Bakers prefer butter, helping prices soar
Consumers around the world are willing to pay more for products containing dairy and this is driving demand for butter and cream, says Fonterra.
The financial year-end is near for farmers, but there is still time for them to manage profit levels in a way that could help avoid potential high interest penalties on tax payments, says Neil McAra, managing principal - Southland, for Crowe Horwath.
"Dairy farmers in particular should be providing for increased tax liabilities," said McAra. "In certain circumstances, if you haven't paid enough tax during the year, the IRD can charge for use of money interest at a current rate of 8.4%. Decisions on whether you incur expenditure before or after year-end can be significant."
McAra notes that farmers considering expenditure on items such as repairs to drains, tracks or additional fertiliser, should consider bringing these forward to enable a deduction in the current year.
Repairs and maintenance are 100% deductible and capital items depreciable over the life of the asset, he said. And there are strict requirements around what constituted repairs and maintenance, as well as specific regimes that provided concessions for farmers that differ from the usual capital/revenue distinctions.
"It pays to understand how these distinctions work and who they apply to, particularly where different entities own the land and carry on the farming activity," he says.
McAra says that having a budget at the start of the year and updating a forecast during the year was essential in order to have a clear understanding of the ability to manage tax payments.
"At this stage in the year, farmers should have a reasonable estimate of where their year will close out, and be making the necessary tax payments based upon that," he says.
"If you are trading through a company, trust or an individual with high income levels, it is likely that you will be exposed to potential use-of-money interest penalties. You need to talk to your accountant now about ensuring you have met these obligations or have put processes in place to understand your requirements."
Budgets are not only important for managing tax payments, but to understand cash flow needs, he says, especially for dairy farmers with strengthening cash flow over the next six months.
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