Farmhouse in picturesque setting: can sharemilkers and contract milkers claim 20% deduction on farmhouse expenditure?

Question: Can sharemilkers and contract milkers use the same approach as farmers and claim 20% deduction for farmhouse expenditure?

Answer: Yes - sharemilkers and contract milkers may claim a 20% deduction for farmhouse expenditure (for example, power and insurance bills) without calculating actual business use of the farmhouse, if:

  • They carry on a sharemilking or contract-milking business as sole traders or a partnership independent from the farm owner's business;

  • The business is of sufficient scale to require its own home office and centre of operations in the sharemilker's or contract milker's farmhouse; and

  • The sharemilker or contract milker's farmhouse is used in a similar manner to and to a similar extent as other farmhouses on type 1 farms.

In 2017 Inland Revenue changed the way farmhouse expenses were treated for tax. Prior to these changes taking effect farmers were allowed to claim a flat 25% of expenses such as repairs and maintenance, house power and house insurance relating to the farmhouse when calculating their taxable income.

We published a blog article in May last year outlining how these changes would affect farmers and their expense claims for the 2018 year on, and contacted our farming clients with advice on the new rules.

Want to find out more about these farmhouse expenditure changes?

Read our 5 May 2017 blog post on this topic

Farmhouse expense deductions - an overview

In brief, the changes mean the allowable claim is limited to full time farmers where the value of the farmhouse is 20% or less of the total value of the farm (type 1 farms). This has the effect of removing small block farmers from the automatic allowable deduction. For type 1 farms which qualify for the automatic deduction this is reduced from 25% to 20%.

For those farmers whose house value is more than 20% of the total value of the farm (type 2 farms) the allowable deduction is based on a time and square-footage basis.

Sharemilkers and contract milkers

Inland Revenue confirmed in a "Question we've been asked" from May 2018 that sharemilkers and contract milkers may use the same approach as a type 1 farm to make a 20% deduction claim.

If you would like some help with your farmhouse expense claims or require more information, please contact us - one of our friendly advisers will be happy to assist.