Grain Marketing - A Tax Guide for Common Grain Contracts

Harvest in the West Australian wheatbelt is well and truly here, we think you (the hard-working farmers) all deserve a cold beer.

This article briefly discusses the difference in the tax treatment of two commonly used grain contracts and when farmers can be caught out using them. Sit back, put your feet up and it will all become clear!

It should come as no surprise the 2019 harvest will have very mixed results from region to region and farm to farm. Add in the fact that there is also potential for carried over tax consequences due to some grain growers having used deferred delivery contracts as a means of deferring 2018 harvest income to the 2019/2020 financial year.

Extra caution, careful consideration and thorough review need to be applied when marketing grain this year.

Grain marketing is a tricky business at the best of times but knowing and understanding the types of contracts and their unique tax consequences are paramount to assist in your planning for future tax positions.

• Deferred delivery contracts are a means of locking in a fixed price at the point of harvest, with delivery and payment being made sometime in the future – usually in July the following year. Once the grain is nominated, the title of ownership passes and it is at this point it becomes taxable. If timed correctly this will defer the income until the next tax year.  
   
• Deferred payment contracts allow for grain to be sold at harvest with payment due in the future, probably in July the following year. Doesn’t sound too different so far, right? Wrong! Don’t be misled into thinking the deferred receipt of cash means the taxing point is also deferred. The issue with this arrangement is that if the farmer has nominated the grain it has effectively been sold at that point, meaning it will be taxed in the year of harvest. There are other important considerations such as economic trends, what price you are locking in, storage fees - really the list can go on and on.  There are also many more vehicles that growers use for grain marketing purposes.

The above distinction is an important one and we thought a topical subject to be highlighted at this time of the year.

If in doubt and to avoid nasty surprises when it comes to tax planning and end of year compliance always consult with your friendly accountant to confirm the taxation treatment.

If you have any questions regarding common grain contracts contact your local RSM office.