Farmers in the lower North Island and the West Coast will be able to earn interest on their tax payments to help smooth out the hardship of drought.

The Government has previously declared a medium-scale adverse event because of drought conditions across Taranaki, parts of Manawatu-Whanganui and Wellington, as well as the Grey and Buller districts of the West Coast.

Farmers in the affected North Island communities are able to apply for relief as part of a $160,000 funding boost available through a Rural Support Trust. The available funding for South Island farmers is $50,000.

This morning Revenue Minister Stuart Nash said the affected farmers in both areas will also be offered tax relief.

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Inland Revenue will allow farmers in drought areas to make late income equalisation deposits for the 2016-2017 income tax year. This means they can deposit money for tax purposes, and if the money is left on deposit for more than 12 months, it earns 3 per cent per annum, which is then added to the tax deposit.

They will also be able to apply for early refunds, allowing them to smooth out seasonal income fluctuations.

Local authorities affected by the drought classification are: Stratford, New Plymouth, South Taranaki, Whanganui, Rangitikei, Manawatu, Palmerston North, Horowhenua, Kapiti Coast, Upper Hutt, Porirua, Wellington, Lower Hutt, Grey and Buller.

"We know the rural community is having a tough time," Nash said.

"Many farmers will have more urgent issues on their minds than tax compliance. Inland Revenue has confirmed there will be greater flexibility and assistance for those affected.

"I strongly encourage any farmers who are struggling to meet their tax obligations because of the adverse conditions to talk to their accountant and engage with Inland Revenue."​