New rules on livestock valuations
The Inland Revenue Department released the National Average Market Values for Specified Livestock at the end of May.
These new values are based on a snapshot of current market prices across New Zealand.
This year all dairy cattle saw substantial increases reflecting the high demand for stock, some of the reasons for this being:
High milk payouts at the time of announcement.
Conversions to dairy still occurring.
Demand for young stock from overseas.
All these factors have kept the market prices up.
Sheep and beef cattle saw minimal increases against last year’s prices.
Friesian and related breeds 2012 (figures in brackets are 2011)
Rising one-year heifers $1234 ($1035).
Rising two-year heifers $1806 ($1494.)
Mixed-age cows $2155 ($1766).
Rising one-year steers and bulls $521 ($459).
Rising two-year steers and bulls $822 ($767).
Rising three-year and older steers and bulls $1077 ($988).
Breeding bulls $1526 ($1370).
Rising one-year heifers $955 ($792).
Rising two-year heifers $1620 ($1344).
Mixed-age cows $1923 ($1631).
Rising one-year steers and bulls $412 ($363).
Rising two-year steers and bulls $622 ($616).
As can be seen all categories have increased.
For rising one and two year olds together with mixed aged cows this increase is over 20 per cent on 2011 values.
Mixed aged friesian cows increased the most by $389, a 22 per cent increase on 2011.
A full range of livestock valuations is available on our website cooperaitken.co.nz
There are two ways farmers value their livestock
The Herd Scheme. This treats livestock as if they were a capital asset. Generally a safe option for many farmers as it takes the volatility out of the equation. Under this method farmers are not taxed on shifting values of the livestock.
The National Standard Cost. Here the values represent the estimated cost of producing an animal to yearling age and to a two year old. Each year the values change and affect the farmer’s income and therefore affect their annual tax calculations.
Within parameters farmers were allowed to swap between the two methods. However this has now changed and once you have elected to go into the Herd Scheme this decision is permanent. Not only can you no longer change once you have elected to go into the Herd Scheme; the IRD went further and announced that those elections to use the Herd Scheme will be made irrevocable from August 18, 2011.
This retrospective date of enforcement meant any elections made this year were not effective and you are required to use the Herd Scheme for the number of stock in the Herd Scheme last year.
Legislation is still to be written and approved and there are questions still unanswered with regards to transfers between associated persons including family trusts and companies.
With the recently announced advance milk payments for the 2012/13 season it is imperative that farmers understand the effects of the livestock changes on cash surpluses, profit and tax.
These effects will need to be factored into cash flow forecasts, tax planning and upcoming season expectations.
To start a conversation about how this affects you personally and to help build the best plan going forward simply give us a call.
We are here to help you improve business performance.