The best approach.

Curious Geroge

Currently looking at a new tractor for the farm but having trouble. There are quiet a few working farmers about my area with new JD, NH etc and even the odd one that seem to have em without a farm (or doing any farming or HP or site works). Having a very similar herd size, I cant see how's these new tractors are affordable and hoped someone might be able to point out what I'm missing here as I can bearly justify 10/15K at a stretch !! Whats the story ? Is there VAT or TAX back available on these ?

JohnBoy

well you can depreciate them over a number of years and write that off as a cost, which you offset against your tax.

basically a lot of lads would rather be giving the money to the machinery dealer than the taxman.

fastrac

Lovely in good times but now they are stuck with the payments for a machine that probably wont pay its way.

Rujib1

Curious Geroge wrote: »

Currently looking at a new tractor for the farm but having trouble. There are quiet a few working farmers about my area with new JD, NH etc and even the odd one that seem to have em without a farm (or doing any farming or HP or site works). Having a very similar herd size, I cant see how's these new tractors are affordable and hoped someone might be able to point out what I'm missing here as I can bearly justify 10/15K at a stretch !! Whats the story ? Is there VAT or TAX back available on these ?

What amount of work do you need to do with the proposed new tractor and what type of work?
Never mind the neighbours!
If you don't need it for several hours a day, every day of the week, plus a lot more at peak times like silage, hay, slurry, fertilizer, etc, etc, then €10k / €15 is plenty to spend on a tractor. I know plenty new tractors, that profit the banks and the dealer but not the farmer.
R

pakalasa

I'm almost sure you can claim depreciation of 20% for 5 years for a new tractor. Say the tractor cost €30k, thats €6K claimed as an expense each year.
If you are earning a lot of money,.....don't laugh. This could be a big farm or somone with an off-farm job. If they have at least €6K above the threshold for 41% then they are effectively saving 6,000 x 41% = €2,460 each year, or €12,300 over the 5 years.
They have effectively bought the tractor for €18,700....makes sense if you are using it day in - day out.

irish_bob

JohnBoy wrote: »

well you can depreciate them over a number of years and write that off as a cost, which you offset against your tax.

basically a lot of lads would rather be giving the money to the machinery dealer than the taxman.

farmers over estimate how much they save on tax when buying new tractors , the interest on the loan is available to write off and you have the depreciation but you dont write off as much as you would think

Rujib1

irish_bob wrote: »

farmers over estimate how much they save on tax when buying new tractors , the interest on the loan is available to write off and you have the depreciation but you dont write off as much as you would think

Absolutely correct. When all available capital allowances and other allowable expenses outside the new John Deere are factored in, you need a hell of a farm profit to still have anywhere near enough left to be absorbed by 20% of say €60k at the top rate of 41%

R

pakalasa

.....that's why I drive a 32 year old tractor.
It qualifies as a vintage tractor now, so even lower road tax.:D

I do 90% of the maintenance myself....ticking over like a mouse's heart she is !

reilig

Well I bought a new tractor in February of this year. Both myself and the Mrs have off farm jobs and it was our accountant that advised us to buy some type of machine this time last year when we questioned him on how to keep our tax down.

Apart from saving us some money on tax, the tractor has been the best investment that I ever made. I put 450 hours on it since February. It has been used for agitating, spreading slurry. Mowing, wrapping and hedgecutting and has saved me more money than the cost of the repayment on it this year.

As I outlined before, I had a lot of reasons for buying a new tractor over a second hand tractor. I'm still glad that I bought it, even though things have slowed down quite a bit. It would be my intention to trade the tractor after 5 years with under 3000 hours on it. I will be able to buy a brand new tractor again by putting only a couple of thousand to it. In short, Farmers tractors that are minded and have under 3000 hours do not lose value (even in this recession). New tractors increase in price - so when I go to trade my tractor, I will only have to pay the increased price for a new tractor. By this time I will have my tractor paid for and will only have to borrow a small amount to have a new tractor for myself.

I'll wait for a few people to come on here and tell me that i am wrong by the above statement, but I have seen it proven by a number of different people who are regular customers of NH and MF garages in close proximity to me.
I know that sterling has made imports much cheaper in recent times, but sterling won't always be cheap, by the time I trade again, there will be a shortage of good second hand tractors.

The fact that I have a reliable tractor is also very important to me.I can go out in the morning and it will start on the first turn. I hadn't to think twice when my inlaws were at silage 70 miles away. Just over 2 hours brought me over there and I travelled in comfort.

The Op talks about people in his area regularly having new tractors. The hardest part of having a new tractor is buying and paying for the first one. After that its not too difficult to keep a good tractor under you - if you're not doing too many hours.

maidhc

We bought a NH TS115 new in 2000. We still have it. It cost about 40IEP in the day, it now has clocked only 3,500 hours and still looks and drives like new. It has also been religiously serviced by myself, and accordingly should be seeing about 8,000 hours before it should start costing money.

