Farm equipment delays prompt calls for tax deadline leniency

For growing numbers of producers the delivery delays mean plans to claim a full depreciation write-off on their equipment spending will evaporate.

Unless the new gear or infrastructure is actually installed and ready to work by June 30 next year, the purchase won't qualify for the popular instant tax deduction.

Ironically, one key reason equipment makers and suppliers are being run off their feet with orders is that farmers have been prompted to spend up big on new kit and take advantage of the temporary full expensing benefit while seasonal conditions are generally good.

Across the farm sector long wait times have emerged for new machinery, grain and livestock handling gear, sheds and sundry other capital investments.

Bush accountants report orders for big silos and sheds, Toyota four wheel drives, John Deere machinery and Kenworth trucks have seen some of the most notable delays.

"I've talked to farmers who had planned to invest in farm safety upgrades with new equipment purchases, but they've discovered it's no longer likely to arrive until a year from now," said NSW Farmers president, Xavier Martin.

"Others have given up trying to buy their first or second choice and are being forced to try for something less appropriate."

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Mr Martin, who farms on the Liverpool Plains, believed there was a genuine case for the Australian Taxation Office to "cut primary producers some slack" so they could still qualify for a tax deductibility incentive even if their new gear eventually arrived several months into 2023-24.

However, accountants and economic analysts were almost unanimous in expecting Canberra to kill off the temporary full expensing option at the end of June 2023.

With many businesses already overstretched and inflation set to hit a 7.75 per cent peak by December - a 20-year high - the depreciation allowance was simply contributing too much economic stimulus.

Full asset depreciation write-offs were originally introduced almost a decade ago to help promote economic activity via business spending, although initially with a $20,000 investment cap.

By 2020 that cap had lifted to $150,000 to help the economy weather COVID-19 lockdowns, and was later removed entirely for most businesses.

"It's been a convenient coincidence for farmers that the COVID stimulus was accompanied by several good seasons and strong farm returns," said food and agribusiness tax specialist with the BDO accounting group, Andrew Jones.

Good grazing and cropping conditions and strong commodity prices had bolstered farm balance sheets and enthusiasm to spend on asset upgrades and efficiency initiatives.

"Arguably, conditions for spending on new gear have never been better," Mr Jones said.

"A lot of farmers will be looking for tax deduction options this financial year given there will again be some strong farm income results to report."

However, the post-drought rush to invest in better gear to handle bigger harvests and livestock numbers has also collided with overseas production delays, and shipping and port disruptions, often slowing new machinery arrivals by at least six months.

Local manufacturers and infrastructure assembly businesses have also had to limit production because they can't get enough staff for the work and component imports have been inconsistent.

"We've stopped taking orders for cattle feeders and landforming equipment at present because we're so busy with a backlog of orders for grain handling gear," said Dunstan Farmers Engineering representative, Peter Den Houting.

The northern Victorian business, at Kerang, now has a delivery timetable for bulk grain bins stretching 12 months or more - about nine months longer than would have been expected two or five years ago.

"The tax write-off has certainly fuelled extra orders this financial year, but things started getting busy when the drought broke and it's been harder to keep up ever since," Mr Den Houting said.

"Everybody in the machinery game is struggling to get components or new machines delivered on time, or they can't get enough skilled labour to complete jobs when they planned."

While farmers were still keen to take advantage of any tax incentives when making buying commitments, he said 85pc of their decision came down to needing to upgrade gear to cope with bigger crops and to cut operating costs.

"The depreciation write-off has been very good for agriculture and farm productivity," Mr Den Houting said.

"It would be good if the government offered a bit of leniency with its deadline."

With so many producers now unlikely to get equipment delivered on time, NSW Farmers' Mr Martin suggested the ATO could at least have a grace period after June 30 recognising a binding non-refundable deposit as proof farmers had gear on order.

Alternatively, rather than a cliff-face finish to the investment incentive scheme, the cap could be scaled down over two years.

Mr Jones at BDO said the new government's October budget may still give the farm sector some wriggle room to accommodate late equipment deliveries.

However, he suspected the recent 12 month extension beyond the June 2022 deadline would be cited by the ATO as a reasonable show of leniency, even though global supply congestion had not eased, as expected, in the past year.

"A lot of farmers seem to accept they're not going to beat the deadline, but they've still continued to spend because they need the gear."

Mr Martin said it was unfortunate so much of Australian agriculture was at the mercy of machinery companies allocating deliveries when it suited manufacturing and shipping schedules in America or Europe.

"If the pipeline gets congested we don't have the option of going to Adelaide to buy a locally made header any more."

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