| ORCHARDISTS AND FARMERS HOUSES
Historically the IRD have allowed "farmers" including orchardists to claim 25% of the farmhouse costs and 100% of the rates and interest without any further justification. This hails from the days of larger farms and smaller farmhouses, rather than what is locally more common, which is a small (in relative land area) orchard with a larger house.
Rates and interest have already generally been restricted to the business portion of those expenses by using the relative values of property and house.
The IRD have issued an interpretation statement which deals specifically with farmhouse expense claims which had effect for the 2018 tax year.
A blanket 25% is deemed to be too generous.
20% is acceptable with no further justification where the house (and curtilage) value is 20% or less than the value of the whole property, which is rarely the case locally.
Despite being 29 pages long there is no clear guidance on how to establish the business use % of farmhouse costs such as interest, rates, insurance, power, r&m, etc. The interpretation statement says:
"…the expense will need to be apportioned on some fair and reasonable basis between the business and private portions of the expense."
Practically the deductible business proportion:
- is unlikely to be as high as 20% (per IRD) - but could be more.
- minimum would be the area of an office as a proportion of the area of the house.
(for one room in a smaller house that alone might be 15%)
Other factors might include:
- storage of equipment in house or garage,
- laundry for cleaning orchard clothing,
- kitchen/lounge as meeting rooms,
- kitchen as "smoko" room,
- kitchen as preparation area for working meals, tea and snacks,
- extent of use by time of areas of house other than office,
- (With mobile phones anywhere can be the office on occasion)
We would expect claims to be in the 15% plus range depending of course on the specifics!