2020 Livestock values for tax purposes, by Dale Adamson
HERD SCHEME: (National Average Market Value).
The values for each class of livestock are announced by the IRD in 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 ongoing drought, reduced sales volumes and uncertainty due to coronavirus have had a significant effect on this year’s values for some classes.
Prior year trends have reversed with values for sheep dropping between 15% to 22% from last year, representing $19 to $36 per head. The exception is breeding rams which have increased $2 per head.
Beef cattle values have also been hit heavily with decreases, bringing values back to 2014-2015 levels. Decreases over last year are between 13.1% for rising 3 steers/bulls (now $1,315) to 26.6% for rising 1 heifers (now $526). Breeding bulls reversed last year’s increase moving back to $2,950, a drop of $457 per head
Dairy stock values have fared better. Mixed age cow values increased by 0.8% to $1,525 and rising 1 heifers by 7.6% to $737. All other groups had decreases of 4.1% to 5.2%, except for rising 2 bulls/steers which decreased 9.2% to $818 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 (BRG) determined by the IRD.
There is an overall increase in the BRG costs this year. Both beef and dairy mature cattle up $16.50 to $220.10 except rising 2 dairy cattle which decreased by 3.3% to $337.30. Rising 1’s up just over 5% to $453 for dairy and $388.10 for beef.
Sheep BRG costs up an average of $2 per head to $36.60 for rising 1 and $26.10 rising 2.
A table showing the trends for both schemes is available under the publications area of our website www.pkffa.co.nz.
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 few 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. With lower herd values 2020 may be the year to transfer stock to that scheme 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.