IRD scheme can help tax burden
Income Equalisation Scheme designed to spread costs
Primary sector commodity prices (eg, for sheep and milk), inflationary onfarm operating costs, and the 2023 natural disasters still impacting production and recovery have led the farming community to explore ways of alleviating financial pressures.
This is where the IRD’s Income Equalisation Scheme can assist, reducing immediate burdens and a means to spread tax costs.
The scheme allows farmers, fishers, growers and foresters to even out the fluctuations in taxable income by making a cash deposit to the IRD.
Farming is subject to variability, the Income Equalisation Scheme evens out these fluctuations by spreading gross income from year to year — moving from a high-income year to a lowincome year to lessen the tax burden that would result.
During an “uneventful” farming year, the use of the scheme will be considered as the deposit of funds, and needs to be held at the IRD for at least 12 months before the ability to withdraw back into the farming operation. In some circumstances the funds can be immediately withdrawn, for example the farmers affected by the North Island weather events this year — floods and Cyclone Gabrielle — or farmers experiencing financial hardship.
Farmers who have been affected by the North Island weather events can request immediate withdrawal of funds if they have made a deposit for the 2023 year, moving income from 2023 into 2024.
For many farmers the outlook for 2024 is not shaping up to be very pleasing, especially with declining prices.
This results in tax liability being deferred until it is manageable to incorporate into the farming system.
Farmers not affected by the North Island weather events are still able to request an immediate withdrawal on the grounds of “serious hardship”.
This is likely to be less certain because IRD has specific criteria, including that if the refund were not made, the future of the farming operation would be in jeopardy, or that the farmer might suffer serious hardship, eg unable to undertake essential farm maintenance.
Factors likely to be considered against an early withdrawal approval:
Availability of alternative sources of credit.
Intention to spend the refund on items other than essential farming operational costs, eg new vehicle purchases.
Farmers should seek professional advice when considering early withdrawals from the Income Equalisation Scheme.
What can you do?
The Income Equalisation Scheme is a tool for managing tax burdens and alleviating financial pressures in the face of economic uncertainties and natural disasters. i
To determine the right approach for your farm and safeguard your financial future, contact your agribusiness specialist at findex.co.nz
Amy Hamilton is Associate Partner, Accounting and Business Advisory, Findex