A couple of accounting tips

 

By Trudi BairdIf you are a self-employed farmer and not covered by ACC CoverPlus Extra you might want to consider it. This is the message from farm accountant leader David Russell, of New Plymouth, who has been making this recommendation to his own clients and to farm accountants throughout the country.

But whether farmers are changing from ACC CoverPlus to CoverPlus Extra is another question.

John Henderson of FMS chartered accountants, in Invercargill, said his firm is recommending the change to self-employed farmers but because farmers would generally deal directly with ACC when making change, he is unsure how many farmer clients were actually taking the step.

Mr Henderson also said that often clients are not aware of the existence of CoverPlus Extra.

What’s it all about?

Following on from the ACC upheaval of a year or so ago, self-employed farmers who have done nothing about their ACC will automatically be covered by ACC CoverPlus which Mr Russell describes as “virtually the same as the old ACC system.”

Problems with CoverPlus have been identified as:� First-year self-employed farmers do not have any cover during their first year of self-employment.

� Premiums are based on your self-employed leviable earnings (which in farming can fluctuate greatly from year to year).

� Compensation is payable at 80% of your previous year’s leviable earnings.

� You have to prove “loss of earnings” which Mr Russell points out is not always easy as many farmers do not suffer a loss of earnings following an accident. “The family or neighbours march in and help; development and repairs and maint-enance spending ceases; in any case the dairy payout or wool prices, beef and lamb prices could rise… although (the accountant) sometimes engineers a loss by a year end spend up on farm supplies.”

On the other hand,

ACC CoverPlus Extra:

� Has you nominate the level of cover you would like (between $12,026 to $69,748).

� Does not ask you to prove loss of earnings in the result of an accident.

� Covers you in the first year of self-employment.

� Is suitable if your income last year was particularly low.

� Is suitable if your income for the year was exceptionally high but not reflective of the actual cover you require (remembering a higher income means a higher levy bill under the CoverPlus scheme).

IEDs as a tax planning toolOlder farmers will be familiar with Income Equalisation Deposits (IEDs) which became a popular tax planning tool when tax rates were much higher.

Currently IEDs are starting to see a resurgence as increased farming incomes has refocused attention on them as a tax planning option.

David Russell discusses some of the finer practical points of using IEDs wisely in his latest newsletter to farm accountants, but basically, an IED can be a useful means of buffering a high tax bill by transferring one year’s profit to another year. In other words, it can be an effective means of reducing one’s income.

Particularly useful in situations where profits derived from the business of farming is large one year but not expected to be the next. Or, where higher profit levels are only expected to be sustained for a small number of years.

Local accountants spoken to about IEDs all agreed interest in them is on the increase in recent times but this type of tax planning tool will only be suited to a small number of farmers.

Peter Brookland, of Forrest Burns & Ashby in Invercargill, said that firstly the farmer has to have the cash available for an IED and that means it cannot be “earmarked” for use on anything else in the interim. A small number of farmers with his firm use the method regularly, he said.

John Henderson, of FMS accountants in Invercargill, spoke of increased interest but said at this stage there is not a “great deal of rush” into it, although it will be looked more closely into over the next month or two.

A spokesperson from a farm accountancy firm in Gore also spoke of renewed interests in IEDs but also said many farmers prefer to pay tax now and “bite the bullet” as they are going forward with bigger profits intended for next year.

 

Category: Focus