Two parts of the tax rules matter more to farmers than to most businesses: how livestock on hand is valued at balance date, and how income can be smoothed between good and bad years. Both can change your tax bill by thousands of dollars, and the livestock choice is hard to undo.
Why Livestock Value Matters
Livestock is valued for tax at each balance date. Under some methods, a change in that value goes into taxable income. A higher closing value can mean more tax, and a lower one less. So the method you use affects your tax each year, and the tax when you sell up.
The Main Valuation Methods
Inland Revenue allows several methods. The two most farmers use are:
Herd scheme. Livestock is valued at national average market values (herd values) set by Inland Revenue each year. Changes in those values are treated as capital, so they're not taxed or deducted. Changes in the number of animals still count. This suits farmers who keep a breeding herd for the long term.
National standard cost (NSC). Livestock is treated like trading stock. Home-bred animals are valued at standard costs set by Inland Revenue, and bought animals at their actual cost. Changes in value are part of taxable income. This tends to suit trading and finishing operations.
Market value and self-assessed cost are also available in some situations.
Choosing Is a Long-Term Decision
The method isn't easy to change later. You have to give Inland Revenue written notice in the same year to move livestock into the herd scheme, even in your first year of farming, and the election is largely irrevocable. You can only leave in limited cases: if you stop breeding from all the female livestock of that type and switch to fattening them, or for the extra animals when numbers in a class increase. Even then, any male breeding stock of that type stays in the herd scheme. Rules also apply when livestock is transferred to an associated person, such as a family member or a family company or trust. This links to farm succession: see our guide to passing on the family farm. Get advice before you elect, and before you buy, sell or transfer a herd.
Income Equalisation
Inland Revenue's income equalisation scheme helps farmers, growers, foresters and fishers even out income between years.
Deposits. You can deposit part of your income from a qualifying activity, and the deposit is deductible in the year it relates to. The minimum is $200, and you can't deposit more than your net income from that activity for the year.
Timing. To count for a year, the deposit must be made by the earlier of six months after balance date or one month after the return's due date.
Refunds. You can generally withdraw a deposit once it has been held for 12 months. The refund is taxable in the year you take it out. Inland Revenue holds a deposit for up to five years.
Interest. Deposits held for 12 months or more earn 3% a year, which is added to the deposit and taxed when it's refunded.
The scheme works best when you expect a big swing, such as a strong payout year followed by a likely lower one, or a planned retirement or development year.
What to Do Now
Check which livestock valuation method you use, and why.
Before balance date, talk to us about expected livestock numbers and closing values.
In a strong year, look at an income equalisation deposit as part of your tax planning.
Before selling, buying or transferring a herd, check the tax effect first.
How Ake Can Help
We can review your livestock valuation method, estimate the tax before balance date, and plan income equalisation deposits and refunds. Have a kōrero (conversation) with us before balance date. Contact us.
This guide is general information, not tax advice. Your situation will be different, so talk to us before you act.
Sources
Inland Revenue: Income equalisation scheme – How the scheme works, Deposits, and Who is eligible
Inland Revenue: OS 25/02 Valuation of livestock (31 March 2025)
Inland Revenue (tax policy): Livestock valuation overview, and herd scheme elections (2012)