Draft Guide on the Taxation of Farming Operations

Farming contributes largely to job creation and is a major contributor to the gross domestic product. Just as there are many different types of farming operations, for example pastoral farming, crop farming, plantation farming, aquaculture and game farming, there are also a variety of different methods of conducting farming operations, such as free-range farming, organic farming and conventional farming.

Various factors such as the climate, demand for products as well as the high costs associated with farming have an impact on successful farming. These factors can potentially negatively impact a farmer’s income and expenditure on a regular basis.

To assist farmers, a beneficial set of tax rules applies to farming operations and the income and expenses emanating from such operations. Section 26(1) of the Income Tax Act provides that the taxable income of any person carrying on farming operations shall, in so far as the income is derived from such operations, be determined in accordance with the Act but subject to the First Schedule.

The First Schedule details the computation of taxable income derived from farming operations. The taxable income from farming operations is combined with the taxable income from other sources to arrive at the taxpayer’s taxable income for the year of assessment. The First Schedule applies regardless of whether a taxpayer derives an assessed loss or a taxable income from farming operations. The First Schedule may also apply even after farming operations have been discontinued.

The main aim of the draft guide issued by SARS, which can be accessed here, is to highlight the tax consequences for persons conducting farming operations in South Africa.

The due date for comment on the draft Guide is 25 November 2022 and should be sent to policycomments@sars.gov.za

07/10/2022