Farming is the only business where a single season can deliver three years of profit and the next one can deliver a loss. The tax system knows this, which is why primary producers get concessions nobody else does. The catch is that most of them only work if you plan before 30 June, keep the right records, and farm through a structure that lets you use them.
This page sets out what we see go wrong on farms, what we do about it, and the tax rules that matter most. The figures are as at 2026–27.
What problems do farming businesses bring to us?
The same handful come up on almost every farm.
- Lumpy income. A record harvest or a big stock sale pushes the family into the top tax bracket, then a dry year wastes the tax-free threshold. Without planning, you pay more tax over ten years than a business with the same total profit spread evenly.
- Books that are a year behind. Many farm files only get looked at when the tax return is due. By then it's too late to make an FMD deposit, buy the fencing you were going to buy anyway, or pick the best livestock values.
- Fuel tax credits left on the table or claimed at the wrong rate. Rates changed several times during 2026, including a temporary excise cut from 1 April to 30 June, and on-road and off-road use attract different rates.
- Succession nobody has talked about. Parents in their 70s, one child on the farm, two in the city, and no plan for how the land, the machinery and the debt get divided fairly.
- Land tax and duty surprises when land is rezoned, leased out, or transferred between family members or entities.
What does a farm accountant actually do for you?
Here is what's included when you work with us.
- Bookkeeping and BAS in Xero, kept current, with fuel tax credits calculated each period at the right rate for the date you bought the fuel.
- Pre-30 June tax planning each year: an estimate of taxable income, then a plan for FMD deposits, timing of sales and purchases, prepayments, and livestock values.
- Tax returns for every entity in the group: individuals, the partnership or trust, any company, and the SMSF if you have one.
- Capital purchase advice: which deduction applies to each new asset (see the table below).
- Seasonal cash flow forecasts that line up harvest, stock sales, input costs and loan repayments, so you talk to the bank with numbers, not hope.
- State taxes: land tax exemption checks and duty on family transfers, with our state taxes agent drafting the analysis for your accountant to confirm.
- Succession and structure advice, coordinated with your solicitor and, where super is involved, a licensed financial adviser.
Our farming tax agent drafts the technical work on FMDs, averaging, livestock and succession. A qualified accountant reviews every figure and signs it off. Nothing goes to you or the ATO without a person approving it.
Which numbers should you watch on a farm?
Profit on the tax return tells you very little about how well the farm is run. These are the measures we report on for farming clients, adjusted to your enterprise.
| KPI | What it tells you | How to calculate it |
|---|---|---|
| Cost of production | Whether you make money at today's price | Total costs ÷ tonnes, kilograms of meat or litres of milk produced |
| Gross margin per hectare or per DSE | Which enterprise earns its keep | (Income − direct costs) ÷ hectares or dry sheep equivalents |
| Operating profit per hectare | Overall efficiency of the land | Profit before interest and tax ÷ effective hectares |
| Return on capital | Whether the land is earning enough for the money tied up | Operating profit ÷ total assets at market value |
| Equity percentage | How exposed you are to a bad run of seasons | (Assets − debt) ÷ assets |
| Debt per hectare and interest cover | Whether the debt is serviceable | Total debt ÷ hectares; operating profit ÷ interest |
| Machinery cost per hectare | Whether you are over-capitalised | Depreciation, repairs, fuel and finance on plant ÷ hectares cropped |
| Labour efficiency | How hard the operation works its people | DSE or hectares ÷ full-time labour units (including family) |
Our Fractional CFO plan includes annual industry benchmarking, which is where these numbers earn their keep.
Which tax concessions are only available to primary producers?
Farm management deposits
An FMD lets an individual primary producer set aside pre-tax income in a good year and bring it back in a bad one. You claim a deduction for the deposit, and the money is taxed when you withdraw it. The key rules, per the ATO:
- Only individuals can hold FMDs. Partners in a farming partnership and beneficiaries of a farming trust can, each in their own name. Companies and trusts can't.
- Your taxable non-primary production income must be no more than $100,000 in the year of the deposit.
- The deduction can't exceed your taxable primary production income for the year, and total FMD holdings can't exceed $800,000.
- Withdraw within 12 months and you generally lose the deduction, unless an exception applies, such as severe rainfall deficiency or natural disaster assistance.
