Costs of Living on the Farm

IS 17/02 has been released by IRD on the ‘Deductibility of Farmhouse Expenses’.

IRD begins its new Interpretation Statement by reminding us all that deductions for farmhouse expenses are available only to the extent that they are incurred in carrying on the farming business. 

The Commissioner has always allowed full-time farmers to claim full deductions for rates and interest on farm mortgages, and has allowed all farmers to claim 25% deductions on expenses relating to the farmhouse. IRD considers that the deductions allowed in those items are no longer appropriate and the general rules of deductibility and apportionment, will now apply.

However, in situations where the compliance costs of calculating the private use element far outweighs any likely deduction, the Interpretation Statement allows some sole traders and partners of partnerships to claim an automatic 20% deduction (a more realistic amount according to IRD) for farmhouse expenses and 100% deductions for rates and interest. These deductions are allowed when the value of the farmhouse is 20% or less than the total value of the farm. 

This Interpretation Statement will apply from the commencement of the 2018 income year. So, for those of you with a standard March balance date, that’s 1 April 2017.