Tax Averaging for Primary Producers

Tax averaging for primary producers is a system the Australian Taxation Office (ATO) uses to help farmers and others in the agricultural sector manage their tax liabilities if their income fluctuates significantly from year to year.

Here’s a breakdown of how it works:

Due to the unpredictable nature of farming — influenced by factors like weather, market prices, and crop yields, primary producers’ income can vary widely from one year to the next. One year they might have a great harvest, and the next year could be poor.

The ATO averages their income over a period of up to five years. This figure is then used to determine the tax payable, helping to reduce the impact on the primary producer’s tax bill by avoiding paying tax at the top tax brackets in their good years and wasting low tax brackets in the bad years. Let’s say a farmer has the following taxable incomes:

The purpose is to smooth out the tax impact of years with high income where the producer may end up in a higher tax bracket and aims to make the tax liability comparable to someone with a steady income from year to year.

To use this tax averaging, you must run a primary production business and meet the minimum income threshold. Primary producers generally include those involved in agricultural activities such as farming, fishing, forestry, horticulture, and other crop-related activities.

For more information, or assistance on this topic, please don’t hesitate to contact our office.

– Heida Bell

Posted 05.12.2024

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