Dairy Women's Network - Navigating Dairy's New Landscape: 7 Steps to Surviving the Payout Challenge
This is a recorded webinar/blog supplied by DWN and CMK Chartered Accounts (18 August 2023)
Supplied by Dairy Women's Neywork
The dairy industry has been under immense pressure over the last 18 months and has faced challenges on many fronts including compliance and increased costs such as feed, fertilizer and fuel. The announcement of a drop in this season’s forecast payout could be the biggest challenge that farmers face over the next period of time.
Average farming costs have risen to an average of $5.25 for a farm owner and bank margins have risen and therefore the cost to borrow money. The average farmer has $28 of debt per KgMs and pays $2.38 in interest per KgMs. If lower payout levels stick around then we must take action now to make our businesses are resilient and fit for the future.
#1 - Know Your Numbers
#2 - Know your Statement of Position
#3 - Are you getting bang for your buck?
#4 - Budget Budget Budget
#5 - Talk to your Bank
#6 - Monitor the plan
#7 - Review your taxes
As a farmer you are in the enviable position that there are a number of tax planning opportunities that are available to you and as such you should be using them.
The most obvious tax planning opportunity is the Income Equalisation Scheme and below is an example of how it works:
You are trading through a company and have a surplus of $400,000. Tax payable on this would be $112,000.
If you do nothing over the next twelve months your tax will be as follows:
- Terminal Tax $112,000
- UOMI $7195
- Provisional Tax $117,600
- Total $236,795
If you make a $260,000 income equalisation deposit your tax liability will be as follows:
- Terminal Tax $28,040
- Provisional Tax $29,442
- Total $57,482
This is a total tax saving of $170,313 over the twelve-month period. You will also save on interest as the tax payments haven’t been paid and you will be receiving interest on the funds invested at Inland Revenue. In reality for some New Zealand dairy farmers there may be no tax payable at all during this time. Tax Management (both in timing and the dollars involved) is vitally important and if your Accountants are not reviewing your taxes then please do not hesitate to give us a call.
Are you prepared to navigate the challenges ahead and ensure the financial resilience of your farm business?
Our team at CMK Accountants are here to guide you every step of the way. From understanding your farm’s financial health to optimising tax strategies, we’re dedicated to helping you weather the ups and downs of the dairy industry and build a secure future.
Contact us today for a free review of your business and take the first step towards a stronger, more resilient farming business.