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08 Jun 2017
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 and cattle have increased from last year. Only dairy heifers and cows have not yet recovered to their pre 2013 values. However, these cattle have the largest percentage increases with rising 1yr heifers increasing by 54.5% to $819. Beef cattle also continues to increase across all categories, with a rising 1yr heifer now valued at $824, and $986 for a rising 1yr steer.
Sheep herd scheme values, apart from breeding rams, have increased by between 12% for mixed aged ewes (now $131) and 26.5% for mixed aged wethers (now $86). Breeding rams have increased by 14.8% to $349 per head.
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 determined by the IRD.
This year’s values have been a mixed bag. Sheep values have increased by $1.20 for both rising 1’s and rising 2’s. Dairy cattle values have reduced significantly across all categories; rising 1’s reducing from $529.10 to just $404.10; rising 2’s falling from $414.20 to $322.50.
Beef cattle values have increased across all categories with rising 1’s up to $343.80 and $190.90 for all others.
An important difference between the two schemes is that, with the Trading Scheme, any change in values is taxable or deductible. Whilst the Herd Scheme offers an important protection to farmers from taxation on rising values, those on the Trading Scheme suffer from the opposite. This is because on the Trading Scheme, the farmer is taxed on a stock value which has not been realized.
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. It is therefore important for farmers to discuss options with their tax adviser.
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