Govt announces new tax law on grass

The law on the way new grass on farms is taxed is to change.

Agriculture Minister Jim Sutton says some farmers will still be able to immediately claim a tax deduction for their re-grassing costs, while others will be able to write down their capital costs for pasture over three years instead of 20.

Sutton said he told Revenue Minister Michael Cullen that although a new Inland Revenue Department interpretation of tax law relevant to planting pastures "seems technically logical" it "has certainly provided our political opponents with a new stick, with which they are already energetically beating us".

The potential disturbance might have been less if the IRD had worked through more of the obvious questions and issues before publishing its operation statement.

Sutton said the IRD's actions had raised "justifiable concerns" in the farming community, but that the law changes would clarify the deductibility of grassing and fertiliser costs, and minimise compliance costs and complexity.

The new laws would allow immediate tax deductions for re-grassing and fertiliser costs that were not part of "significant capital activity". In cases such as dairy conversions, the costs could be written down over three years and IRD would be given flexibility to set other rates of amortisation for re-grassing and fertiliser costs.

A significant capital activity would be defined as work and physical improvement that changes the nature or character of a farm operation.

When IRD sought to treat the money spent on planting new grass as capital expenditure, it wanted the book value written down or amortised over 20 years.

Previously, the costs of planting new pastures were treated as deductible expenses of day-to-day farming, with big tax deduction claims available in the first tax year after conversion.

During the past 10 years, 2000 farms have been converted to dairying, with the cost of grassing and fertiliser averaging $500,000.

- NZPA