New Zealand’s bucolic landscapes are not just a feast for the eyes or a magnet for tourists; they also form the backbone of a key economic sector: livestock farming. This industry is not only pivotal for its economic contributions but also complex due to the elaborate tax rules that govern it. 

At the centre of this complexity is the methodical valuation of livestock for tax purposes, dictated by the Income Tax Act, which categorises livestock into four distinct types, each with its own set of valuation rules. These types are:

• Specified livestock: This type includes animals explicitly listed under the Income Tax Act, categorised by type and class such as beef and dairy cattle, deer, goats, pigs, and sheep. 
• High-priced livestock: These are specified livestock purchased for at least NZ$500 per head and cost at least five times the national average market value (as determined by Inland Revenue (IR) in the year of acquisition.
• Bloodstock: This type covers horses from the standardbred or thoroughbred breeds, as well as any shares or interests in such horses.  
• Non-specified livestock: A broad type that captures all livestock not classified under the other three types.

The types of livestock are divided into classes. For example, the goat category includes mohair-producing goats, cashmere and other fibre producing goats, meat producing goats and dairy goats. They are then further divided by age.

The rules for valuing livestock depend on the class of livestock. Different valuation methods are allowed for each class and type. Some methods treat the livestock as being trading stock, while others treat the livestock in a way that is similar to the herd being a capital asset where the outputs are taxed.

Currently there is no comprehensive IR guidance on how to treat livestock for tax purposes. Noticing the gap, IR has issued a draft Standard Practice Statement, intended to be finalised later this year which will go through the rules in a comprehensive manner. Chartered Accountants Australia and New Zealand (CA ANZ) has made a submission on the draft. 

The tax administration aspect adds another layer of complexity. Most valuation methods require the taxpayer to make an election to use the method. Confusingly, the rules are not the same for all elections or all methods. For some methods it is acceptable to elect simply by applying the rules in the return. For other methods, a separate election is required. The timing is also different for each election for each method. The upcoming Standard Practice Statement will set out the rules comprehensively in one place.  

For those unsure of the optimal method for their operations or when advising clients, consulting with a rural tax specialist is advisable. 

The draft provides a good basic guide to the rules and CA ANZ hopes the final version will include some further examples and diagrams to show how to apply them. Keep a look out for it on the IR website early next year.