The First schedule of the Income Tax Act regulates farming taxes. The most important sections are:

Valuation of livestock and produce

Only livestock and produce need to be brought into account at year-end and not consumables like seed, fertiliser, fuel etc. Produce is valued at the lowest of average cost of production or market value. Livestock can be valued at standard values or the farmer may elect his own values which may not differ more than 20% of standard values (once a value has chosen, it must be used consistently).

Purchases of livestock cannot create a loss because of using standard values. This gross loss must be carried forward to the next year. See www.sars.gov.za for the standard values.

Capital development expenditure

The following capital development expenditure may be deducted in full: Eradication of noxious plants, alien invasive plants and prevention of soil erosion.

The following capital development expenditure is restricted to taxable income from farming: dipping tanks, dams, irrigation schemes, boreholes and pumping plants, fences, additions/erection of/extensions and improvements to farm buildings, costs of establishing the area for and the planting of trees, shrubs and perennial plants, building of roads and bridges for farming operations, carrying of electric power from main power lines to farm machinery and equipment.

Special depreciation allowance

Machinery, implements, utensils and articles for farming purposes are written off over three years on a 50:30:20 basis.

Rating Formula

Because a farmer’s income fluctuates from year to year, an individual farmer may elect to be taxed in accordance with a rating formula in terms of special provisions.