YOU BOUGHT A THING.WHAT HAPPENS?

Fees paid to an agricultural co-operative for storage, handling, grading and membership services are deductible farming costs.

You can claim this · Farmer

Storage, handling, drying, grading and marketing commission are running costs of getting produce to market. Buying shares in the co-operative, however, is an investment, not a deduction, and any bonus or dividend distributed back to you may be income.

A barn, grain store or silo used to store your own produce is farm development expenditure, though a bolted steel silo may instead be plant.

A specific capital write-off applies · Farmer

A fixed structure erected for the farming operation falls in the development basket. A demountable silo or bulk bin that is really equipment can be treated as farming machinery on the faster write off, which is often better because it escapes the development cap. Look at what the thing actually is, not what it is called on the quote.

The same borehole at a shop, office, factory or guesthouse gets no First Schedule treatment and is normally a non-deductible capital improvement to the property.

No deduction now, it reduces tax when you sell · Sole proprietor or freelancer

This is the clearest illustration of why farming is different. Outside the First Schedule, sinking a borehole is expenditure of a capital nature, so the general deduction formula is blocked and there is no wear and tear allowance for a hole in the ground. The cost generally goes into the base cost of the property for capital gains purposes instead. Removable equipment such as the pump, tank and pipework is a separate question and may qualify for wear and tear.

The pump and equipment that make the borehole work are farming machinery and are written off over a short period, separate from the drilling itself.

A specific capital write-off applies · Farmer

Drilling is development work under the First Schedule. The pump, motor, control box, rising main and storage tank are machinery, implements and articles brought into use for farming, which are written off on the accelerated three year basis for farmers. Keep the driller's invoice and the equipping invoice apart so each goes to the right regime.

A borehole on a working farm is claimable as capital development expenditure under the First Schedule, which is far more generous than the normal rule that treats a borehole as pure capital.

A specific capital write-off applies · Farmer

The First Schedule to the Income Tax Act lists a specific set of farm development works, including the sinking of boreholes and wells, and lets a genuine farmer write the cost off against farming income instead of burying it in base cost. The claim is capped by reference to your farming income for the year, and the part you cannot use is carried forward to future years rather than lost. You must actually be carrying on farming operations, not just own land with water on it.

A bridge or crossing built so the farming operation can move across water is First Schedule capital development expenditure.

A specific capital write-off applies · Farmer

Bridges sit with roads in the development list. As always, the deduction in a year is limited by farming income and the excess carries forward. If the crossing is shared with neighbours or a municipality, only your share of the cost is yours to claim.

The price of the land is never deductible, no matter how generous the First Schedule is about what you build on it.

No deduction now, it reduces tax when you sell · Farmer

The purchase price, transfer duty, conveyancing and bond registration costs are capital and go into base cost for capital gains tax when you eventually sell. What is deductible is the interest on the bond used to buy farming land, to the extent the land is used in the farming trade. The development works you carry out afterwards, boreholes, fencing, dams and roads, are the part the First Schedule helps with.

Clearing and preparing land for cultivation, and eradicating invasive or noxious plants, is on the First Schedule capital development list.

A specific capital write-off applies · Farmer

This covers stumping, grubbing, removing bush and the initial preparation of land for planting, as well as the eradication of noxious plants. It is one of the clearest cases where farming beats ordinary business rules, because for anyone else this is straightforward capital improvement of land with no deduction at all.

A harvester is farming machinery on the accelerated write off, but if you contract it out to other farmers part of the income is not farming income.

A specific capital write-off applies · Farmer

The allowance itself is straightforward. The complication is contracting: harvesting for neighbours for a fee is generally a separate service trade, which affects both the apportionment of the asset and the farming income figure that caps your capital development expenditure claim.

Premiums to insure a crop or the farming assets are deductible, and any payout you receive is taxable income.

You can claim this · Farmer

The premium is a running cost of the trade. The other half people forget is that the claim proceeds come back into income, and a large hail payout can create a spike in taxable income in a year with no crop to sell. The farming rating formula exists partly to soften exactly this kind of spike.

Constructing a dam on a farm is listed capital development expenditure and is claimable against farming income under the First Schedule.

A specific capital write-off applies · Farmer

Dams, water furrows and similar water works appear in the First Schedule list of qualifying development expenditure. The same annual cap by reference to farming income applies, with the excess carried forward. Repairs to an existing dam wall are a different question and are usually an ordinary repair deduction rather than development expenditure.

