ACC 202
TALKING
FARMING
Definition of Farmer
A Farmer is a person who derives income from:
– Pastoral (i.e. livestock farmer)
– Agricultural (i.e. crop farmer) or
– Other farming activities including renting
out a farm which is used for any of the
above purposes.
Farm Improvement means
a) any permanent building the erection of which
st
was commenced on or after the 1 April
1988, used for the purposes of a school,
hospital, nursing home or clinic, in
connection with taxpayer’s farming
operations and
b) any building, structure or work of a
permanent nature, including any water
furrow, which is used in the carrying on of
farming operations, but does not include: -
Farm Improvement does not include
i) any building, structure or work of a
permanent nature referred to in paragraph 2
of the 7th Schedule
ii) Tobacco ban
iii) any dwelling used by the taxpayer as
the homestead of himself and his
family; or
iv) any dwelling or ‘Staff housing’
purchased or constructed after the year
of assessment beginning on the 1st
April 1979
Note – From the above definition you will note
that ‘Permanent farm roads’ would qualify as
Farm Improvement.
However the cost of ‘Temporary farm roads’
would not; instead the cost would qualify for a
deduction under the general deduction formula
(Section 15(2)(a).
Tobacco Barn – Any building which is
constructed for the purposes of curing tobacco
Other Important Terms
From the 2nd Schedule
a) Class of livestock
b) Cost and maintenance value
c) Date of valuation
d) Farm Trading Stock
e) Fixed Standard Value
f) Ordinary livestock
g) Purchase Price Value
h) Stud livestock
Other Important Terms
From the 7th Schedule:
a) Drought Stricken Area
b) Epidemic Area
c) Fencing
d) Grazer
e) Livestock
f) Water Conservation Work
Valuation Methods To Use
Method Of Valuation
Type of Livestock Cost & Fixed Std Purchase
Maintenance Value Price
Value Value
Ordinary Livestock X X
Stud livestock X X
Relevant Court Cases
• Bell W P- Farmer - 91
• Hyde - Not Farming Operations - 93
• Farmer - Sale of Farm Trading Stock - 90
• Wynne - Not Farming Expenditure - 92
W P BELL Vs Commissioner Of Taxes
Facts:
The appellant obtained very meager income
from the small holding he resided. He
owned a few sheep and planted 5 acres of
fodder. While the sheep multiplied in
number only a few sheep skins were sold.
He also established an orchard.
W P BELL Case Cont…
The Commissioner refused to allow the assessed
loss realised arguing that the taxpayer was not a
farmer.
Held:
Despite the meager income the appellant was a
farmer and the loss realised should be considered
as expenditure incurred for the purposes of the
trade of farming.
HYDE Vs COT 43 SATC 22
Facts:
The appellant was employed as an engineer. He bought a 100 acre
plot with a homestead with the intention to have his 12 dogs to
have ‘a bit of room to run around’. Later he acquired a few
livestock and obtained sporadic income from the sale of surplus
butter and eggs to friends and associates.
For two tax years he realised losses which he claimed as a
deduction for tax purposes and the Commissioner denied him of
the claim. The Special court ruled in favour of the Commissioner
and the taxpayer appealed to the Supreme Court.
HYDE Case Cont…
Held:
▪Farmer did not include a person who sought for a more
enjoyable way of life or the attainment of a measure of
self-sufficiency.
▪Further farming activities referred to something more
than just keeping a few livestock and cultivating a small
patch of vegetables.
▪He had not discharged the onus of proving that he
carried on the trade of a farmer.
FARMER Vs COT 13 SATC 158
Facts:
The appellant had two farms. On one he carried on the business
of ranching and on the other dairy farming. While he retained the
farms he sold the dairy herd, dairy plant & equipment as well as
shares in a cooperative society for an inclusive sum.
The portion attributable to dairy herd in the taxpayer’s accounts
was accepted by the Commissioner who went further and taxed it.
The appellant contented that the dairy herd was acquired as a
capital asset.
Held:
The definition of farm trading stock in the 2nd Schedule included
all the livestock acquired or bred by a farmer for his farming
business. The dairy herd now constituted the taxpayer’s floating
capital.
Farming Income
• Livestock sales
• Crop sales
• Rents from letting out a farm
• Sale of timber and growing crops
• Recoupment of Capital allowances
• Valuation of Trading stock
Farming Expenditure
• Opening stock
• Stock acquired for no consideration at all
• Assessed loss
• Stumping and clearing of land
• Works for the prevention of soil erosion
• Sinking of boreholes and wells
• Aerial and geophysical surveys
• Fencing
Farming Expenditure
• any water conservation work and any amounts
paid by him towards the cost of any water
conservation work done by any other person
for which such farmer has become liable in
terms of the Natural Resources Act
• Capital allowances
• Restocking allowance
• Purchases of Trading stock
• Cost of fertiliser and pesticides less value of
stocks on hand
• The mere movement of livestock
from one class to another gives rise
to a taxable profit even without
livestock sales.