Example (hypothetical): Say a grain grower's share of farm income is $380,000 in a strong year and they expect a weak one next. They deposit $150,000 into an FMD before 30 June, so they're taxed on $230,000 this year. The following year income falls to $40,000; they withdraw the $150,000 and are taxed on $190,000. Over two years the same $420,000 is taxed in two moderate slices instead of one very high slice and one very low one.
Income averaging
Averaging smooths tax over up to five years. If your income this year is above your average, you get an averaging tax offset; if it's below, you may pay a little extra. The ATO calculates it from your return. Non-farm income is phased out of the averaging calculation between $5,000 and $10,000 and left out entirely above that, and opting out lasts 10 income years and can't be undone. We check averaging alongside FMDs, because a deposit reduces this year's income and changes the offset.
Livestock valuation
Livestock is trading stock. Each year you can value each class at cost, market selling value or replacement value, and you can use different methods for different classes. Natural increase can be valued at actual cost or at the prescribed values, which are low ($20 for cattle, $4 for sheep and goats, for example). Choosing the right value in a year of high prices can defer a lot of tax. Choose the wrong one and you just move a problem into next year. There are also special rules that can spread or defer the profit when you are forced to sell stock because of drought, fire or flood.
Capital purchases: which deduction applies?
| Asset | Usual treatment for 2026–27 | Note |
|---|---|---|
| Fencing, water facilities (dams, tanks, bores, pumps, troughs) | Immediate deduction, no dollar cap | Must be used in a primary production business |
| Fodder storage (silos, hay sheds, grain bunkers) | Immediate deduction, no dollar cap | |
| Landcare works (weed and pest control, erosion, salinity) | Immediate deduction | Also available to some non-farm users of rural land |
| Other plant under $20,000 (per asset) | Instant asset write-off | Small business with aggregated turnover under $10 million |
| Plant of $20,000 or more, such as tractors and headers | Small business pool or effective life | |
| Horticultural plants (vines, orchards) | Written off from the first commercial season, at rates set by effective life |
The $20,000 instant asset write-off is now permanent law from 1 July 2026 for businesses with aggregated turnover under $10 million. See our guide to the instant asset write-off.
Fuel tax credits
Fuel used in tractors, headers, pumps, generators and other plant, and in vehicles driven only on the farm, qualifies at the off-road rate. Heavy vehicles over 4.5 tonnes on public roads get a lower rate, because the road user charge is taken off. Fuel used in light vehicles on public roads gets nothing. The rates change through the year, so every litre needs to be matched to the rate for the date you bought it. Our fuel tax credits agent does that from your fuel invoices, and your accountant checks it before the BAS is lodged.
Losses
Farm losses can usually be offset against other income if your income from other sources is under $40,000. Above that, the non-commercial loss rules may defer the loss until the farm makes a profit, unless you pass one of the tests or get a ruling.
What about land tax and stamp duty on farmland?
Every state that charges land tax has a primary production exemption, but the tests differ. In NSW, rural-zoned land qualifies if its dominant use is primary production and you sell what you produce. Land in other zones must also pass a commercial test, which hobby farms fail. The exemption is assessed on how the land is used at 31 December each year.
Victoria's rules depend on whether the land is in greater Melbourne or an urban zone. Leasing the farm to a neighbour, agistment, or a rezoning can change the answer. We check exemption status whenever use changes, not only when the assessment arrives.
On transfers, NSW exempts transfer duty on primary production land moving between family members, including land held through family trusts and companies, if the land is used for primary production before and after the transfer and the ownership conditions are met. Other states have their own concessions. For the detail across states, see our state taxes service.
How should a farm be structured?
There is no single answer, but here are the setups we see most and what each does.
| Structure | Good at | Watch out for |
|---|---|---|
| Family partnership | Simple; each partner can use FMDs and averaging | No asset protection; partners liable for each other |
| Family trust trading the farm | Flexible income splitting; FMDs and averaging still available to individual beneficiaries | Annual distribution resolutions; trust rules; the proposed trust tax below |
| Company | Capped tax rate on retained profit | No FMDs for the company; no CGT discount; Division 7A on money taken out |
| Land in a separate trust or individuals' names, leased to the trading entity | Keeps the land away from trading risk | Duty and CGT if land moves; land tax grouping |
Two law changes matter here. The 50% CGT discount is replaced by cost-base indexation for gains accruing from 1 July 2027, with a new 30% minimum tax on certain gains for individuals. This is law and has no carve-out for farmland. Land held at 30 June 2027 is reset to market value at that date, so a sound valuation then is worth having, especially for land bought before 20 September 1985, which enters the CGT system for growth after that date.