Diesel used in farming is fully deductible, and a registered farmer can separately claim a refund of part of the fuel levies on qualifying farming use.

You can claim this · Farmer

These are two different reliefs. The income tax deduction is the cost of the diesel as a running expense. The diesel refund is an excise refund for primary production users, claimed through the VAT return by a farmer registered for it, and it requires detailed logbooks of litres used per activity and vehicle. If you receive a refund, it reduces the effective cost, so do not deduct the refunded portion again.

Dip, pour ons and the cost of dipping the herd are ordinary deductible farming costs.

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The chemicals and the labour are running costs. Building a dip tank or a spray race, however, is a structure and is more likely capital development expenditure under the First Schedule rather than a current deduction.

Losses from drought, fire or flood are recognised through the normal farming account, and there are specific First Schedule reliefs that only apply if you use them correctly.

The answer turns on the facts · Farmer

Stock that dies is simply not there at year end, which reduces closing stock and therefore taxable income, provided you record it. Assets destroyed may trigger a recoupment or a scrapping adjustment, and insurance or disaster grants received are income. Separately, the First Schedule contains relief aimed at drought and disaster situations, including deferral where livestock is sold off because of drought.

The cost of getting power onto the farm and carrying it to where it is used is on the First Schedule capital development list.

A specific capital write-off applies · Farmer

Carrying electricity from one point to another for the farming operation qualifies, which covers the reticulation to pump stations, sheds and lands. A connection fee paid to the utility, and any contribution to their infrastructure, should be tested separately because it may be a service charge rather than your asset.

Running a bakkie on the farm is deductible for the farming use, and you have to be able to show the split between farm and private kilometres.

Claim the business share only · Farmer

Fuel, servicing, tyres, insurance and licence are deductible to the extent the vehicle is used in the farming operation. The vehicle itself is written off, though the write off basis for a passenger vehicle is not the same as for a tractor. On a farm the private portion is rarely zero, because the same bakkie fetches the children and goes to town.

Buildings erected for the farming operation are claimable under the First Schedule, which is a much better outcome than the slow building allowances an ordinary business gets.

A specific capital write-off applies · Farmer

The development list covers buildings used in connection with farming operations, other than a dwelling house not occupied by farm employees. So an implement shed, workshop, dairy, chicken house or piggery generally qualifies. The farmhouse you live in does not.

Wages paid to farm workers are fully deductible, provided you can prove who you paid and you meet your PAYE and UIF obligations.

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Permanent and seasonal wages, UIF, and the employer's contributions are deductible. The employment tax incentive may apply to qualifying young workers, which is a direct reduction of PAYE rather than a deduction. Rations and free accommodation given to workers raise separate fringe benefit and record keeping questions.

A farm manager's salary is deductible, and paying a family member is fine as long as the person really does the work and is paid a market related amount through the payroll.

You can claim this · Farmer

The test is whether the expenditure is actually incurred in producing the farming income. A genuine salary to a son, daughter or spouse who manages the operation qualifies, and it is taxed in their hands, which can be efficient if their marginal rate is lower. It must go through PAYE, be supported by an employment record, and be an amount you would pay a stranger for the same job.

Building roads on the farm for the farming operation is listed First Schedule capital development expenditure.

A specific capital write-off applies · Farmer

Construction of roads used in the farming operation qualifies. Regravelling and grading an existing road each year is more naturally an ordinary repair or running cost, deductible in full without the development cap.

Feed bought for the herd or flock is an ordinary running cost of farming and is deductible in full in the year it is incurred.

You can claim this · Farmer

This includes bought in hay, lucerne, licks, concentrates and silage ingredients. Feed on hand at year end is produce and may need to be brought in as closing stock rather than fully deducted. Feed for the family horse or pets is private.

Fencing a farm is capital development expenditure under the First Schedule and is claimable against farming income, unlike fencing at an ordinary business.

A specific capital write-off applies · Farmer

Erecting fences, including internal camp fencing and boundary fencing used in the farming operation, is on the First Schedule list. Repairs to existing fencing are usually an ordinary repair deduction instead, which is often better because a repair is not subject to the development expenditure cap.

Fertiliser and lime applied to the lands are deductible farming inputs in the year applied.

You can claim this · Farmer

Even though lime has a benefit lasting several seasons, it is in practice treated as a running input rather than a capital improvement to land. Fertiliser sitting in the shed at year end is stock on hand and should not be fully deducted.

