Tax planning for primary producers: Strategies to maximise returns this financial year

This article is for primary producers who want practical, real-world tax planning guidance ahead of year-end. It outlines trusted strategies and current ATO considerations to help farmers maximise returns while planning for future seasons.

Strategies to maximise returns this financial year

For primary producers, tax planning is rarely just about the numbers on a page. It is shaped by seasonality, weather events, fluctuating commodity prices and decisions that often span multiple financial years. The challenge is turning a strong year into long-term stability without creating unnecessary tax pressure along the way.

“Good tax planning should support the business, not just manage the tax bill. Our focus is always on helping our clients make decisions that still work when conditions change,” says Kimberley Lisle, Business Advisory Partner at our New England Northwest, Tamworth and Walcha offices.

Effective tax planning for primary producers is about using the rules correctly, at the right time, and in a way that supports the future of the farm or agribusiness. With the end of the financial year approaching, now is the time to review income, expenses and available strategies to ensure opportunities are not missed.

Farm Management Deposits and smoothing income

Farm Management Deposits remain one of the most effective primary producer tax strategies available. By placing eligible income into an FMD during a strong year, producers can defer tax and create a genuine buffer for leaner seasons.

To be effective, FMDs need to be planned carefully. The timing of deposits and withdrawals, interaction with business cash flow and the impact of any off farm income all matter. Withdrawals made during difficult seasons can provide working capital while smoothing taxable income over time.

For many producers, this strategy provides peace of mind as well as tax efficiency, particularly where income volatility is high.

Timing income and deductions carefully

The timing of income and deductions can significantly influence year-end tax outcomes, especially where large transactions are involved.

Deferring the sale of livestock or grain until after 30 June, where commercially viable, may push income into the following financial year. On the other side, bringing forward necessary expenses such as repairs, feed, fertiliser or professional services can help reduce taxable income in the current year.

Prepaying expenses can also be effective, but only where it aligns with actual operational needs.

“Tax decisions should never force a cash flow problem. If the farm cannot comfortably support the decision, it is usually the wrong strategy,” Kimberley explains.

Drought deferral

Where drought conditions materially alter normal production cycles, tax law recognises that resulting income may not reflect a taxpayer’s underlying earning capacity. In particular, where primary producers are forced to dispose of livestock due to drought, specific concessional provisions allow for the deferral or spreading of the profit arising from those disposals.

This remains particularly relevant as many Australian producers continue to face prolonged dry conditions, with early livestock sales and reduced carrying capacity distorting typical income patterns and compressing earnings into a single income year.

Subject to eligibility criteria, producers may elect to either return the profit over a five-year period or defer recognition by offsetting it against the cost of replacement livestock acquired within a prescribed timeframe. These provisions effectively modify the timing of assessable income, ensuring that atypical, drought-driven gains are not fully taxed in a single income year.

From a planning perspective, drought deferral is a timing mechanism rather than a permanent exclusion of income. Deferred amounts will crystallise in future periods, requiring careful forecasting of taxable income, particularly where multiple deferral strategies are in play. When used in conjunction with broader primary production concessions, such as Farm Management Deposits and income averaging, it can form part of a coordinated approach to managing volatility in both cash flow and effective tax rates across production cycles.

Asset write-offs and depreciation strategies

Equipment investment remains essential for productivity, safety and efficiency across farming operations. Reviewing depreciable assets before year-end is critical.

Even where immediate write-offs are not available, reviewing asset pools, effective lives and ownership structures can ensure deductions are maximised correctly. Ownership matters, particularly where assets are held personally, through trusts or within companies, as this affects both depreciation and future capital gains outcomes.

Structuring and long-term planning

Many primary producers continue operating under structures established years ago. As businesses grow or move toward succession, those structures may no longer be the most effective.

Reviewing business structures with tax planning lens can improve efficiency, asset protection and flexibility, particularly when planning for the next generation. Early advice generally provides more options and avoids unnecessary tax consequences.

“Producers who plan early tend to have more control over outcomes. That applies whether the goal is growth, succession or simply reducing risk,” says Kimberley.

Key ATO guidance in 2026 relevant to tax planning for primary producers

The Australian Taxation Office continues to acknowledge that farming income rarely follows a steady pattern. As a result, specific tax concessions exist to recognise income volatility, long production cycles and seasonal cash flow pressures.

In 2026, several areas of ATO guidance are particularly relevant when reviewing year-end strategies.

1. The ATO continues to emphasise that primary producers experience substantial year to year income variation and should use concessions such as income averaging, Farm Management Deposits and PAYG instalment flexibility as intended. These measures are designed to smooth taxable income over time, rather than penalising producers during isolated strong years.
2. Farm Management Deposits remain central to this approach, but eligibility rules are closely monitored. Only individuals can access FMDs, with non primary production income capped at $100,000 in the year of deposit and total balances limited to $800,000 per person. Off farm income can unintentionally impact eligibility if not considered early.
3. For investment decisions, the ATO continues to allow immediate deductions for capital expenditure unique to farming operations, including fencing, water facilities and fodder storage. Correctly timing this expenditure can meaningfully shift taxable income while also strengthening on farm resilience.
4. Another important change now flowing through into 2026 is the removal of deductibility for interest on ATO tax debts incurred on or after 1 July 2025. This has increased the real cost of carrying unpaid tax liabilities, particularly for businesses managing seasonal cash pressure.
5. The ATO also continues to allow eligible primary producers to pay PAYG instalments twice yearly instead of quarterly, and to vary instalments where income does not reflect standard business patterns. Reviewing PAYG positions alongside broader tax planning remains a practical step for many farm businesses.

Frequently asked questions