We bought it because we wanted one "good" tractor and it is hard to get a tidy second hand one. It won't be traded in for a long long time to come.

reilig

maidhc wrote: »

We bought a NH TS115 new in 2000. We still have it. It cost about 40IEP in the day, it now has clocked only 3,500 hours and still looks and drives like new. It has also been religiously serviced by myself, and accordingly should be seeing about 8,000 hours before it should start costing money.

We bought it because we wanted one "good" tractor and it is hard to get a tidy second hand one. It won't be traded in for a long long time to come.

My point exactly - but if you did decide to trade it right now, you wouldn't have to give a hell of a lot of money to buy another new 115 New Holland.

maidhc

reilig wrote: »

My point exactly - but if you did decide to trade it right now, you wouldn't have to give a hell of a lot of money to buy another new 115 New Holland.

I'd suspect between 20-30k.

For what?

This tractor is paid back for years, is not giving trouble and is perfect. Considering a tractor has an infinite lifespan once maintained and cared for I wouldn't dream of changing it.

Rujib1

maidhc wrote: »

I'd suspect between 20-30k.

For what?

This tractor is paid back for years, is not giving trouble and is perfect. Considering a tractor has an infinite lifespan once maintained and cared for I wouldn't dream of changing it.

Spot on I would say.

Reilig, from your earlier post, you believe you will be able to trade your new tractor after 5 years with 3,000 hours for only a few thousand euros

You will be lucky!! I'd imagine MINIMUM 60% loss of value over that time fram and hours. Maybe more!

R

snowman707

reilig wrote: »

My point exactly - but if you did decide to trade it right now, you wouldn't have to give a hell of a lot of money to buy another new 115 New Holland.

his 115 is worth about €7k less than it would been worth in similar condition last year, have new tractors come back that much? it is a buyer's market at present for any body that has cash in hand, the last thing a dealer wants to see just now is a trade in. I spoke to one dealer who had 7 sales pending loan approval. He finished up getting one tractor sold out of the 7.

I know of a 07 195HP case (2000 hours) for sale at 40% of it's origianl cost, no takers after 10 weeks, 2 years ago the tillage men would be beating down the door, spoke to 1 yesterday that took €85 per ton for barley

there is no good news on any front & will not be for some years to come

OP you are 100% correct that your max spending on a tractor should be 15k.

reilig

Rujib1 wrote: »

Spot on I would say.

Reilig, from your earlier post, you believe you will be able to trade your new tractor after 5 years with 3,000 hours for only a few thousand euros

You will be lucky!! I'd imagine MINIMUM 60% loss of value over that time fram and hours. Maybe more!

R

I have a neighbour who bought a TS90 in 2002 for €30k. He traded it it with 2800 hours on it this year for a T5050 and had to give €12k for the trade. I gave €41800 on a straight deal for my T5050.

He had no loss, I don't know where you got your 60% loss from. If you go for bigger tractors you will lose, but as I said earlier, smaller farmers tractors around the 100hp will not lose.

vanderbadger

reilig wrote: »

I have a neighbour who bought a TS90 in 2002 for €30k. He traded it it with 2800 hours on it this year for a T5050 and had to give €12k for the trade. I gave €41800 on a straight deal for my T5050.

He had no loss, I don't know where you got your 60% loss from. If you go for bigger tractors you will lose, but as I said earlier, smaller farmers tractors around the 100hp will not lose.

ya my local dealer told me this year a good few lads traded in their 5455's (100hp) after a few years for newer versions for handy money, that size tractor is v popular with lads working and farming I think

maidhc

reilig wrote: »

I have a neighbour who bought a TS90 in 2002 for €30k. He traded it it with 2800 hours on it this year for a T5050 and had to give €12k for the trade. I gave €41800 on a straight deal for my T5050.

He had no loss, I don't know where you got your 60% loss from. If you go for bigger tractors you will lose, but as I said earlier, smaller farmers tractors around the 100hp will not lose.

But why change tractor every few years? I say this as someone who makes a 1968 Ford 4000 work for a living. They live forever...!

Rujib1

reilig wrote: »

I have a neighbour who bought a TS90 in 2002 for €30k. He traded it it with 2800 hours on it this year for a T5050 and had to give €12k for the trade. I gave €41800 on a straight deal for my T5050.

He had no loss, I don't know where you got your 60% loss from. If you go for bigger tractors you will lose, but as I said earlier, smaller farmers tractors around the 100hp will not lose.

Ok Reilig, you really educate me on the cost of replacing a tractor after say 5 to 7 years. I am surprised for sure.
Now however I bring you back to your accountant who told you buying a new tractor was a good way to lower tax. It is, if you have the taxable income to play off against the depreciation charge.
Look at the example above. Your neighbour has written off €30k over 5 years against tax. He has kept the tractor for another 2 years with no write off against tax.
Now he trades in and only has to pay €12k. In tax terms he has sold his old tractor back to the dealer for over €20k. In other words he has a capital gain of over €20k as the tractor is worth zero on his books. This €20k plus is now taxable :eek::eek::eek:
Brings me back to the point I made about people constantly overstating the value of tax benefit in buying new machinery or tractors.

