Farm income is changing, tax settings must keep pace

Australian farm businesses are navigating a far more complex operating environment than ever before. Income is no longer limited to traditional commodity production, with environmental markets, renewable energy projects, land-access arrangements and agritourism increasingly shaping how producers manage risk, diversify income and build long-term resilience.

A new AgriFutures Australia report, Assessing the Implications of Emerging Farm Income Streams for Primary Producer Tax Policy, co-authored by Catherine Dean and Andrew Jones, Partners in BDO’s Corporate & International Tax team, examines how these emerging income streams interact with Australia’s primary producer tax framework, where current settings may no longer reflect contemporary farming practice, and outlines potential tax policy reform options to address changing farm revenue profiles.

A tax framework designed for a different era

Australia’s primary producer tax settings were largely developed over 100 years ago when farm income came almost entirely from agricultural production. Today, many farm businesses generate income from activities on agricultural land that sit outside the statutory definition of a ‘primary production business.’

The report highlights that while emerging income streams, including carbon and biodiversity markets, renewable energy hosting, transmission easements and agritourism can strengthen farm business resilience, their tax treatment is often unclear or inconsistent, particularly across different business structures.

Whilst diversification of production has been long understood to protect against commodity risks, other income diversification is emerging as a key area for the primary production sector. The uncertainties identified in the report can increase complexity, lead to unintended tax outcomes and, in some cases, discourage non-commodity diversification that would otherwise support long-term business stability. At a broader level tax policy can impact productivity and the rollout of energy transition.

Other income diversification is no longer fringe risk

Nationally, non-primary production income still represents a relatively small proportion of overall farm revenue. However, this headline figure masks the material impact these income streams can have at the individual farm business level.

For producers, participating in environmental markets, hosting energy or transmission infrastructure assets, or entering into land-access arrangements with mining and infrastructure proponents, these income sources can involve:

• Long-term contractual commitments
• Restrictions on land use
• Complex payment structures
• Significant upfront and ongoing costs.

Crucially, these activities often occur alongside core agricultural production, rather than as a standalone venture, yet their interaction with existing tax provisions is not always clear.

Key issues and recommendations explored in the report

Drawing on tax policy analysis and insights from industry bodies, rural accountants and market participants, the AgriFutures report examines several areas where current tax settings intersect with emerging income streams, including:

• How new income types are classified under existing tax law (revenue versus capital, compensation versus income)
• How emerging income streams interact with primary producer concessions such as income averaging and Farm Management Deposits
• Differences in tax outcomes across individuals, trusts and corporate farm structures
• Areas where gaps in definitions or lack of guidance create uncertainty, administrative burden or inconsistent application.

In some cases, advisers noted that the tax questions arising from these activities are so complex that even experienced rural accountants struggle to reach definitive conclusions without seeking private rulings.

Rather than prescribing specific policy changes, the report outlines a series of considered reform options including: 

• Reviewing definitions used to determine eligibility for primary producer tax arrangements
• Clarifying the tax treatment of emerging income streams including renewable energy hosting arrangements and land access arrangements which may also have flow-on benefits of supporting the rollout of renewable energy infrastructure across Australia
• Ensuring existing settings continue to operate as intended as farming practices and business structures evolve
• Recommending changes to the non-commercial loss income caps
• Changes to the treatment of sustainability-related grants.

The overarching objective is to ensure tax settings support fairness, administrative simplicity and predictable outcomes, while maintaining the integrity of concessions designed to support agricultural production.

How BDO can help

BDO works closely with primary producers, family-owned enterprises and corporate farm groups on tax structuring, diversification, succession planning and income diversification opportunities. This report provides a grounded view of how tax policy is experienced in practice, not just in theory, particularly as income streams evolve and intersect with long-standing tax arrangements.

The full AgriFutures Australia report, Assessing the Implications of Emerging Farm Income Streams for Primary Producer Tax Policy, is now available on the AgriFutures website.

If you would like to discuss how emerging income streams may affect your farm business or structure, BDO’s agribusiness tax specialists can assist. Contact us.