Updating Plant and Equipment

Clients who have a regular plant replacement programme and meet real depreciation from cash flow, have a profitable and successful business model. On the other hand, farmers who replace machinery irregularly, have the same or greater costs; they are just mostly invisible.

Retaining key equipment beyond its ideal replacement date, not only potentially costs more money, as operating costs such as repairs increase at a similar rate to the apparent reduction in ownership (replacement) costs, but this strategy often puts the business at risk, due to lack of timeliness of key operations due to breakdowns.

Current very low interest rates for equipment finance, combined with the Instant Asset Write-Off scheme introduced in the recent Federal Budget, provide the ideal opportunity for those clients trading profitability, who have perhaps fallen off the key machinery replacement treadmill, to play catch-up and get back on the treadmill.

This strategy of replacing key equipment regularly, provides the business with the best and most reliable equipment for the task at hand, enabling the operation to be carried out in a timely and efficient manner. 

The key points from the budget pertinent to most primary producer clients are as follows:

• Eligible new and second hand farm assets installed and ready for use before 30 June 2022 to an unlimited purchase value, are subject to instant asset write-off.

• Eligible farm assets include sheds and certain buildings.

• The closing balance of the simplified depreciation pool at 30 June 2021 and 2022, will be subject to immediate write-off.

The downside of the above measures is that nil depreciation will be able to be claimed in the 2023 tax year, unless purchases are made in that year.