Separately, the Tax Reform No. 3 Bill 2026 proposes a 30% minimum tax on discretionary trust distributions from 1 July 2028. It is not law. The exposure draft excluded taxable primary production income, but not capital gains on farmland, and the final wording could still change. We model it for farming trusts but don't restructure on a Bill. For the full picture, read our guides on the 30 June 2027 tax changes and the discretionary trust tax changes.
How do you plan farm succession without breaking the family?
Most farm successions fail on fairness and cash, not on tax. The farm can't usually be split three ways and stay viable, and the child who stayed on the land often believes their years of low wages earned them a bigger share. The tax and duty rules make some paths cheap and others very expensive.
What we work through with you:
- Who wants what, and when. Retirement income for the parents, the farming child's plans, and what the off-farm children expect.
- What the farm is worth and what it can carry. How much debt it can take on to fund payments to other siblings.
- The tax cost of each path. Small business CGT concessions (including the 15-year exemption and the retirement exemption), rollovers, duty exemptions for family transfers, and the 2027 CGT changes. Many family farms fail the $6 million net asset test but pass the alternative turnover test, so we check both. Our CGT agent drafts the numbers; your accountant checks every one.
- The legal documents. Wills, testamentary trusts, trust deed changes and transfer documents are prepared by your solicitor. We brief them.
Read more on our succession and estate planning service and the small business CGT concessions.
How does working with BPAG work for a farm?
- Free strategy call. We ask what you farm, how you're structured, and what's keeping you up at night. If your current setup is fine, we'll say so.
- Catch-up and clean-up. We get the Xero file current and reconcile fuel, stock and FMD records.
- Seasonal rhythm. BAS and fuel tax credits each period; a pre-harvest cash flow check; a pre-30 June tax plan with deposit and livestock value recommendations.
- Annual review. Tax returns for every entity, KPIs against last year, and a look at structure and succession.
Questions come to you by SMS or email and you can answer from the ute and upload photos of dockets, with no portal password. Your data is stored in Australia. Fixed pricing is on our pricing page; most farming families sit on Business Insights or Fractional CFO because of the forecasting and planning.
An honest note: if you run a small, stable operation with one entity and no succession question yet, Compliance Essentials may be all you need. We'll tell you if that's the case.
What should you send us?
- Last two years' tax returns and financial statements for every entity
- Xero or MYOB access, or bank statements if the books aren't kept
- FMD statements for each family member who holds one
- Livestock schedules: opening numbers, purchases, sales, deaths, rations and natural increase by class
- Fuel invoices and a note of which vehicles and plant are used on and off public roads
- Asset purchases this year, with invoices (especially fencing, water and fodder storage)
- Land tax assessments and any notices about zoning or valuation
- Trust deeds, partnership agreements and company constitutions
- Any drought, flood or fire grant letters
- Wills and powers of attorney, if succession is on the table
If you have land held since before 20 September 1985, tell us early. That land needs a valuation plan for 30 June 2027.
Frequently asked questions
Can a company or trust hold a farm management deposit?
No. Only individuals carrying on a primary production business can hold an FMD, including partners in a farming partnership and beneficiaries of a farming trust. The individual makes the deposit from their share of the primary production income, so the structure you farm through affects who can use FMDs.
Do I count as a primary producer if I run a few cattle on a lifestyle block?
Only if you are carrying on a primary production business. The ATO looks at things like scale, commercial purpose, repetition, a profit motive and how businesslike the operation is. A hobby farm isn't a business, so the concessions, the loss offsets and usually the land tax exemption won't apply.
Are drought, flood or fire grants taxable?
Many disaster recovery grants are assessable income, but some specific grants have been made non-assessable by law. It depends on the grant, so keep the grant letter and tell us about it. Sale of livestock forced by drought or fire also has special rules that can spread or defer the profit.
Should I opt out of income averaging?
Rarely. Opting out lasts 10 income years and can't be reversed, and it only helps if you expect your income to stay well above its recent average. It's worth modelling before a big sale year or a planned exit, but for most farmers averaging gives far more than it costs.
Do I need an accountant who lives in the country?
You need one who understands farming tax and answers the phone. Most of our work happens over email, phone and video, you can send documents as photos from your phone, and our Canberra region office is in Bungendore. What matters is the depth of knowledge and that your books are kept current.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.