So to start, I’ll give you a bit of context. Tax jurisdiction is Australia. State of NSW. I trade as a sole trader, so the revenue from the business profit is taxed at the personal rate in addition to my other income from my real job. Basically all my income is taxed at the personal rate, regardless of source.
The asset in question is livestock.
I suppose I actually have a few broader questions, but basically it’s this: How do I account for growth in the value of my assets? As cattle mature they go from being calves (0-6 months of age - $400), to heifers (6-16 months of age -800), to cows (After they’ve had their first successful calving - $1200+). And correspondingly, as they put on weight, and become better breeding stock, they also appreciate in value pretty much right up until they become barren, at which point they are sold for meat.
So how do I account for a) these assets making more assets for negligible cost to my business, and b) where does it go on my balance sheet?
Does the annual increase in the asset value effect my revenue for tax purposes? Everything I’ve read from the ATO only really mentions depreciation in asset value.
Also, when I sell the cattle, do I treat them as a capital asset and pay CGT. At the point of asset liquidation they’re 6-10 years of age, and have been on the books for atleast that long +9 months normally.
And if it is CGT, how on earth do I value them? They cost me nothing, literally created out of existing assets. Must I value them at the market rate, or can I value them at whatever the carrying cost for the mother over the period of the pregnancy was? I’m kind of befuddled as to where to start with that.
And if they are taxed as a capital asset, do I also pay GST on that amount of money, or is that not a thing because I’m being taxed at CGT rates already?
I’ve already spoken to my financial adviser, but he is a market type guy, and has no idea what he is talking about when it comes to this (to his credit, he has admitted this, which is why I keep him around - he is however, excellent at managing my stock portfolio), and whole farm advisers run at $400 bucks an hour. So I turn to you for advice interwebs. And honestly, thanks in advance.
I suppose I’ll add some details for the business too. Annual revenue (without asset value growth) is around 220K and grows y/y at around 22%, and that basically covers my operating costs, including grazing, freight, business operating costs and all my licenses etc. My total income tax liability on that amount of money is around 2K annually (not a typo) - I’ve deliberately geared the business this way to grow the herd size as exponentially as possible (About 30% growth y/y), so that at a point where it is large enough to support me and my partner, we’ll convert to a traditional beef production operation, once I’ve found some property that can support the number of stock I have and I have the time to spend atleast some of my time managing staff and maintaining the property (basically become a farmer).
I’ve posted this to r/accounting and r/tax looking for literally any help.
Submitted January 11, 2019 at 10:32AM by likeitsonpurpose http://bit.ly/2sl9URz
