COUNT ON IT: Growing new fruit varieties means a careful look at tax treatment

THERE is a lot of anticipation in the kiwifruit industry with new varieties coming on stream - and many growers will have been involved in tendering for these.
Some growers will have to modify the physical structures of their growing operation to fully maximise the returns they can receive from the new varieties.
A change in orchard structure also presents a large financial commitment, and it is timely to review the tax treatment of your expenditure so you can make informed decisions.
The rules that apply to the Agriculture and Horticulture sectors - and particularly kiwifruit growers - means an initial purchase of the plant variety rights are classed as an intangible depreciable property, and depreciation is able to be claimed and spread over the term of its legal life.
Any subsequent sale will be a capital receipt and the new purchaser will be able to continue the depreciation. Therefore, we recommend that you have clear documentation in place for the transaction, especially if you are the one purchasing the orchard.
There are special rules in the Income Tax Act relating to the tax treatment of listed or non-listed horticultural plants.
Kiwifruit is included in the listed horticultural plants category. So whether you are grafting the new variety or starting from scratch, the cost of the kiwifruit is capitalised, and then you are able to amortise the purchase cost at the specified diminishing value rate.
If the planting is by way of replacement, some of the cost may be available as a full deduction. This will include the cost of the plants and all costs in relation to support structures.
Amortisation works in a similar manner to depreciation but is not time based. Therefore if the vines are purchased and planted in the last two months of the financial year, you are still entitled to amortisation for the full year.
(Under normal depreciation rules if the capital item is purchased in the last two months, then depreciation is apportioned to 2/12ths.)
Also there will be no amortisation recoverable in relation to any subsequent sale regardless of the value attached to the plants at the time of sale.
Any unamortised balance can pass to a new owner who can generally continue the amortisation. Any subsequent replacement plants that are required are generally able to be claimed as repairs and maintenance in the year of purchase.
Another large outlay is any land development, and there is specific legislation in place to deal with farm development expenditure which includes the horticultural sector.
A number of items that would normally be considered capital and therefore depreciable are either 100 per cent deductible in the year they are incurred or fall within a schedule of development expenditure that can be amortised.
Examples of expenditure that can be fully expensed include:
 Constructing fences for farming or agricultural purposes.
 Destruction of weeds or plants detrimental to the land.
 Destruction of animal pests detrimental to the land.
Examples of expenditure that can be amortised include:
 Draining of swamps or low-lying land.
 Sinking of bores or wells for the purposes of supplying water for use on the land.
 Construction of access roads or tracks to, or on, the land.
 Construction on the land of supporting frames for growing crops, and structures for shelter purposes.
Therefore, the costs of framing, whether T bar or pergola, will be capital expenditure and will be subject to the annual deduction percentage over the life of the asset.
The normal repairs and maintenance rules apply to the general ongoing upkeep of the frames.
Disclaimer: No liability is assumed by Staples Rodway Tauranga Ltd for any losses suffered by any person relying directly or indirectly upon the article above. It is recommended that you consult your advisor before acting upon this.
* Shirley Seales is from Chartered Accountants, Staples Rodway Tauranga.