If drought forces you to sell livestock you did not plan to sell, the First Schedule allows the proceeds to be spread or deferred rather than taxed all in one brutal year.

The answer turns on the facts · Farmer

The relief is aimed at a farmer who destocks because of drought, stock disease or similar conditions and then restocks later. In broad terms the proceeds can be held over and brought into income over subsequent years, or set against the cost of replacement stock, subject to conditions including time limits and, in some cases, the area being formally declared. The mechanics and the election requirements are specific, so this is one to get applied properly rather than assumed.

Game farming can be farming for tax purposes, but game is not automatically livestock and the treatment of purchases and year end game numbers needs to be established for your specific operation.

The answer turns on the facts · Farmer

Whether an operation is farming, and whether particular game animals are trading stock with a value at year end, has been the subject of specific SARS rulings and practice rather than a simple statutory list. High value breeding game bought at auction is a particular area where the deduction has been challenged. Hunting and lodge income sitting alongside game breeding may not be farming income at all.

A generator used in the farming operation is farming machinery and is written off on the accelerated basis, with the running diesel deductible as you use it.

A specific capital write-off applies · Farmer

The unit itself is an asset. The diesel, servicing and filters are ordinary running costs deductible in the year. A generator that keeps the farmhouse on during load shedding is private, and one that does both should be apportioned on a defensible basis such as connected load or hours.

The animals standing in your camps at year end are added back into income at their standard values, so a bigger herd means a bigger tax number even though nothing was sold.

The answer turns on the facts · Farmer

The farming account works as opening stock plus purchases plus costs, less closing stock. Natural increase raises the closing count without any purchase cost, so it increases taxable income. Deaths, theft and slaughter for the household all have to be recorded and are the reason a stock reconciliation is not optional.

Homes built on the farm and occupied by farm employees are claimable development expenditure, unlike the farmer's own house.

A specific capital write-off applies · Farmer

The First Schedule allows expenditure on dwellings occupied by employees engaged in the farming operation. There is a per dwelling limit in the legislation, so a large or high specification house may only be partly claimable, and the amount has been changed over the years. The house must actually be occupied by employees, not standing empty or let to outsiders.

Farm implements get the same accelerated write off as the tractor that pulls them.

A specific capital write-off applies · Farmer

Implements, utensils and articles brought into use for farming qualify. Small tools and low value items may be written off in full under the small item practice rather than capitalised. Second hand implements qualify on what you paid, and if you bought from a non vendor there may also be a notional VAT input if you are registered for VAT.

Irrigation equipment on a farm is claimable, but which regime applies depends on whether the item is fixed development work or movable farming machinery.

A specific capital write-off applies · Farmer

Buried mainlines, canals and permanent water reticulation tend to be First Schedule capital development expenditure. A centre pivot, pump station, filters and drip lines are machinery and implements used in farming and fall under the accelerated farming asset allowance. The two regimes have different limits: the development expenditure claim is rationed against farming income, the machinery allowance generally is not.

Livestock bought is claimed as a purchase in the farming account, but the First Schedule limits the deduction so that livestock purchases cannot manufacture a farming loss.

You can claim this · Farmer

Livestock is trading stock in a farming business. Purchases are deducted, opening stock is added and closing stock is brought in at standard values or, in some cases, market value. A specific limitation restricts the livestock purchase deduction by reference to farming income, with the disallowed portion carried forward to the next year. Breeding stock is treated as livestock, not as plant.

Livestock on hand is valued at fixed standard values set by regulation rather than at what the animals are actually worth, which is what makes the farming tax result look odd.

The answer turns on the facts · Farmer

The First Schedule requires livestock held at year end to be brought into income at standard values published for each class of animal, unless a higher value has been adopted. Because the standard values are low relative to market prices, a growing herd shows far less taxable income than the economic gain, and a shrinking herd shows more. You may elect a higher value, but once adopted you generally cannot simply drop back down.

The packhouse shell is usually farm development expenditure, but a packing and grading line may cross into manufacturing, which has its own faster allowance.

The answer turns on the facts · Farmer

The building itself, erected for the farming operation, sits in the First Schedule. The equipment inside is either farming machinery or, where the process is a manufacturing or similar process, may qualify under the manufacturing plant allowance. Where packing has become a business in its own right, packing third party fruit for a fee, that income may not be farming income at all, which changes the cap on your development expenditure.

Crop chemicals are deductible running costs of the farming operation.

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Herbicides, insecticides and fungicides applied to a crop are inputs. Aerial spraying contractor fees are also deductible. Chemicals on hand at year end form part of stock.

