The Importance of Annual Tax Reviews for Farmers

We want to highlight the significance of an often overlooked yet essential aspect of your farming operations – the annual tax review. As the end of the season approaches, taking the time to review your financial situation and more importantly your tax position can have multiple benefits and help secure a better cash position and future for your farm.

Compliance with tax laws

New Zealand has many specific tax laws and regulations tailored to the agricultural sector and conducting an annual tax review will ensure you are abiding by these regulations, avoiding penalties and legal complications.

Maximising tax deductions

Farmers in New Zealand can take advantage of various tax deductions and incentives. These deductions encompass a wide range of farm-related expenses. A comprehensive tax review allows you to identify and claim all eligible deductions, ultimately reducing your tax liability and increasing your bottom line.

Assessing profitability and financial planning

An annual tax review presents an opportunity to evaluate the financial performance and profitability of your farm. By analysing your income and expenses, you can gain valuable insights into your operations, identify areas for improvement, and make informed decisions for the upcoming year. This financial assessment aides in budgeting, setting goals, and strategically investing in your farm’s growth.

Cash flow management

Given the cyclical nature of agriculture, effective cash flow management is vitally important. Conducting a tax review allows you to assess your cash flow by understanding your tax obligations and potential refunds or payments. It also ensures that you are paying tax based on any changes to the upcoming season, and not just based on historical profits.

When conducting a tax review, there are several key aspects that should be considered. While the specific details may vary depending on individual circumstances, here are some common elements typically included in a tax review for farmers in New Zealand:

• Review and confirmation of all income sources

• Expenses analysis, and timing of expenses

• Confirmation of depreciation allowances and evaluating the best time to buy assets

• Confirm Livestock valuations and numbers

• Review of your allowable deductions and use of farming specific options such as the Income Equalisation Deposit Scheme

• Make allowances for any potential payments or refunds that are available to ensure you know your cash position

• Compliance with Tax legislation

We cannot underestimate the importance of an annual tax review for you. It ensures compliance with tax laws, maximises deductions, assesses financial performance, helps manages cash flow, and is important for planning. By making informed financial decisions, minimising tax liabilities, and maximising profitability, you can lay a solid foundation for the continued success and sustainability of your farm.

Want to understand your tax position better and ensure you’re on the right track? Contact CMK Accountants to arrange a time to review your situation.