A farmer running a mixed wheat-and-sheep operation can legitimately cut a $41,832 tax bill to $21,176 in a good year, using the concessions the tax system built specifically for primary producers. Farm management deposits, income averaging, immediate write-offs for fencing, water and fodder storage, and fuel tax credits are all designed for one reality: farm income is lumpy, and a tax system built for steady salaries punishes lumpy income. This guide works through every deduction available to Australian farmers in 2026-27, with a full worked return in dollars and the traps that cost farmers money.
The short answer: what can farmers claim in 2026-27?
If you carry on a primary production business — cropping, livestock, fishing, pearling or tree farming — you claim your farm’s running costs as business deductions, plus a set of concessions no other business gets: fencing, fodder storage and water facilities are immediately deductible in full; farm management deposits of up to $800,000 are deductible in the year you make them; income averaging smooths your tax over five years; fuel used off-road earns a tax credit of 53.7 cents a litre; and the $20,000 instant asset write-off is now permanent from 1 July 2026. What you cannot do is claim the farmhouse, the family ute’s private kilometres, or a hobby farm’s losses against your off-farm salary.
First, are you a primary producer or a hobby farmer?
Everything in this guide turns on one question, and it is the question the ATO asks first. You are a primary producer if you carry on a business of plant or animal cultivation, fishing or pearling, or tree farming or felling. Owning rural land is not enough, and neither is running a few head of cattle at a loss while your real income comes from town.
The ATO’s ruling TR 97/11 sets out the indicators: a genuine profit intention, repetition and regularity of activity, a scale of operations that looks like a business, business records and planning, and whether the activity is better described as a hobby or recreation. A weekend block with six sheep, no business plan and no profit in a decade will fail the test — and when it fails, the deductions fail with it.
Even a genuine farm can hit the non-commercial losses rules. If your farm loses money and your assessable income from other sources is $40,000 or more, the loss is deferred — it cannot offset your salary or other income that year — unless your farm passes one of the ATO’s four tests (assessable income, profits, real property or other assets) or the Commissioner exercises discretion. Worked example: you earn an $85,000 salary in town and your farm loses $30,000. Your other income is over the $40,000 threshold, so unless a test is passed, that $30,000 loss is deferred to a future year when the farm carries on the same activity — a nasty surprise for hobby farmers who assumed the loss would shrink their salary tax.
The deduction list: what farmers can claim
Ordinary farm running costs are deductible in the year you incur them, provided they relate to earning assessable income. The table below covers the categories, with the concession items marked.
| Deduction | How it works in 2026-27 |
|---|---|
| Seed, fertiliser, chemicals, feed and fodder | Fully deductible when incurred. Prepaying next season’s inputs before 30 June is legitimate if the 12-month prepayment rule is met. |
| Fuel (net of fuel tax credits) | Deductible as a business expense; claim fuel tax credits separately on your BAS — see below. |
| Repairs and maintenance | Deductible when incurred. Improvements (not repairs) are capital and depreciate instead. |
| Contract labour, shearing, harvesting | Fully deductible. Keep ABN and payment records for contractors. |
| Vet, animal health, breeding costs | Fully deductible. Livestock purchases are trading stock, not a deduction — valued at year end (see below). |
| Rates, insurance, interest on farm loans | Fully deductible to the extent the borrowing is for the farm business. |
| Fencing | 100% immediate deduction for fencing constructed after 12 May 2015. No cost cap. |
| Water facilities | 100% immediate deduction for dams, tanks, bores, pumps and irrigation acquired after 12 May 2015. |
| Fodder storage assets | 100% immediate deduction for silos, hay sheds and grain storage purchased on or after 19 August 2018. |
| Landcare operations | Immediate deduction for capital expenditure on landcare — erosion control, salinity works, fencing off land classes, pest and weed eradication. |
| Plant and equipment under $20,000 | Instant asset write-off — now permanent from 1 July 2026 for businesses with turnover under $10 million. Each asset under $20,000 is fully deductible. |
| Plant and equipment $20,000 or more | Small business pool: 15% in the first year, 30% each year after. |
| Mains electricity and telephone lines | Deductible over 10 years (the cost of connecting the farm to mains services). |
| Accounting, legal, subscriptions | Fully deductible where they relate to the farm business. |
Two traps sit inside that table. First, repairs versus improvements: patching a shed roof is a repair and deductible now; replacing the shed is a capital improvement and depreciates. Second, livestock are trading stock. You do not deduct the cost of buying cattle the way you deduct feed — the animals sit in your closing stock valuation, and the method you choose changes your taxable income (see below).
