue’s proposed changes to farm dwelling expenditure. On 23 March 2017 Inland Revenue finalised its position by publishing interpretation statement IS 17/02 Income Tax – Deductibility of Farmhouse Expenses. This interpretation statement will apply from the beginning of the 2018 tax year.

The rules outlined in IS 17/02 largely remain unchanged from what was discussed in the last edition of Topical Taxes. However, Inland Revenue did change its view on what percentage larger type 1 farmers could claim on general dwelling expenses and rates. Under IS 17/02, type 1 farms can claim 20% (up from 15%) of general dwelling expenses and 100% of the rates charges.

As discussed in the last edition of Topical Taxes, farmers would be classified into Type 1 (essentially larger farms) and Type 2 farms (essentially smaller farms).Where the value of the farm dwelling (including curtilage and improvements) is 20% or less of the total value of the farm, the farm is a Type 1 farm otherwise it is a Type 2 farm.The Commissioner will accept the following as a reasonable estimate of the value of the farm:

  • rateable value, however, the usefulness depends on the circumstances as the value of the dwelling may not be readily available.
  • bank valuation or real estate agents appraisal, however, a formal valuation will be appropriate if a farm is on the borderline of both Type 1 and 2.
  • cost if the relative costs are comparable and contemporaneous eg the cost of a farm in 1990 and the cost of a new farmhouse in 2010 are not comparable or contemporaneous


The below table summaries the income tax treatment of dwelling expenditure for each type of farm:


The farm dwelling, like other plant and machinery, is an important asset on the farm.This is where a lot of the important business decisions are made and also where most of the administration work is done.It was great to see that Inland Revenue understood this and listened to our submission in accepting a higher deduction rate for type one farms and allowing a full tax deduction for rates.

Although the interpretation statement only deals with the income tax position of dwelling expenditure, it will have a flow on effect to those taxpayers who are GST registered.The proportion of GST charged on dwelling expenses that can be claimed as a GST input tax deduction will be the same proportion that is used for claiming an income tax deduction for these expenses.For example. If a type 1 farm claims 20% of dwelling expenditure as an income tax deduction then only 20% of the GST charged on these expenses can be claimed as a GST input tax deduction.

Please contact us if you have any questions or wish to discuss the above further.

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