Plantation farming has its own rules in the First Schedule, separate from ordinary crop farming, and the treatment of planting, tending and felled timber needs to be read specifically.

The answer turns on the facts · Farmer

Forestry is dealt with by dedicated provisions covering plantation establishment and maintenance expenditure and the value of standing or felled timber, which do not simply mirror the general capital development paragraph. The answer for a specific spend turns on whether it is establishment, tending, or harvesting, and on how the standing timber is valued at year end. Do not apply orchard logic to a plantation without checking.

The cost of establishing an orchard or vineyard, including the young trees or vines, is treated as farm capital development expenditure rather than being locked up until you sell the farm.

A specific capital write-off applies · Farmer

The First Schedule development list includes the planting of trees, shrubs and perennial plants grown for fruit, nuts and similar produce, and the establishment of the area planted. Trellising, supports and irrigation within the block may fall under either development expenditure or farming machinery depending on what it is, so itemise the establishment budget. The annual cap against farming income matters a lot here, because establishment is front loaded and income only arrives years later.

Seed for an annual crop is a fully deductible input cost in the year it is incurred.

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Annual crop seed is a running cost. Young trees, vines and perennial planting material are different: those are part of establishing an orchard or vineyard and go into the First Schedule capital development basket instead. Seed on hand at year end is produce and forms part of closing stock.

Farming losses only help you if you are genuinely carrying on farming as a trade with a real prospect of profit, and a smallholding that never makes money will usually have its losses ring fenced.

The answer turns on the facts · Anyone

There are two separate hurdles. First, are you trading at all? A few chickens, two cows and a vegetable patch for the household is a hobby, and hobby expenses are not deductible against anything. Second, even if you are trading, farming is a listed suspect trade under the ring fencing rules, so if you are a high income taxpayer and the farming operation makes losses repeatedly, the loss can be ring fenced and set only against future farming income, not against your salary. Scale, business plan, records, marketing, and a realistic route to profit are what distinguish the two.

Works to prevent soil erosion, including contour banks and stormwater control on the lands, are listed First Schedule capital development expenditure.

A specific capital write-off applies · Farmer

Soil conservation works are one of the categories the First Schedule specifically encourages. Ordinary maintenance of existing contours each season is more naturally a running cost and is deductible in full, which is usually the better answer where it applies.

Solar panels and inverters that run farm pumps are business assets with an accelerated write off, and there are two possible regimes so the better one should be chosen deliberately.

A specific capital write-off applies · Farmer

A solar installation used in the farming operation can fall under the farming machinery allowance or the renewable energy allowance for business, both of which are faster than ordinary wear and tear. Mounting structures, cabling and the inverter usually go with the panels. The residential solar rebate for individuals is a different thing entirely and does not apply to farm production assets.

Statutory commodity levies and industry body subscriptions paid by a farmer are deductible as costs of carrying on the farming trade.

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Levies deducted off your delivery statement by a commodity organisation, and subscriptions to producer organisations and farmers unions, are trade expenditure. Political donations and non trade contributions are not.

A tractor used in farming is written off over a short accelerated period, much faster than ordinary business plant.

A specific capital write-off applies · Farmer

Machinery, implements, utensils and articles brought into use by a farmer for farming purposes get an accelerated write off. If you buy on instalment sale, you claim the allowance on the cost of the tractor and the finance charges separately as interest, not the monthly instalment. When you trade it in or sell it, a recoupment of the allowances claimed comes back into income.

Vet fees and medicines for production animals are fully deductible farming expenses.

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Vaccinations, dosing, antibiotics, calving and lambing assistance, and the vet's call out fee all qualify. Medicines on hand at year end are stock in principle, though small quantities are usually not material. Costs for pets, riding horses and household animals are private.

Furrows, canals and the works that carry water to the lands are named in the First Schedule development list and are claimable against farming income.

A specific capital write-off applies · Farmer

This includes the works that lead water from the source to where it is used in the farming operation. As with all First Schedule development expenditure, the deduction in any one year is limited by reference to your farming taxable income, and the balance carries forward indefinitely against future farming income.

A weir built to hold or divert water for farming falls in the same First Schedule capital development basket as a dam.

A specific capital write-off applies · Farmer

Weirs sit alongside dams and water furrows in the First Schedule development list. Practically, the water use licence and environmental authorisation costs that go with a weir are a separate question and are more likely an ordinary deduction or capital, depending on what they secure.