7 - Taxation of Farmers

Learning objectives
Provisions of Income Tax peculiar to

farmers, namely:
• Capital allowances; and
• Special reliefs for farmers
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Farming
• Why do farmers have special provisions that

apply only to them?
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Farming
FARMER
▪ Any person who derives income from pastoral,
agricultural or other farming activities
including income from the letting of a farm
used for such purposes . Sect 2
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Farming – Staff housing – 4TH Schedule par 1
➢Buildings used mainly for the purposes of a

trade wholly or mainly for the housing of his
employees
➢It does not include any building comprising a
residential unit which exceeds US$25,000;
➢Staff housing does not include a beer hall
forming part of a farm compound. (ITC 1511
(1992) 54 SATC 39)

Farming – Farm Improvements – 4th schedule
par 1
➢Building, structure or work of a permanent nature (including
a water furrow) used in farming operations; includes sheds,
canals, permanent roads , bridges, cattle dips (not beer
halls)
➢It includes any building used for the purposes of a school;
hospital or clinic , in connection with the taxpayer’s farming
operations; Limitation of cost US$10,000. 50% rule.
➢It excludes any dwelling used by the taxpayer as a
homestead for himself and his family;
➢Also excludes farm assets covered by other specific
provisions e.g. staff housing, tobacco barns, 2nd Schedule
assets.

Tobacco Barn – 4th schedule par 1
• means any building used for the curing of tobacco;

7th schedule definitions
• drought-stricken area
• epidemic area
• expenditure
• Fencing
• water conservation work

Farming – 7th Schedule deductions
A farmer shall be entitled to deduct expenditure incurred on :

1) Water conservation works. Expenditure is deductible
in the year incurred notwithstanding that work might
be in progress.
2) The sinking of boreholes and wells;
3) Fencing: Expenditure must not only be incurred by the
taxpayer but the fencing must be used in farming
operations.
4) Stumping and clearing of land;
5) Works for the prevention of soil erosion
6) Aerial and geophysical surveys.

Livestock valuation
• For ordinary livestock, the farmer may elect –

in his first return – between fixed standard
value (FSV), and cost maintenance value
(CMV); and
• For stud livestock, the farmer may elect to use
purchase price value (PPV) or FSV.

Live stock Valuation
Livestock acquired without payment.
Valuation of livestock acquired by inheritance or

donations:
i. If heir or donee merely sells the livestock without

conducting farming operations , the proceeds are of a
capital nature;
ii. If livestock farming is commenced or livestock
introduced into existing farming operations a
deduction is allowed.

Live stock Valuation
Livestock acquired without payment.
Valuation of livestock acquired by inheritance or

donations:
i. to an heir, the fair market value, for which the

valuation in the estate concerned would be used;
ii. to a donee, an amount not exceeding what would
have been deductible in the donor’s hands had he
sold the livestock: this is normally the FSV of livestock

Question
Varimi Farmers (Pvt) Ltd acquired a farm in Manicaland in March 2013 under the Government
sponsored A2 resettlememt scheme and immediately commenced crop farming operations.
The company paid an amount of $90,000 allocated to the farm improvements on the farm as
follows:
$
Land nil
Staff housing (5 units) 20,000
Tobacco barns 15,000
Dam 18,000
Irrigation equipment 12,000
Farm tractors 25,000
The following expenditure was incurred during the course of the year:
Stumping and clearing of land 4,000

Sinking of boreholes and wells 6,000
New fencing 5,000
Farming equipment 14,000

The income statement for the year ended 31st December 2013 reflected a net profit
of $30,000.
The income statement had been debited with the following

expenses :
Depreciation 8,500
Crop chemicals 7,800
Farm expenses 14,000
Penalty for late payment of PAYE 2,000
REQUIRED
Calculate the minimum taxable income or maximun tax loss for the year ended 31st
December 2013.

