CG Update May 2021
Rural Edition May 2021
End of Financial Year: If your Financial Year ends 31 May you will received a green questionnaire from us. Even if you think there is nothing to fill out, please sign the front page and send it in.
Livestock Numbers: Here are a few tips to help you accurately record your livestock numbers.
· It is a lot easier if it's done on or near to balance date.
· Don't include heifers coming into the herd in the cow numbers, these are R2 heifers at 31 May.
· Don't forget to include carry over cows, stock out grazing or leased out that you own.
· Calves born after last year's balance date and before this year's balance date are categorised as Rising 1. So autumn born calves are R1 calves at 31 May. Please show autumn born calf numbers separately on the questionnaire.
Dairy Farmers Cashflow: With two consecutive years of a $7 plus payout and an $8 forecast payout announced recently, our dairy farming clients need to be turning their minds to what they are going to do or should be doing with their cash.
1) Farming efficiently and not wasting cash on things just because it's there and you can.
2) Paying off debt vs pursuing other priorities on farm or off farm.
3) Having a tax plan.
Farmer Outlook
· Fonterra payout for a May balance date will be about $7.40. This is up on the previous year's $7.10. In addition, production has generally been the same or higher than last year. This will likely result in larger profits and higher taxes.
· Early indications are for another good payout for 2022 which was reflected in Fonterra's Forecast Milk Price of $8. Recently, farmers could lock in a fixed milk price of $7.60 (net) so there is a real expectation for another prosperous year.
· Historically, high milk payouts have resulted in low or no Fonterra dividends. It will be interesting to see whether Fonterra can improve their business profit while paying more for the raw product.
· It's difficult to see a demand for Fonterra shares if there's only a requirement for 1 share per 4 KgMS. Hopefully they can make a buck and pay a decent dividend, otherwise the share price will remain low.
· Interest rates have remained low. Over the past few years, those who have kept terms short have benefited. If you don't need to fix rates to secure your costs, then it's still likely to be beneficial to stay close to floating.
Fonterra Capital Structure Consultation: Fonterra suppliers will have received information about the review of the capital structure of the company, together with information about the directors preferred option. It is important that you read and understand this information as this may have a major impact on your farming business moving forward. We would encourage you to form your own opinions on the proposals and have your say during the consultation process either at the local meetings or through your Area Manager. You are likely to be voting on this at the AGM in November.
It will be interesting to watch the banks' position and in particular the value they use for your Fonterra Shares on your Balance Sheet for your security calculation. It may well be nil if there is no market?!
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Budgets: Now is a great time to put together a budget for the 2022 season. Bankers might not help with your budget so please let us know if you would like us to assist you with this, we have all your financial information and history. Once the budget is sorted, we can prepare reports that compare actual vs. budget figures on a monthly and year to date basis when preparing your GST returns. This helps you keep track how you are performing compared to budget, or even just compared to last year.
Dairybase: If you want to compare your farm's performance against the DairyNZ benchmark figures please let us know and we can load your financial information for you or send your accounts directly to DairyBase who load your data for a $100 fee. |
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| Provisional tax – 28 June instalment: Provisional tax payers are about to receive your last instalment notice for your 2021 provisional tax commitment. Using IRD's standard calculation method, this tax payment is based upon your 2020 tax return plus an uplift of 5%. With high payouts and low interest rates, an unprofitable farm is harder to find than toilet paper in a pandemic. With these healthy profits come large tax bills. Your 28 June tax payment may need to be higher than the standard uplift to prevent the IRD charging 7% interest on shortfalls.
Tax Deferral options: Rather than using the overdraft to pay your tax there is an option to defer the tax payment using Tax Pooling. We use Tax Management New Zealand (TMNZ) and can defer the tax payment for an interest cost in the low 2% range. A common scenario is clients deferring their 28 June tax payment until November when cashflow is picking up. Talk to us if this is of interest to you.
Tax Text Reminders: We now email tax payment letters. We can also send out text reminders a few days before your tax is due. Speak to us if you wish to make use of this text option. |
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Computer Software: During Fieldays you will see and hear a lot about cloud computer packages such as Xero, MYOB and Cash Manager Rural. If you are going down that track:
1) Please talk to us first so that we can make sure you are getting the right package for you.
2) Make sure we help you set it up properly from the outset
3) Invest in some training so that you are getting it right and utilising all the features.
Land Purchase Price Allocation: If you are selling or buying property or a business it is important that asset values are included in the agreement. If they aren't, there is the potential for an unfavourable tax outcome.
Talk to us before signing a Sale & Purchase agreement.
| Wages & Payroll: If you're having headaches with paying your wages and filing your PAYE, we have a dedicated team working specifically on employment and payment of staff. We can also handle your IRD filing requirements. If you are wanting help with employment agreements, wages calculations for new or existing employees, or final pay calculations, please contact us. We also have access to a specialist Human Resources consultant that we refer clients to for tricky employment issues. If you have a problem in this area, please call and we can assist with a referral.
Minimum Wage is now $20 per hour . You may need to check what hours your staff are working to ensure they're at least being paid the minimum hourly rate, particularly over the calving period. It's better for you to pay your staff fortnightly rather than weekly so the payroll covers the typical roster and includes days off.
Rosters: If you are having trouble finding staff, perhaps a change in the roster is required so that workers are getting more time off. It will cost you more, but it might help attract better staff.
Accommodation: A house with the job is a point of difference that farm employers should be using to attract workers. Farmers who provide accommodation to staff as part of their package should use market value rents as the taxable value of the house to be included in the wage calculation. A higher house value also helps you meet minimum wage requirements.
Wages to children: Wages to children are taxed at source like other wages. Paying your kids for getting the cows in or pulling weeds is still very tax efficient as they'll mostly fall within the 10.5% tax threshold. To ensure that a tax deduction is permitted: - The wages should be actually paid, we recommend an automatic payment into the child's bank account. - You need to register as an employer - The wages must be for genuine work done, and must be at a market rate. - The child must complete an IR330 and have PAYE deducted. - All employees, including your own children, require an employment contract.
Child Support letters for staff: Letters regarding Child Support deductions for your staff only go to you as the employer, we don't get a copy. If we process your wages, please pass these letters on to us so we can update the employee's wages. |
