Denis Hames: Sheep, beef incomes will be up this year

Meat and sheep exports are on good schedules this year.

Sheep and beef farm incomes are generally going to be considerably higher for farmers than last year.

The terms of trade for sheep, beef continue to be good and schedules remain high — export lamb $7.00 — $7.20 per kg and P2 steer $5.65 per kg.

Wool prices have continued to undermine the otherwise good story but they have recovered a little from last year.

Pastures have recovered well after the rain last month and stock is being held to put additional weight on. With this comes the associated taxation commitment and the need to plan expenditure prudently.

A lot of farmers are servicing significant levels of debt and reducing debt in good income years should be a priority. So is the planning around projected increased (in some cases significantly) terminal tax payments for 2018.

We will be doing a lot of farm estimates in April/May to determine the extent of the issue for farmers but also to advise on debt reduction.

We will also review what livestock valuation scheme farmers have adopted (generally a mix of NAMP (National Adjusted Market Prices — herd scheme) values or National Standard Cost (NSC).

For some farmers close to retirement, we will look at transferring lines of stock from NSC into the NAMP scheme for their 2018 accounts — however, with 2018 NAMP values expected to be near record highs for both sheep and cattle this will raise incomes in an already high-income year.

Income equalisation deposits can reduce taxable income but the reality is that this is tied up for one year, unless there are hardship issues or development programmes.

It is also important to recognise that there is not much point in freezing cash if it saves tax at 33 per cent in the current year but also incurs tax at 33 per cent when it is withdrawn.

The real advantage of the scheme is bringing the deposit back out in a lower income year when marginal tax rates applying are 17.5 per cent (incomes below $48k) or less. Income Equalisation deposits do receive interest at 3 per cent after being deposited for a year (backdated) and can be left in for five years

Forward planning is a real priority for sheep and beef farmers this year.

If you have a farming business and would like expert advice, contact the team at Crowe Horwath on 06 858 5540.

This information is general in nature and readers should seek specialist advise before making financial decisions.