Sharemilking – Some Essential Accounting Tips
As our region’s leading rural business accounting firm, we work frequently with sharemilkers as well as farm owners. Ensuring you are managing your income and expenses properly is just as important as a self-employed person so here are some essential tips to keep you on the path to success.
Your Tax Obligations
Effectively working in this manner means you are self-employed. You will receive a portion of the milk income and be able to claim expenses against this income. Your tax on this income will be the nett result from your income less your expenses.
As a self-employed sharemilker you can claim any expenses which directly relate to your sharemilking income.
This can include electricity, shed expenses (liners, gloves etc), animal health, breeding costs, insurance, loan interest and any other contributions you have agreed in your contract with the farm owner.
What About GST?
GST registration depends on the amount of income you earn in a twelve-month period. If your income exceeds $60,000 then, yes, you will need to be GST registered. If you do become GST registered then you will pay GST on the income you earn and you claim GST on the expenses you pay that are related to your sharemilking activities.
You can register for GST on a monthly, two-monthly or six-monthly basis. From our experience, we have found two-monthly to be the best option as it is easier on cashflow and less frequent than monthly.
Calculating your GST and submitting returns are as easy as the press of a button when you use accounting software that does it all for you! We recommend using Xero and can help you with setting this up plus give you training on how to use it.
Filing Tax Returns
As a self-employed person, you will need to file tax returns with the Inland Revenue, and pay tax based on your profit (income less expenses). This is something we will advise you on in plenty of time to make the payment plus we can recommend a tax savings plan to ensure you put this aside every month or payment period so you have this saved in time for the income tax payments.
Sharemilker Business Structures
The structure question is best discussed with us, but to give you a general overview your options:
- Sole Trader – No extra set-up required but Subject to higher tax rates when your income gets higher
- Partnership – Income is shared between the partners which also lowers your individual taxes. However, a disadvantage is when disagreements happen or the partnership dissolves which is costly to wind up.
- Company – The main advantage of this structure is the set tax rate of 28% regardless of your income. However, you do need to maintain Company Office records and file annual returns (we can help you with this) plus it is costly to wind up.
If you would like to know more about the best structure and systems for managing your income, expenses and tax obligations as a sharemilker, please contact a Rural Accountants client manager.