BIM73101 - Farmers' averaging: overview

Farming and market gardening results are very much influenced by the weather. It affects yields and the prices of farm produce and also the cost of inputs such as feed. Profits may fluctuate substantially from year to year with the result that a farmer might pay higher rate tax one year and no tax at all the next.

The averaging legislation, now ICTA88/S96 was introduced in 1977 to give farmers and market gardeners a measure of relief from the adverse effects of fluctuating profits. The basic concept is that, where the profits of two consecutive years differ by more than a certain proportion, the farmer or market gardener can claim to add together the respective profits for two consecutive years and be taxable on half the total for each of the two years.. There is also a marginal relief which can be claimed when the difference between the profits of two years is not quite enough to qualify for full averaging.

For years falling within the SA regime a claim does not actually result in a change to the amount of tax due in respect of the earlier year but rather an adjustment is made to the later year based on the circumstances pertaining to the earlier year, see BIM73145.