Livestock Valuation Methods in NZ

What are the Livestock Valuation Methods used in NZ and what should you use?

Having just come through the National Dairy Industry Awards process, one thing identified by many of the judges was that a lot of farmers struggle to understand the different livestock valuation methods.

Given that we have just ticked over financial year end, we thought it would be useful to try to break it down.

In New Zealand, the Herd scheme and NSC are the two main methods for valuing livestock on hand at year end for tax purposes.

Herd Scheme

• Herd Scheme (also called National Average Market Value) allows you to value your opening and closing livestock for the year at the same value per head.

• The difference in last year's closing value and this years’ opening value is treated as a tax-free adjustment.

• The theory behind this valuation method is that livestock are treated as a capital asset rather than trading stock.

• The values are announced by the IRD in May every year and are based on a survey of values throughout NZ at 30 April.

National Standard Cost

• National Standard Cost (NSC) is based on a cost of production system, ie. the cost of breeding, rearing and growing the various livestock groups.

• NSC is a bit more complicated than Herd Scheme as the value is calculated as national standard cost applied to homebred stock; and purchase price applied to purchased stock.

• The average of these costs is applied to stock on hand at year end to obtain a closing value.

• NSC values are announced by the IRD in February each year and are typically a lot lower than Herd Scheme values.

The Difference

The difference with NSC, compared to Herd Scheme, is that the fluctuation in livestock numbers and value are taxable.

The decision to use Herd Scheme cannot be made lightly as once you elect into it you cannot elect out unless you sell the herd and your livestock numbers reduce down to zero.

This prevents people from jumping between methods depending on which produced the most favourable tax outcome.

What valuation method to use?

Which method to use depends very much on what your short and long-term plans are, and whether you plan to stay in the industry for the long term.

You are able to use a combination of methods, so it might be that your core stock are valued on Herd Scheme and any surplus stock that you know will be bought and sold are valued using NSC.

Selling to associated entities means that the purchasing entity must use Herd Scheme if that is what the selling entity was on. This means you cannot sell from yourself to a company to get out of the Herd Scheme election.

There are more complicated issues that we won’t delve into now, but the main message is to keep your accountant informed of your short and long-term plans so they can plan accordingly! This could save you thousands in tax so is worth the extra cost.

This video contains general information only. You should obtain advice for your personal circumstances. If you have any questions please contact your CT Advisor.