The worked return: a mixed farm in dollars
Here is a complete 2026-27 return for a sole-trader mixed farmer — wheat and sheep, turnover well under $10 million. Every figure uses the verified 2026-27 rates: resident brackets of 15% to $45,000, 30% to $135,000 and 37% to $190,000, plus the 2% Medicare levy.
Income: grain sales $310,000, livestock sales $145,000, wool $25,000 — gross farm income $480,000.
Operating deductions: seed and fertiliser $68,000; feed and fodder $24,000; fuel (net of fuel tax credits) $31,000; repairs and maintenance $18,500; rates and insurance $14,200; contract labour and shearing $22,000; vet and animal health $6,800; freight $11,500; accounting and legal $4,800; interest on farm loans $19,000; phone, licences and subscriptions $3,700 — total $223,500.
Immediate capital deductions: new boundary and internal fencing $42,000; a water tank and solar pump $18,000; a hay shed $35,000 — total $95,000, all deductible in full this year under the primary producer concessions.
Ute: a $38,000 ute is over the $20,000 instant asset write-off threshold, so it goes into the small business pool: 15% in year one = $5,700. It is under the 2026-27 car limit of $69,883, so the full cost can eventually be depreciated.
Total deductions: $223,500 + $95,000 + $5,700 = $324,200. Net primary production income: $480,000 − $324,200 = $155,800.
Without any further planning, tax on $155,800 is $31,020 + 37% of $20,800 = $38,716, plus Medicare of $3,116 — $41,832. Now the farm management deposit does its work.
Farm management deposits: the $20,656 saving
A farm management deposit (FMD) lets a primary producer put pre-tax income aside in a good year, claim it as a deduction, and bring it back as income in a lean year when it is taxed at a lower rate. Only individuals can hold FMDs, your non-primary-production income must be $100,000 or less in the year you deposit, and your total FMD balance cannot exceed $800,000. Each deposit must be at least $1,000, and you generally must hold it for 12 months — drought and natural disaster are the exceptions. The deduction cannot exceed your taxable primary production income for the year.
Our farmer deposits $60,000 into an FMD before 30 June. Taxable income falls from $155,800 to $95,800. Tax on $95,800 is $4,020 + 30% of $50,800 = $19,260, plus Medicare of $1,916 — $21,176. The deposit year saving is $41,832 − $21,176 = $20,656.
That is a deferral, not a disappearance: when the $60,000 is withdrawn in a lean year it becomes assessable income then. The saving is real when the withdrawal year is genuinely leaner — the same dollars taxed at 30% instead of 37%, plus the Medicare difference — and the cash buffer is real in the meantime. It turns into a trap only if you withdraw within 12 months without an exception, in which case the deduction is lost, or if you deposit more than your taxable primary production income. Model both years before you deposit, and check the $100,000 non-farm income cap if you also earn a salary.
Income averaging: the five-year smoother
Income averaging is the concession farmers most often forget, because it happens automatically on your assessment — you do not claim it, the ATO applies it. It evens your income and tax over a maximum of five years so a bumper year is not punished as if you earned that much every year. When your average income is less than your taxable income, you receive an averaging tax offset; when your average is higher, you pay extra tax. You can opt out, but the opt-out locks you out for 10 income years, so it is a decision to make with an accountant. Averaging and FMDs work together: the FMD moves income between years, averaging smooths the tax rate applied to whatever remains.