• This is because animals in a higher
class naturally attract higher values.
Livestock Reconciliation
Bulls Oxen Cows Heifers Tollies Calves Totals
Opening stock
Purchases
Births
Promotions in
Sub-Total [A]
Sales
Deaths
Promotions out
Sub-Total [B]
Closing stock [A-B]
Unit Price/Value ($)
Closing stock ($)
Livestock Reconciliation As At 31/12/2010
Bulls Oxen Cows Tollies Heifers Calves Totals
Opening stock - - - - - - 0
Purchases 3 110 110 60 50 70 403
Births 60 60
Promotions in 30 10 30 30 100
Sub-Total [A] 3 140 120 90 80 130 563
Sales 50 30 80
Deaths 2 2 4
Promotions out 30 10 60 100
Sub-Total [B] 0 50 2 62 10 60 184
Closing stock [A-B] 3 90 118 28 70 70 379
Unit Price/Value ($) 150 75 80 65 70 45
Closing stock ($) 450 6,750 9,440 1,820 4,900 3,150 26,510
Livestock Trading Account Y/E 31 Dec 2010
No: Amt No: Amt
($millions) ($millions)
Purchases: 80 Sales 160,000
3 Bulls 4,605 4 Deaths 0
110 Cows 11,000 379 Closing Stock 26,510
110 Oxen 6,600
50 Heifers 6,000
60 Tollies 5,400
70 Calves 2,100
60 Births -
Direct Expenses 3,500
Livestock Profit 147,305
463 186,510 463 186,510
Calculation of Tax
Tax 147,305 @ 25% 36,826.25
Add: 3% Aids levy 1,104.79
Tax Payable 37,931.04
Income From Enforced Sales
• This income may be spread in equal instalments over three
tax years
• The farm has to be declared a drought stricken area or
epidemic area
• The declaration is in the form of a Statutory instrument
which appears in the Government Gazette
• The Statutory Instrument will specify the name of the
farmer, name of farm and the period in which the farm is
declared a drought stricken or epidemic area
• If a farmer returns ‘grazers’ to the owner (CSC in most
cases) the provisions of this paragraph shall apply
Income From Enforced Sales
Enforced sales xxx
Less:
a) Number of animals sold x FSV xxx
b) Direct cattle expenses x number
of animals sold / Average stock xxx xxx
Taxable income from enforced sales xxx
Class Exercise - Solution
If in Mr X‟s herd, in addition to the 19 Oxen sold and 1
death, 4 Heifers had become Cows, 6 Tollies had
become Oxen and of the 14 Calves, half had become
Heifers and half Tollies, the result would be as follows (in
number of herd):-
If we assume that the 19 Oxen sold as per above QN, were
sold due to drought the position will be as follows:
Class Exercise – Solution
Sales 475,000
Initial cost [19 x 19,000] 361,000
Direct Expenses:
155,000 x 19 96,557 457,557
[0 + 61] 1/2
Taxable Income 17,443
Total taxable Income – See T/Account 298,500
Less: 2/3 of 17,443 11,629
Adjusted Taxable Income 286,871
Calculation of tax:
Total Taxable Income 286,871
Less: 1/3 of 17,443 5,814
Taxable Income from Normal Operations 281,057
Tax on 281,057 @ 25% 70,264.25
Add:
3% Aids levy [70,264.25 x 3%] 2,107.93
Tax on Drought sales [5,814 x 25%] 1,453.50
Tax Payable 73,825.68
Class Exercise – Solution
(No spreading)
Sales 475,000
Initial cost [19 x 19,000] 361,000
Direct Expenses:
155,000 x 19 96,557 457,557
[0 + 61]1/2
Taxable Income 17,443
Total taxable Income – See T/Account 298,500
Calculation of tax:
Total Taxable Income 298,500
Less: Enforced Sales 17,443
Taxable Income from Normal Operations 281,057
Tax on 281,057 @ 25% 70,264.25
Add:
3% Aids levy [70,264.25 x 3%] 2,107.93
Tax on Drought sales [17,443 x 25%] 4,360.75
Tax Payable 76,732.93
Income From Enforced Sales
If the farmer’s ‘total taxable income’ is less
than ‘taxable income from enforced sales’
then the farmer shall spread the ‘total
taxable income’
A situation of this nature reveals that from
normal operations the farmer would have
realised an assessed loss
Restocking Allowance
• The allowance shall be 50% of the cost of
animals purchased for restocking purposes
• To qualify for this allowance the farm should
have been declared a drought stricken area or
an epidemic area
• The allowance is granted only on animals
restocked to Assessed Carrying Capacity of
the Land (ACCL)
Restocking Allowance
• The allowance is ONLY restricted where:
Livestock on hand + Purchases > ACCL
Restocking Allowance
• If the number of animals on hand after
restocking exceeds the ACCL the Restocking
allowance shall be calculated as follows:
A x B
2 C
A. The purchase price
B. ACCL – Livestock on hand before restocking
C. Number of animals costing $A
THANK YOU
By K Chihava MSU
