Changes hit owners

Jeremy Tauri.

We recently moved closer to the city, from a lifestyle block about 25 minutes south of Whangarei.

My wife and I - and more recently our son - had lived there for about five years and we enjoyed the tranquillity. But it takes a lot of work, money and time to maintain this type of property. So I was pleased to make the shift into town.

We never worked our lifestyle block as a business but I could see the costs mounting and the amount of money spent on the gear required just to keep on top of the basics was substantial.

I can understand, then, why some people want to formally set up their blocks as a business so that they can try to claim some of these expenses.

Over the years, I've seen a drop in the number of lifestyle blocks operating as farm businesses.

Depreciation on garages and sheds formed a large part of the loss creation in these businesses, which people would offset against incomes.

But now more changes are coming, thanks to Inland Revenue proposals.

Historically, fulltime farmers have commonly deducted 25 per cent of their farmhouse expenses from their incomes without needing to provide evidence that they were incurred in the course of business.

They have also been able to deduct 100 per cent of rates bills and interest costs on loans. But IRD is worried that this is giving farmers the chance to claim tax deductions for what is really just private spending.

It is suggesting that farms, where the cost of the farmhouse is less than 20 per cent of the total value of the farm, will still be able to claim a 100 per cent deduction on interest costs.

However, deductions on rates related to the house and general farmhouse expenses would be at a new flat rate of 15 per cent.

The IRD says that's most likely to affect smaller operations and lifestyle blocks.
IRD is consulting on these proposals until late December.

- Jeremy Tauri is an associate at Plus Chartered Accountants