Fuel tax credits: the deduction guides ignore
Fuel used in your farm business earns a credit for the excise built into the pump price, claimed on your BAS — it is a credit, not a deduction, so it comes back as cash rather than as a reduction in taxable income. Fuel used off public roads, including in tractors, headers and pumps, qualifies at the full excise rate: 53.7 cents a litre for diesel bought from 3 August 2026. Heavy vehicles on public roads get a lower rate (21.3 cents a litre) because the road user charge is subtracted.
Worked example: 20,000 litres of diesel for tractors and the header, bought after 3 August 2026, earns 20,000 × 53.7c = $10,740 in fuel tax credits. That is $10,740 most farmer-deduction guides never mention.
The trap is the rate: 2026 had temporary excise cuts, and the credit is set by the rate on the day you bought the fuel, not the rate today. Diesel bought between 1 April and 30 June 2026 earned only 20.6 cents a litre; between 1 July and 2 August 2026 it was 36.6 cents. Keep fuel receipts with dates and litres, split on-road and off-road use, and check the ATO’s published rates for each BAS period. Light vehicles on public roads do not qualify at all.
Livestock valuation: a $25,000 choice
At 30 June you must value your livestock, and the method you choose is a tax decision, not an administrative one. The ATO allows cost, market selling value or replacement value. Take 500 lambs: valued at a cost of $90 a head they are worth $45,000 in closing stock; valued at a market selling value of $140 a head they are $70,000. That $25,000 difference flows straight into assessable income — a higher closing stock value means higher taxable income this year (and a higher opening value next year, so it partly reverses).
Natural increase — lambs and calves born on the farm — can be valued at cost, which for home-bred stock is often low. Keep proper stock records: head counts, purchases, sales, deaths and births, because the ATO’s data matching now cross-checks livestock movements.
Five mistakes farmers make
1. Claiming the farmhouse and the family ute in full
The farmhouse is private. The private portion of the house, its power and its rates is not deductible, and the ATO expects an apportionment — floor area or a reasonable basis — between the farm office and the family home. The same applies to the ute: claim the business percentage only, and keep a logbook if the private use is significant. A 70% business-use ute means 70% of fuel, registration, insurance and depreciation, not 100%.
2. Assuming the new $1,000 standard deduction adds $1,000 to farm deductions
From 1 July 2026, employees get a new $1,000 standard deduction for work-related expenses — no receipts, no itemising. It covers employee work expenses. Your farm’s costs are business deductions, claimed separately and in full; the standard deduction does not sit on top of them, and you cannot claim the same $1,000 of farm costs twice. If you also hold an off-farm job, the $1,000 may apply to that employment’s expenses — keep the two claims separate.
3. Forgetting that drought grants and insurance are income
Government drought assistance and recovery grants are generally assessable income, and insurance payouts for lost income are assessable too. Only payouts for destroyed capital assets are treated differently. Farmers who spend a grant and then discover it is taxable have an ugly surprise at lodgement — set the tax aside when the money lands.
4. Paying interest on an ATO debt and expecting a deduction
Interest on ATO tax debts incurred on or after 1 July 2025 is no longer deductible. A $10,000 general interest charge that once saved $3,700 in tax at a 37% marginal rate now saves nothing — if a debt is building, talk to the ATO about a payment plan early rather than letting interest compound.
5. Selling the farm without checking the CGT concessions
Farmers selling up can access the small business CGT concessions — including the 15-year exemption and the retirement exemption — which can make a large part of the gain tax-free, but only if the conditions are met before the sale: the $6 million net asset test or the $2 million turnover test, active asset status, and for the 15-year exemption, 15 years of continuous ownership and retirement. Get advice before signing a contract, not after: the concessions are lost if the structure is wrong on sale day. Our small business CGT concessions guide works through the tests.
