NZ Closes Livestock Tax Loophole

Ministers said the current rules were too loose and allowed some farmers switching between the two main livestock valuation methods to receive an unfair tax advantage over those farmers who applied the rules as they were intended.

The Government has changed the rules so that those who elect to use the 'herd scheme' cannot change to the alternative 'national standard cost scheme', except in narrow circumstances.

The potential change was flagged in Budget 2011 last May and in an 18 August 2011 officials’ issues paper. The change follows consultation between tax officials, farmers and their advisers on options for tightening the rules.

The change will take effect immediately, cancelling the ability of farmers to switch schemes for the 2012/13 income year, effective for elections made from 18 August 2011. There is no effect on tax payments that have already been made.

Mr English said the Government’s decision to move quickly to change the rules was driven by concerns about fairness for all taxpayers.

"The Government’s intention to make the tax system fairer was made clear in the previous two Budgets and, in the case of livestock taxation, was specifically signalled as part of Budget 2011," Mr English said.

"Allowing some farmers to switch out of the herd scheme – at a time of high livestock values - would have left other taxpayers exposed to an estimated loss of $275 million over the next six years. That is simply unfair."

Mr Dunne said there was near universal agreement among those responding to consultation that the current rules allowing farmers to change valuation schemes to claim a tax advantage was inappropriate and unfair.

"It was never the intention of the scheme, introduced in the 1980s, to allow farmers to pick and choose valuation methods to minimise their tax," Mr Dunne said.

"While the majority of farmers and their accountants have complied with the intention of the law, we have evidence some have chosen to change schemes for no other reason than to secure a tax advantage.

"That is clearly unfair to the majority of farmers who apply the livestock election rules as intended and pay the amount of tax they should.

"In cancelling any election to exit from the herd scheme from 18 August 2011, the date on which the consultation paper was released, the Government has made it clear that it agrees with submitters that the rules must be changed."

Elections for this year would normally be made by 31 March 2012.

For more information on these and other changes see the fact sheet and the officials’ issues paper at www.taxpolicy.ird.govt.nz.