It's something to consider.

reilig

Rujib1 wrote: »

Now however I bring you back to your accountant who told you buying a new tractor was a good way to lower tax. It is, if you have the taxable income to play off against the depreciation charge.


.

If you look at my original post, I think I said that my accountant suggested I buy a new machine. He didn't specify a tractor, and as I detailed, both myself and the Mrs have off farm jobs which is why we wanted to lower the tax that we pay on the farm income.

Bitten & Hisses

Rujib1 wrote: »

Now he trades in and only has to pay €12k. In tax terms he has sold his old tractor back to the dealer for over €20k. In other words he has a capital gain of over €20k as the tractor is worth zero on his books. This €20k plus is now taxable :eek::eek::eek:
Brings me back to the point I made about people constantly overstating the value of tax benefit in buying new machinery or tractors.

It's something to consider.

This is nonsense. If he is in fact "selling" his tractor for €20K, it is offset against the full price of the new one.
His outlay of €12K for the new tractor will be offset against his tax as normal. I have never heard of the scenario you describe above applying to such a transaction.
Yes, Reilig is bang on about how little it costs to upgrade these tractors and it is especially true of makes such as New Holland and MF. This is why I went for a 6-cylinder Renault second hand and like Maidhc's tractor, I can see no logical reason to sell or trade it for as long as it's reliable.

Rujib1

Bitten & Hisses wrote: »

This is nonsense. If he is in fact "selling" his tractor for €20K, it is offset against the full price of the new one.
His outlay of €12K for the new tractor will be offset against his tax as normal. I have never heard of the scenario you describe above applying to such a transaction.
Yes, Reilig is bang on about how little it costs to upgrade these tractors and it is especially true of makes such as New Holland and MF. This is why I went for a 6-cylinder Renault second hand and like Maidhc's tractor, I can see no logical reason to sell or trade it for as long as it's reliable.

No! You are absolutely incorrect. For tax purposes you HAVE to write back the trade in value of your old tractor. No ifs or buts about this! If it has previously full written off on your accounts against tax, then you have book profit for tax purposes to the value of the trade in allowance.
Then you start again with full depreciation charge on the full price of the new tractor you have just bought. End of story!!

By the way, I am not for a second saying Reiligs business logic is wrong in buying new. Based on his cost for changing and the fact that he has the income to put against it, fair play.

I am really pointing out the ACTUAL tax treatment of buying a new tractor or machine and writing off against tax. Double check with any accountant!

R

maidhc

Rujib1 wrote: »

No! You are absolutely incorrect. For tax purposes you HAVE to write back the trade in value of your old tractor. No ifs or buts about this! If it has previously full written off on your accounts against tax, then you have book profit for tax purposes to the value of the trade in allowance.
Then you start again with full depreciation charge on the full price of the new tractor you have just bought. End of story!!

By the way, I am not for a second saying Reiligs business logic is wrong in buying new. Based on his cost for changing and the fact that he has the income to put against it, fair play.

I am really pointing out the ACTUAL tax treatment of buying a new tractor or machine and writing off against tax. Double check with any accountant!

R

That is my understanding of things. The total is always deductible and must be written off over what... 7 years now. If the tax-written-down-value of the machine you sell is nill, then what you sell it for is taxable.

So in my situation it might make tax sense to buy a new JCB to replace the Ford 550 digger, but not necessarily to upgrade the tractor. But as other people have said tax is a symptom of making money, and that is a bit of an issue at the present for most people.

D.Watson

As long as you're trading in you're still winning as regards tax.

The problem comes the day you decide to get out altogether, then the tax starts to rub his hands.

On changing like for like it always seems to work out at about €6 an hour incl interest.

Though usually comes in round about €8/hr when you get tempted into a few more HP, suspension, wider tyres, etc.

Rujib1

maidhc wrote: »

That is my understanding of things. The total is always deductible and must be written off over what... 7 years now. If the tax-written-down-value of the machine you sell is nill, then what you sell it for is taxable.

So in my situation it might make tax sense to buy a new JCB to replace the Ford 550 digger, but not necessarily to upgrade the tractor. But as other people have said tax is a symptom of making money, and that is a bit of an issue at the present for most people.

Yes, you understand the real net value of writing off equipment purchases for tax purposes.
A lot of machinery purchases are done solely for tax reduction purposes. But the buyers (often part time farmers) completely overstate the absolute true net long term value of the tax reduction. Sadly, very very often led by less than competent accountants:( Fact! Simple sad fact!!!!!

Rujib1

Rujib1 wrote: »

Yes, you understand the real net value of writing off equipment purchases for tax purposes.
A lot of machinery purchases are done solely for tax reduction purposes. But the buyers (often part time farmers) completely overstate the absolute true net long term value of the tax reduction. Sadly, very very often led by less than competent accountants:( Fact! Simple sad fact!!!!!

Just came across this today. Really drives home the fact that the real market depreciation on a new tractor is quite small, as indeed several posters have sais from experience.
However, it also drives home the danger of overestimating the tax advantages.
http://farmingforum.co.uk/forums/showthread.php?t=23895

R1