Personal Income Tax

Can deductions be had on your hobby farm?

While you urbanites are busy chasing the idyllic dream of a smallholding you might be subject to some name-calling – hobby farmer, part time cocky, tree changer – that doesn’t mean that you aren’t entitled to some of the same tax deductions available to bone fide primary producers.

With the proliferation of such “hobby farms”, as well as jokes about their skill at growing fruit and raising rabbits, this became a vehicle to offset what, in essence,

were lifestyle choices based on tax deductions against other earned income. As such, the taxman has started a crackdown on those who are using these tax breaks as lifestyle dividends rather than to maintain an actual livelihood.

While such farms can range in size from a single cow and a few chooks to fairly substantial holdings that are genuinely capable of providing a living for the farmer, that doesn’t mean just anyone with a pair of gumboots can start to take advantage of these by offsetting them against other income.

There are some exceptions though that would make the taxman accept it as a genuine business. This includes the following criteria:

  • Does the activity have a genuine commercial purpose or character?
  • Does the taxpayer seriously intend to engage in business?
  • Is there the intent or genuine belief on behalf of the taxpayer that a profit will be turned?
  • Is the activity the taxpayer engages in regular and repeated (that is, does the taxpayer spend a significant amount of time working on the farm)?
  • Is the activity organised in a business-like manner?
  • Is the activity carried out in a similar way to an ordinary trade?

While a significant profit doesn’t necessarily have to be turned, it could be shown, for example, that the farmer has sought advice or consultation on the quality of soil, or that significant investment has been made in materials, which would satisfy some of these points. It is on the point regarding profit however, that the taxman is most interested in.

The non-commercial losses rule is the point of most interest here though. This is what allows the opportunity to claim losses on the farm against other income. Apart from the taxpayer needing a total, taxable income of less than $250,000, one of four other conditions must be met.

  1. Produce an income from the farm of at least $20,000 during the year
  2. Have made a profit in three of the past five years
  3. Have land and buildings valued at $500,000 or more
  4. Use other assets, such as tractors and machinery, valued at over $100,000

However if your hobby farm still does not meet at least one of these criteria, then there is still the chance that the taxman can use discretion to allow this on a case-by-case basis. If you feel that, you have a strong argument as to why you should be able to do this it is still worth calling to argue your case.


Latest Blog

« »

Welcome to my blog

Welcome to my blog



Recently somebody asked me how many qualifications and post nominals I had. I replied that I don’t know – I’ve lost trac...


Ben, Have you invented any new words lately?

A correspondent has asked if I have invented any new words. Indeed I have. Procreastation: The tendency to put off doing...


Ben, what is the greatest waste of taxpayers money?

Thank you for asking this important question. The greatest waste of taxpayers money in history is without doubt the new...


Ben, What is the Mac tax? Is it federal or state?

Thank you for that interesting question. The Mac tax is a tax that is imposed neither by the federal nor the state gover...