Live­stock val­ues set for tax pur­poses

The Northland Age - - Local News - By Ste­wart Rus­sell, PKF Fran­cis Aickin

There are two main meth­ods of valu­ing live­stock on hand at yearend for tax pur­poses. Herd Scheme (Na­tional Av­er­age Mar­ket Value): the val­ues for each class of live­stock are an­nounced by the IRD midMay each year, and are based on a sur­vey of live­stock val­ues through­out the coun­try as at April 30. The the­ory of the scheme is that stock val­ued un­der this method should be cap­i­tal as­sets rather than trad­ing stock.

This is done to pro­tect the farmer from the tax­a­tion ef­fect of fluc­tu­a­tions in the val­ues of breed­ing stock.

Prior year trends have con­tin­ued, with val­ues for all sheep in­creas­ing from last year, two-tooth and mixed-aged ewes up nearly 20 per cent, to $214 and $190 re­spec­tively. Breed­ing rams have in­creased by a sim­i­lar per­cent­age to $338.

It’s a dif­fer­ent story for cat­tle. Most beef cat­tle val­ues have de­creased, be­tween 2.4 per cent for ris­ing one-year heifers (now $717) to 9.6 per cent for mixed-aged cows (now $1355). The ex­cep­tion is breed­ing bulls, which have in­creased 13.4 per cent to $3,407.

Dairy stock val­ues have also con­tin­ued to fall. The range of the de­creases is larger for dairy — from 0.9 per cent for ris­ing oneyear heifers ($685) to 14.4 per cent for ris­ing one-year steers ($497).

Trad­ing Scheme (Na­tional Stan­dard Cost): these val­ues, an­nounced late Jan­uary each year, are the es­ti­mated costs of breed­ing, rear­ing and grow­ing the var­i­ous stock groups. While any class of live­stock can be in the Trad­ing Scheme it dif­fers from the Herd Scheme, as it is based on ac­tual pur­chase price (if any) plus a breed­ing, rear­ing and grow­ing cost (BRG) de­ter­mined by the IRD.

There is a mixed bag in the BRG costs this year. Some have in­creased, some de­creased and some stayed the same. How­ever, most of these changes have been min­i­mal, up to three per cent

The big­gest in­creases is in the dairy goat mar­ket, the BRG for ris­ing one-year in­creas­ing by 16.5 per cent to $215 and ris­ing two-year 23.75 per cent to $50.

The im­por­tant dif­fer­ence be­tween the two schemes is that with the Trad­ing Scheme, any change in val­ues is tax­able or de­ductible even though the gains/losses are held in the stock on hand val­ues and may not yet have been re­alised. For an­i­mals in the Herd Scheme, the dif­fer­ence be­tween the year’s open­ing and clos­ing val­ues for the num­ber of open­ing stock in each class is not sub­ject to tax.

Note that the rules for elec­tion into the Herd Scheme changed a num­ber of years ago, and now elec­tion must be made in writ­ing and ap­proved by the IRD prior to fil­ing the tax re­turn. Elec­tion is now made by type (dairy cat­tle, sheep, etc) rather than class, how­ever it is up to the tax­payer to de­ter­mine when and how many stock of each class are go­ing to be in­tro­duced to the scheme each year, if any.

A com­bi­na­tion of the two schemes can be used. Once stock are in the Herd Scheme it is vir­tu­ally im­pos­si­ble to trans­fer them to an­other method of val­u­a­tion.

Live­stock val­u­a­tion is a com­pli­cated area and can re­sult in tax ad­van­tages and dis­ad­van­tages, in­clud­ing ef­fects on suc­ces­sion plan­ning. It is there­fore im­por­tant for farm­ers to dis­cuss op­tions with their tax ad­viser.

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