The 1st of June heralds the beginning of a new dairy season. This is a moving day for dairy farmers, sharemilkers, contract milkers and employees to new farms. However, the COVID-19 restrictions will certainly have an impact on moving day. For some, this will be the first year of business!
By now you should be registered with the Inland Revenue for GST and as an employer. As an employer it is vital you monitor your employee’s hours during the busy periods, to ensure they are being paid above the minimum wage. If you are unsure about this at all you should contact your accountant.
For new business owners income tax becomes your own responsibility as it is not paid as you earn. In the first year Inland Revenue do not require any payment, however you will still have to pay it once your tax return is filed. If money is not set aside, you can be struck with two years’ worth of tax at once, which is never a nice surprise. It is important that money for income tax is set aside during the year or paid to Inland Revenue as a voluntary payment.
For existing farmers, the 2019/20 season has reasonably been good with the Farmgate milk price range of $7.00-$7.60 per kgMS. This is predicted to take a downward turn for the 2020/21 season due to the COVID-19 impact. With having a good 2020 season could mean more tax for some! Therefore, give some consideration to the Income Equalisation (IE) scheme. This is a scheme that allows farmers to deposit income with the Inland Revenue, which then becomes a taxable deduction in the year for which they are made. This has to be a physical payment of cash. Withdrawals from the scheme are then taxable income in the year they are withdrawn.
The benefit of IE is that it defers income to future tax years, so there is an immediate benefit in not paying tax on that income in the current year.
As always we will be monitoring our client’s budgets and upcoming tax payments to ensure surprises and associated use of money costs are kept to a minimum.