SUGGESTED SOLUTION
VARIMI (Pvt) Ltd
Computation of taxable Income
Year ended 31st December 2013

Profit per accounts 30,000
Add:
Depreciation 8,500
PAYE penalty 2,000
10,500
40,500
Less:
Capital allowances :
Staff housing Wear and tear 5% of $20,000 1,000
Tobacco barn : Wear and tear 5% of $15,000 750
Dam -
Irrigation equipment : SIA 25% of $12,000 3,000
Farm tractors : SIA 25% of $25,000 6,250
Farm equpment : SIA 25% of $14,000 3,500
7th Schedule
Stumping and clearing of land 4,000
Sinking of boreholes and wells 6,000
New fencing 5,000
(29,500)
Taxable income for the year 11,000

Taxable Income from Drought sales – 7th
schedule par 5
Proceeds from drought sales XX
Less :
(a) number sold * fixed standard value XX
(b) total no. sold * livestock expenses
Average stock# XX
Taxable income from drought sales XX
Relief (carried forward) [2/3 x taxable income] XX
#Average stock = (opening stock + closing stock) / 2

Farming – Taxable Income from Drought sales -
Example
Example 1
A farmer sold in a drought proclaimed period 25 oxen which realised
$9,000.His FSV for oxen is $300.The direct herd expenses were $1,500.
Opening stock 160 head and closing stock 140 head.
Solution
Drought sales 9,000
Less: 25 oxen at $300 (7,500 )
Expenses 1,500 x 25
0.5(160 +140) (250)
Taxable income from drought sales 1,250
Taxable in current year 1/3 417

Farming – Taxable Income from Drought sales –
Example 2
Example 2
A farmer sold in a drought proclaimed period all his 25 dairy cows which
Realised $20 ,000.The FSV for dairy cows is $600.The direct dairy expenses
were $1,500 while other livestock expenses were $4,000.
Opening stock 160 head and closing stock 140 head.
Solution
Drought sales 20,000
Less: FSV 25 cows at $600 (15,000)
Dairy expenses (1,500)
Expenses 4,000 x 25
0.5(160 +140) (667)
Taxable income from drought sales 2,833
Not taxable in current year 2/3 1,889

Farming – Restocking Allowance – 7th schedule
par 6
➢Provided on the cost of restocking a herd which
has been depleted by forced sales;
➢The cost of purchases is allowable
➢A further deduction of 50% of the purchase price
granted as a restocking allowance.
➢Restocking allowance subject to a restriction
based on the assessed carrying capacity of the
land (ACCL).

2.6 Farming – Restocking Allowance (example)
Example
In September 2010 a farmer purchased 70 heifers for $30,000 thereby
restocking his herd which had been depleted by drought.
The ACCL has been determined as 300.
The farmer’s livestock trading account for the year ended 31st December
2010:
Herd Herd
350 Opening Stock 70 000 100 Sales ( April ) 65 000

70 Purchase (September) 30 000 320 Closing stock 64 000
Expenses 4 000
Profit 25 000
129 000 129 000

2.6 Farming – Restocking Allowance (example
Example
Restocking allowance
ACCL 300
On hand prior to purchase 250
Difference which should not have been exceeded 50
Potential restocking allowance (50%) 15,000
Actual allowance (50/70 x 15000) 10,714

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Learning objectives

Provisions of Income Tax peculiar to

LEADER IN NURTURING CHARTERED ACCOUNTANTS

• Why do farmers have special provisions that

LEADER IN NURTURING CHARTERED ACCOUNTANTS

LEADER IN NURTURING CHARTERED ACCOUNTANTS www.caa.ac.zw 4

➢Buildings used mainly for the purposes of a

LEADER IN NURTURING CHARTERED ACCOUNTANTS www.caa.ac.zw 5

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• means any building used for the curing of tobacco;

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A farmer shall be entitled to deduct expenditure incurred on :

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• For ordinary livestock, the farmer may elect –

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Livestock acquired without payment.

Valuation of livestock acquired by inheritance or

i. If heir or donee merely sells the livestock without

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Livestock acquired without payment.

Valuation of livestock acquired by inheritance or

i. to an heir, the fair market value, for which the

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Stumping and clearing of land 4,000

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The income statement had been debited with the following

Crop chemicals 7,800

Farm expenses 14,000

Penalty for late payment of PAYE 2,000

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VARIMI (Pvt) Ltd

Computation of taxable Income

Year ended 31st December 2013

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#Average stock = (opening stock + closing stock) / 2

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Taxable in current year 1/3 417

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Taxable income from drought sales 2,833

Not taxable in current year 2/3 1,889

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350 Opening Stock 70 000 100 Sales ( April ) 65 000

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