Three levers to pull before 30 June
1. Prepay and purchase with intent
Bring forward genuine expenses — seed, fertiliser, repairs, professional fees — and prepay up to 12 months ahead where the small business prepayment rules allow. The $20,000 instant asset write-off is permanent from 1 July 2026, so a $19,500 quad bike or set of tools is fully deductible this year if it is installed and ready for use before 30 June. The rule is per asset, not per year: two $15,000 trailers and a quad bike can each be written off in full. Model your likely taxable income first — spending $20,000 to save $7,400 of tax is only sensible if you needed the asset anyway.
2. Use super as well as FMDs
Concessional super contributions — including salary sacrifice if you also draw a wage, or personal deductible contributions as a sole trader — are capped at $30,000 a year, and unused cap from the previous five years can be carried forward if your total super balance is under $500,000. A $15,000 deductible contribution at a 37% marginal rate saves $5,550 in tax while the same money is taxed at 15% inside the fund. Full worked examples in our super contribution caps guide.
3. Pay your PAYG instalments on the farm’s calendar
Primary producers can pay PAYG instalments twice a year instead of quarterly, and can vary instalments where income does not follow a standard pattern. If your income lands in two harvest payments a year, quarterly instalments are a cash-flow mismatch the ATO already lets you fix. Check your instalment rate against your actual position during the year rather than paying the ATO’s default and waiting for a refund.
FAQ: the questions farmers actually ask
Am I a primary producer or a hobby farmer?
It depends on whether you carry on a business of primary production, judged on the ATO’s TR 97/11 indicators: profit intention, regularity, scale, records and planning. A lifestyle block with a few animals and no profit history is a hobby — its costs are not deductible and its losses cannot offset other income. A genuine farm business, even a small one, can claim its costs and access the concessions in this guide.
Can I claim the farmhouse?
Only the business portion. If part of the house is genuinely used as a farm office, that portion of rates, interest, power and insurance can be claimed on a reasonable basis such as floor area. The family’s living areas are private and never deductible, and the ATO looks closely at farmhouse claims.
Can I claim my ute and fuel?
Yes, to the extent of business use. Fuel is deductible and earns fuel tax credits for off-road use (53.7 cents a litre for diesel bought from 3 August 2026). The ute itself is depreciated — under $20,000 it is an immediate write-off; over $20,000 it goes into the small business pool at 15% in year one. Keep a logbook for the business-use percentage.
What is the $20,000 instant asset write-off for farmers in 2026-27?
From 1 July 2026 it is permanent: businesses with aggregated turnover under $10 million can immediately deduct eligible assets costing less than $20,000 each. The threshold is per asset, and assets of $20,000 or more go into the small business pool. More detail in our instant asset write-off guide.
Do farm management deposits really save tax, or just delay it?
Both, and that is the point. The tax is deferred to the withdrawal year, and the saving is the difference in marginal rates between the two years — in our worked example, $20,656 in the deposit year, with the tax paid later at a lower rate in a lean year. The cash buffer in the meantime is worth as much as the tax saving in a drought-prone business.
Can I claim deductions if my farm made a loss?
The deductions themselves are real, but a loss from a non-commercial farm business may be deferred under the non-commercial losses rules if your other income is $40,000 or more and no test is passed. The loss is not lost — it is carried forward to a year when the farm carries on the same activity — but it cannot shelter this year’s salary. Check the position before lodging.
The bottom line
A farmer’s tax return is a business return, and the deductions are business deductions — running costs in full, fencing, water and fodder storage written off immediately, plant under $20,000 written off immediately, fuel tax credits claimed on the BAS, and the two great smoothers, farm management deposits and income averaging, turning a lumpy income into a manageable tax bill. In our worked example those concessions took a $41,832 bill to $21,176. The mistakes are the mirror image: claiming the farmhouse, confusing the $1,000 standard deduction with a farm deduction, ignoring the non-commercial losses rules, and forgetting that grants and insurance payouts are income. Run your own numbers in our income tax calculator, and check the ATO’s information for primary producers and the farm management deposits scheme before you act — then talk to a registered tax agent who knows your farm before 30 June, not after.
