The IRD have long permitted a straightforward concession allowing a flat 25% deduction for farmhouse expenses, as well as 100% deductions for interest and rates. The concession is not legislated and dates back to the 1960s, when farm ownership and operating structures were generally less complicated than they are today.
However, IRD recently announced that the concession is to be withdrawn from the start of the 2017-18 year. It will be replaced by a new approach that is intended to more accurately capture the business versus private costs relating to maintaining the farmhouse.
Under the proposed methodology, farming businesses will generally need to apportion farmhouse expenses between business and private use on a just and reasonable basis – time and space will generally be the appropriate method, consistent with other types of businesses.
Where expenses are incurred on the farm as a whole, the farmhouse expenses will first need to be determined based on the cost of the farmhouse (including curtilage and improvements) relative to the cost of the farm, before the apportionment between private and business use of the farmhouse is calculated.
The IRD have however recognised that there will be occasions where this will be impractical to calculate. They have addressed this by proposing that where the cost of the farmhouse is less than 20% of the total cost of the farm, farmers can follow an alternative method by deducting 15% of all farmhouse expenses, as well as continuing to claim 100% of the interest costs relating to the farmhouse.
This should make the compliance and record keeping process more straightforward for these entities.
Nothing is certain, except death and taxes…
Although tax returns across the world need to be filed annually, taxpayers come up with a variety of creative and ingenious excuses to try and avoid late filing penalties.
In the US, people have gone to the expense of arguing in court that ‘Taxation is taking property, thus a violation of the 5th Amendment’ and ‘Taxation is slavery, thus a violation of the 13th Amendment’. Unsurprisingly both arguments were
struck down by the courts.
In the UK, the tax authorities report amongst their best excuses, ‘My husband ran over my laptop’, ‘My tax papers were in the shed, and a rat ate them’ and ‘I’ve been busy looking after a flock of escaped parrots and some fox cubs’! Perhaps the parrots can be put to work to generate some income to pay the fines?!
While genuine reasons for late filing may sometimes be accepted, unfortunately passing the blame to hungry pets isn’t going to cut the mustard. Hopefully this serves as a good reminder to get your return ready for filing as the next deadline approaches!