Deductibility of Farmhouse Expenses
The Inland Revenue Department has recently issued an Interpretation Statement which updates the long-standing policy that allows full time farmers to claim a full deduction for rates and interest and all farmers to claim 25% of the expenses relating to the farmhouse (Insurance, electricity, repairs and maintenance etc). I.R.D. are trying to ensure that farmers only deduct farmhouse expenses that are business related, and that deductions are not claimed for expenses that are private in nature.
We now have a:
Type 1 farm (this is a farming business where the value of the farmhouse including curtilage and improvements is 20% or less of the total value of the farm); and a
Type 2 farm (this is a farming business where the value of the farmhouse including curtilage and improvements is more than 20% of the total value of the farm)
And each have different rules as detailed below.
Mobile phone charges will continue to be deductible in their own right for tax purposes if used for business.
Sharemilkers and contract milkers can also use the above approach and claim a 20% deduction for farmhouse expenditure without calculating the actual business use of the farmhouse if they are carrying on a sharemilking or contract milking business as a sole trader or a partnership independent of the farm owners business; the business is of sufficient scale to require its own home office and centre of operation; and the sharemilker or contract milker’s farmhouse is used in a similar manner to and to a similar extent as other farmhouses on Type 1 farms.
Note: this interpretation relates to farming or agricultural businesses as well as horticultural businesses.