By Shelley-ann Brinkley – 4 April 2012

The Government has recently announced changes to the rules around the taxation of livestock…

While it is recognised that taxpayers have generally exercised fair use of the current regime, there are some who gain an unfair advantage by switching between the two available livestock valuation schemes; the “herd scheme” and the “national standard cost scheme,” as livestock values change.

Over the next six years, it has been estimated that taxpayers will suffer a loss of $275 million if the livestock valuation rules remain unchanged.

In the interest of fairness to all taxpayers, farmers will no longer have the option of alternating between the two schemes. This is particularly relevant in recent times when the prices for sheep, diary, beef and cattle have been high. Being able to elect out of the herd scheme in favour of national standard cost scheme has created an opportunity for some farmers to derive an unfair tax advantage.

As eluded to in Budget 2011, elections to use the herd scheme will be irrevocable as of 18 August 2011, the date when the officials’ paper on herd scheme elections was released. Any elections made to opt out of the herd scheme after this date will not be effective except in limited circumstances, where there are legitimate reasons for electing out, for example, a change of farming operation to a fattening regime. As the change is effective immediately, farmers will no longer be able to elect out of the Herd scheme for the 2013 tax year.

These changes will also affect transactions between associated parties. The purchaser in an associated party transaction will be required to adopt the same scheme as the vendor except, where a complete inter-generational change of ownership takes place.

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