The two livestock valuation methods most commonly used are NSC and the Herd Scheme (HS).
Valued under HS, Mr Marshall explains, movements in livestock value are non-taxable, whereas movements in value under the NSC method are taxable, either as income or a deduction.
With the Inland Revenue Department's recent release of the NSC figures, he says there has been a substantial reduction in average production costs for dairy cattle, from $529.10 to $404.10 for breeding, rearing and growing a rising one-year-old heifer and from $414.20 to $322.50 for rearing and growing a rising 1 heifer into a rising 2 heifer.
As the livestock ages the value feeding into the mixed aged cow tax values will reduce, increasing the difference between NSC and HS values.
This will see deductions flowing through for farmers on the NSC scheme in the 2016/17 year for their capital stock.
"This is positive for those using NSC who have moved back into profit, as the movement will have a dampening effect on profitability, thereby improve their tax position."
Those on HS are not affected. However, Mr Marshall adds that farmers considering a move to the HS are likely to see the values compared with the NSC widening.
"Last year we saw the HS value of a mixed aged dairy cow fall to $1356, with the NSC value at approximately $900, with the $456 difference the smallest seen for many years.
"This year, HS values are expected to climb back to 2014/15 levels when announced in May," he notes.
If HS values increase as expected the differential between the NSC and HS values is likely to increase to $845.
Mr Marshall says the substantial drop in the NSC values is owing to the reduced payouts for dairy which has driven farmers to cut costs and revert back to a more pasture-based model.
He points out that dairy prices have seen considerable volatility through 2015/2016.
With payouts increasing in recent months, he anticipates that while NSC values are down, HS values will increase.
"Owing to the volatility of the dairy payouts last year, farmers have generally reduced their herd sizes. This means purchasing cows has become quite difficult, pushing prices up further - and that will impact on the HS values come May," he adds.
Mr Marshall says these market shifts means opportunities for tax optimisation for primary producers will continue to change.
"There is no one-size-fits-all. It is best to discuss individual needs with your tax advisor for the optimal structure for your farm."
In comments on NSC values for other livestock, Mrr Marshall notes small increases in average sheep production costs of $1.20 per head in a weak sheep market will have limited impact on sheep farmers. NSC and HS values remain well apart.
Restructuring transactions would remain the only time where a move to HS might be considered (where market value significantly exceeds HS).
NSC increases have come on the back of a buoyant beef market prior season and will see additional taxable income arising on capital stock when returns are starting to diminish.
Average costs are up as farmers expand numbers and capacity. Movement is unlikely to be material for most. There remains a significant difference between NSC and HS values.
