Accommodation on working farms, or farm stays, are becoming increasingly popular for people looking to experience the great outdoors and get some fresh air. A farm stay could be a relaxing and peaceful retreat, or an interactive adventure involving feeding animals and collecting eggs.

Farm stays can be a good way to improve cash flow via additional income and further tax deductions such as depreciation.

What farm stay accommodation looks like

Farm stay accommodation varies and can include converted barns, cabins, cottages or farmhouses with guest rooms.

Many farm stays are family-friendly option, giving families the opportunity to escape the city and get amongst a more rural lifestyle. Children often have the opportunity to interact with the farm animals and get involved with kid-friendly farming activities.

Is it a profitable investment?

Farm stays typically charge similar rates to bed and breakfast accommodation. One way a farm stay accommodation owner can improve cash flow is by claiming the maximum tax deductions available.

It’s slightly more complicated as they usually must separate the accommodation from the primary production business. Depending on how things are set up, tax deductions may need to be applied to the individual business incomes.

For example, if there are two different business entities then repair, maintenance and insurance costs associated with the farm stay accommodation can only be applied again that business’s income stream. The costs for the actual farm operation like animal care products, repairs and maintenance must be placed against that income stream.

However, if it all falls under the same business entity then all tax deductions must be deducted from the singular income stream. This includes non-cash tax deductions, such as depreciation.

Depreciation deductions from farm stay accommodation

Depreciation is the natural wear and tear of property and assets over time. Businesses and property investors can claim depreciation on all eligible income-producing assets including physical properties, tools, furniture and vehicles.

When it comes to farm stays, the owner can claim depreciation on both the farm stay accommodation portion and the operating farm. It’s crucial that a specialist quantity surveyor is involved when preparing a tax depreciation schedule as different depreciation legislation applies to different commercial industries.

For example, fencing for the farm operations (e.g. fencing a paddock perimeter for cattle) falls under the primary production taxation rules and the farmer can access an immediate deduction for the fencing.

However, fencing at the farm stay (e.g. safety fencing around the accommodation’s swimming pool) won’t be eligible for the primary production depreciation concessions.

So, how much depreciation can be expected from a farm stay? The table below demonstrates the type of deductions a farm stay accommodation operator could expect from a property with multiple guest rooms.

These deductions are based solely on the accommodation facilities, not wider farming operations.

193_bmt_ar_0921_-_hotel_conversation_article_table.jpg

In the first five years alone, the farm stay produces a total cumulative depreciation deduction of almost $130,000. With depreciation deductions available for many years, the cumulative total is likely to reach hundreds of thousands of dollars more.

Farm stay accommodation operators, or those looking to start a new business venture, can gain a depreciation estimate of any type of property from BMT Tax Depreciation. The team holds extensive experience across the accommodation industry and ensures all operators achieve the highest deductions possible.

To learn more about how BMT ensures every depreciation deduction is claimed, call the team on 1300 728 726 or Request a Quote.

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.

More from BMT:

Depreciation boost returns for luxury hotel operators - BMT

Hoteliers can claim more this tax time - BMT

The humble bed and breakfast produces thousands in a single deduction - BMT