PKF Francis Aickin Limited, Far North, New Zealand
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24 May 2018
There are two main methods of valuing livestock on hand at year end for tax purposes.
HERD SCHEME: (National Average Market Value).
The values for each class of livestock are announced by the IRD mid May each year, and are based on a survey of livestock values throughout the country as at 30th April. 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.
The values for all sheep (apart from breeding rams) have increased from last year, with two tooth ewes up 19.3% to $179. Breeding rams dropped back 17.2% to $289.
Most beef cattle values have decreased, between 0.4% for rising 3yr+ steers & bulls (now $1,608) to 10.8% for rising 1 yr heifers (now $735). The exception is mixed age cows which increased 4.6% to $1497
Dairy stock has reversed part of the prior year’s gain, with mixed age cows dropping 7.3% to $1,529. Breeding dairy bulls are the only class to increase, now $1947 (3.2% increase).
TRADING SCHEME: (National Standard Cost)
These values are announced late January each year, and are the estimated costs of breeding, rearing and growing of the various stock groups. Whilst any class of livestock can be on 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.
This year’s values, apart from some deer classes, have increased. Sheep values have increased by $2.40 for rising 1’s ($34.60 BRG) and $1.40 for rising 2’s ($24.10 RG).
The significant increase with cattle is bobby calves where costs have risen by 30% to $186. Rising 1 yr dairy cattle costs are $437.30 compared with $362.50 for beef of the same age. Rising 2 yr dairy costs are $333.30. The beef equivalents are $203.40 which is also the rearing and growing costs for rising 3 yr cattle, whether dairy or beef.
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 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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