Forestry with lifestyle
Murray Downs
New Zealand Tree
Grower May 2006
Some business and tax advice for new owners seeking to combine forestry
with lifestyle benefits.
To be eligible for tax deductions on your forestry property, your
activities need to qualify as a business. If you are buying a forest
block from scratch and want significant lifestyle benefits, there are
some key features to look for in a property. Sound business
decisions and knowledge of tax issues are equally important if you are
going to get the most from your new forest block.
Recently, I came across an excellent example of a forestry business
block, but with lifestyle. Three family members bought an old quarry,
with some existing neglected forest. They let the large open cast mine
fill up with water to serve as a water supply for fire fighting. It is
entirely incidental that this water supply also doubles as a water
skiing lake.
They caught up on the silviculture by doing a one hit pruning and
thinning, which was better late than never. And they planted up the
remaining nooks and crannies. Now they have a popular spot for the
siblings and cousins to visit, work at and enjoy. They have a forestry
business with a big lifestyle element.
Choosing for lifestyle
Location
Many would-be foresters still live and work in town. Ideally, your new
forest block should be under 90 minutes travel time from your home,
otherwise you will not get there often enough to be able to do some
work – the real reason you want to travel to it. All weather access
right up to the block is essential – no problem if you can find an old
quarry site or something similar. A location not too far from a main
arterial route is the best, but is negotiable. Having a nearby farm
community for fire support and security would also help.
The holiday element
You want to enjoy a holiday flavour when you are at the forest block.
Those who enjoy our native bush can grow your own – given 10 years. But
water is an asset. When you fly over the North Island west coast you
see so many beaches surrounded by partially developed farmland
or scrub. Have you got the money to develop access to a property like
this? Alternatively, a property within five minutes of any public
beach, lake, river or stream would be a top choice.
Other lifestyle possibilities with a forest element include mountain
biking over forest access roads and tracks, four wheel driving
challenges, fishing, hunting or punga growing.
Choosing for business
The business decisions
Assuming you read the November
2005 Tree Grower article
about being in business, and you
have had access to the Waikato Branch How
to grow leaflets
for each of the main timber species, you will be alert to the essential
features that a good forestry block should have. The real art,
of course, is to see the potential in a block for something different,
something that no other potential purchaser sees.
Before purchasing a property, evaluate your time and resources. Usually
money is the main limiting factor. Think hard about the commitment that
a unique or difficult site always requires. One well-respected senior
farm forester says he would always spend more money on better land,
than to forever suffer the negative consequences. Once gorse infested,
always gorse infested.
Business activities are essential
Remember, the predominant use of your forest block must be business.
What are some good work or forestry business projects you can do while
visiting your property? Basic forestry items like roading, weed
control, possum and other pest control, silviculture, maintenance,
weather and forest records, establish and measure permanent sample
plots, forestry health inspections and fencing are just a few. If you
do not want to do any of these things, you do not really have a
business property – it is really just a private holiday block.
The touchy tax issues
As a general rule, if there is a private element in any expense, then
there will probably be an issue. Will travel to the forest property be
tax deductible? The answer depends on the predominant reason for
travelling. If you do no work, then there is no deduction, other than
one or two inspection trips a year. You should keep records of what
work you did on a daily basis and of the kilometres travelled to the
property. If you do seven hours work in a day, then that qualifies as a
work day. The work does not have to be too strenuous, and it can be
multi-purpose, such as a walk through your young forest in spring
looking for dothistroma or topping up the possum bait stations.
Accommodation in the forest block
Is accommodation tax deductible? If you build accommodation and its
only use is for you, as the business owner, and your children to stay
in, it is really no different from a private home. In other words, no
deduction. In contrast, a shed that is filled with permanently stored
forestry equipment is a depreciable business asset. Anything in between
these two extremes will probably need some adjustment for private or
business use, so get advice first.
Fringe Benefit Tax
Many forests are owned by family companies. Check with your accountant
about any Fringe Benefit Tax issues if company assets are available for
private use, such as having available a company vehicle for private use.
Water supply
Water storage for fire fighting purposes is clearly a business asset.
On most occasions any private use of that water is incidental – as in
the water-skiing example above. Building a treated swimming pool would
be a predominantly private activity and therefore not eligible for any
tax deductions, unless you show that you have the pumping equipment to
use the water to fight a fire in an emergency.
The best of both worlds
With careful planning, intelligent thought, and the preparedness to
demonstrate that you are somewhat hands on, you can have the best of
both worlds. A forestry block with business deductions combined with
lifestyle.
Murray Downs is a
chartered accountant
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