The Government has introduced a Bill expanding its Budget 2012 legislation on livestock tax, which is likely to have implications for many farmers.
Herd scheme elections were made irrevocable from August 18, 2011, preventing farmers from taking advantage of livestock value fluctuations to receive unintended tax breaks.
The Inland Revenue Department (IRD) estimated these would have cost the Government $275 million over six years had the rules not changed.
The new Bill provides a little more flexibility around exiting the herd scheme.
The Government has agreed to allow farmers to make an election to a cost-based scheme if they change their farming regime from breeding to fattening.
The useful 'alternative valuation option' will continue to be available. The increases in the number of a class of livestock for which a herd scheme election has been made would not need to be valued under the herd scheme.
In recent years some accountants advised farmers to use the election available to those ceasing farming and selling their livestock.
Sales were made to 'associated persons', usually a company, without any change in economic ownership. IRD is considering auditing some cases.
Therefore, the Government has decided that from March 28, 2012, purchasers in 'associated party transactions' must adopt the vendor's herd scheme elections and base herd numbers.
Federated Farmers was concerned about the potential impact on farm succession where genuine sales are made to children or grandchildren. The Government listened and included an exception when there is a complete inter-generational change of ownership. To qualify, the vendor must cease farming and the recipients cannot have had previous interests in the livestock.
Another change is the combination of the friesian and jersey dairy classes and the red and wapiti deer classes.