Spreading your farm’s income to offset Cyclone Costs
28 April 2023
Most of the rural sector is still in the process of the recovery from Cyclone Gabrielle. Many will still be repairing fence lines, water supply and track repairs to get access around the farm.
These repairs will take time to happen as there only so many contractors around, some of which are in the process of completing repairs for themselves. But with any repairs the costs mount up and often run over what you had planned to spend.
With this in mind, if you haven’t filed your 2022 tax return yet with the IRD, they have extended the filing date out to the 31 May 2023 and have allowed for impacted customers remission of use of money interest (UOMI) and penalties on late payments of tax until 30 June 2023. This also includes any GST payments.
If you have filed your 2022 tax return with the IRD you can get this reopened with the IRD and make an Income Equalisation deposit. You will need to advise the IRD by way of a discretion to amend the 2022 tax return.
Depending on your balance date and the timing of your repairs, these costs may be falling into your 2023 or 2024 tax years. By making an Income Equalisation Deposit you can offset some of the income from 2022 against either 2023 or 2024, therefore helping to reduce your tax cost.
You can deposit for the 2022 year and get it refunded in the 2024 year. A refund from the scheme is income in the income year in which the Commissioner receives the application, except where the taxpayer chooses the income to be allocated to an accounting year.
To be allocated as income in an accounting year, the application must be received by the Commissioner:
Within the accounting year; or
Within the specified period after the end of an accounting year; or
Within a time after the end of the specified period for an accounting year that the Commissioner allows in a case or class of cases (a “late application”)
Therefore, request refund prior to balance date to be income in the 2023 tax year, or request refund after balance date to be income in the 2024 tax year.
With making any Income Equalisation Deposit with the IRD, the amount of the deposit must be lodged with the IRD when making the application. If the funds are not available as they are currently being used to pay repair bills, we suggest you hold off filing the return until funds are available to make the deposit. Alternatively, you could approach your bank for a temporary advance to cover the period between making the deposit and getting the refund back. Currently these turn around times are about 10 days with the IRD.
Contact a Findex advisor around specific options that you may be able to take advantage of.