Comments on: Trouble on farm

By: Clunking Fist

Clunking Fist — Mon, 23 May 2011 08:05:28 +0000

Phil @ 43: taxes (and ACC) are paid on salaries.
Do you mean “drawings”, that come from capital previously put into the farm by the farmer, or from tax-paid profits from earlier years?

And large corporates don’t have the salaries of owners amongst the expenses: owners of large corporates earn dividends, which are not tax-deductable expenses to a corporation.

By: Ethan Tucker

Ethan Tucker — Thu, 19 May 2011 08:18:57 +0000

Soviet Union: Fact, Cuba: Fact, North Korea: Fact

Try saying it in a David Brent voice next time for extra lolz.

By: Phil

Phil — Thu, 19 May 2011 01:46:05 +0000

MAF have some data on the average dairy farm. In 2008/09 they found the average farm had $750,000 income, $529,000 expenses, $235,000 interest and depreciation resulting in a loss of $6,300. Their average tax bill was $18,600 so profit after tax was -$25k.

Maybe CK has spent too long working with large corporates. She’s forgetting that within the ‘expenses’ column will be the salary the farmer draws from the farm.

IRD will see that as wages and salaries, so I can kind of understand the complexities in their inability to easily aggregate the data meaningfully.

The Banks lending money for the land/development will be looking at a more holistic picture – in the sense that they don’t so much care where the mortgage repayments come from, as long as they meet the repayment schedule.

By: Che Tibby

Che Tibby — Thu, 19 May 2011 00:52:47 +0000

“Do you mean those same banks that the IRD had to take to court to get them to pay their tax properly? ”

yup.. nothing to see hear, move right along, Aussie banks are 100% kosher, yup. Totally above board.

By: nommopilot

nommopilot — Thu, 19 May 2011 00:48:24 +0000

“We should look at whether the banks are paying any tax on their earnings”

Do you mean those same banks that the IRD had to take to court to get them to pay their tax properly? surely they’ve learnt their lesson…

By: Kahikatea

Kahikatea — Thu, 19 May 2011 00:01:45 +0000

This farming for capital gains thing has BUBBLE written all over it (in big rounded outline-letters of the sort it’s considered cute to write BUBBLE in).

But is it just a matter of them actually making their profit through capital gain? If you buy an expensive farm with a huge mortgage, put most of your earnings into paying off the farm, then sell the farm and bank the money, are you effectively converting your earnings from farming into a tax-free capital gain? Or is there some way that this still gets taxed?

By: Kahikatea

Kahikatea — Wed, 18 May 2011 23:57:33 +0000

I think we’re missing the point by only looking at the tax paid by the farmers. There are massive profits being made in dairy farming, particularly by the banks who these farmers are mortgaged to. We should look at whether the banks are paying any tax on their earnings (it’s always good to have an opportunity to put the blame on Australians)

By: David in Chch

David in Chch — Wed, 18 May 2011 23:10:46 +0000

I am reminded of a story/joke a few years back:

A farmer wins the Lotto, and is asked what he will do now. He replies that he will simply keep farming until all the Lotto winnings are gone.

By: TerryB

TerryB — Wed, 18 May 2011 22:57:13 +0000

In view of my previous comments this does not sound good for farmers or the rest of us.

THE ratings agency Moody’s last night made good on its warning over downgrading the much-cherished credit ratings of Australia four main banks, cutting the sector by a notch as it raised concerns over their reliance on wholesale funding.

http://www.smh.com.au/business/big-fours-rating-clipped-20110518-1et6y.html

By: Conrad

Conrad — Wed, 18 May 2011 22:08:07 +0000

I agree that the real story here is the vast piles of debts that farmers are servicing. At an interest rate of 5% (probably less than most are paying) thats $140,000 a year in interest on the average. The root problem is the inflated prices paid for land over the past decade or so, which seem to based around an assumption that land will continue to increase in value, irregardless of the productive capacity of that land. Or as Cactus Kate and others have called it farming for capital gains. Once the party stops and land values stop increasing (or even worse decline to a level more consistent with the income potential of the land) then there really will be trouble on the farm. Personally I think it will be worse than the removal of SMPs back in the early eighties.