Livestock valuation: Which Value is best for my business?
Farmers need to value their livestock at the end of each income tax year. The two most common methods are the herd scheme and the national standard cost scheme.
The herd scheme (NAMV)
Under the herd scheme, livestock is treated more like a long-term farm asset than trading stock. Each year, Inland Revenue sets national average market values (NAMV) for different livestock classes. Farmers using this method use those values for their livestock. The main tax impact usually comes from changes in livestock numbers, rather than changes in livestock values.
Inland Revenue bases these values on market valuations from livestock valuers around New Zealand, then averages them nationally for each livestock class.
National standard cost scheme (NSC)
The NSC scheme aims to reflect the average cost of breeding and raising livestock as they grow.
Under the NSC scheme, Inland Revenue sets annual standard costs for different livestock types. These costs are used to value young stock bred on the farm, stock moving into mature groups, and livestock purchased during the year. Tax is paid on the movement between the opening and closing livestock values.
Once livestock becomes mature under the NSC scheme, it generally keeps its historic NSC value until it is sold or otherwise disposed of.
Which option is better?
There is no one-size-fits-all answer. The best method depends on things like your farm structure, future plans, livestock numbers, and whether the farm is new or well established. Moving from the NSC scheme to the herd scheme is usually a long-term decision.
It is also important to remember that there is often a tax cost when electing into the herd scheme. If you are buying a new herd and the price you pay is close to the herd scheme values, that can be a good time to opt in. Livestock herd values are currently high, so moving into the herd scheme now would create a tax liability for many farmers.
If you not sure which method is right for your farm, talk to our team. We can explain the options and help you work out which method gives the best overall tax outcome. Get in touch with us via email info@bfa.co.nz, or speak with your Client Manager.