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Impact of herd purchase on profit for the 2024 financial year

This article leads on from our article ‘Livestock valuation methods explained’ and how it applies to herd purchases within the 2024 financial year for farmers valuing their stock using herd scheme (not national standard cost). Livestock Valuation Methods Explained (smsaccountants.co.nz)


The IRD has just released the 2024 herd scheme values which can be compared with the previous year as follows:

Stock class

2024

2023

Mixed age (MA) cows

$1609

$1628

R2 heifers

$1433

$1436

R1 heifers

$676

$693

 

You can see dairy stock values have decreased slightly from the 2023 year. For those with static cow numbers, the difference in value is not taxable between years, only the change in stock numbers is taxable.


Herd average purchase price less than herd scheme value


If your average purchase price for MA cows was less than $1609 or for R2 heifers was less than $1433 you are taxed on the gain (ie. the difference between what you paid and what the herd scheme value is).


For example, you bought 100 MA cows at $1500/head for a total purchase price of $150,000. This is recorded as an expense. These 100 cows are valued for closing stock on hand at $1609/head for a total of $160,900. Closing stock on hand is taxable income therefore the $10,900 difference is taxable income.


Herd average purchase price more than herd scheme value


If your average purchase price for MA cows was more than $1609 or for R2 heifers was more than $1433 you are taxed on the loss.


For example, you bought 100 MA cows at $1700/head for a total purchase price of $170,000. The closing stock value is $160,900 therefore the $9,100 difference is a taxable loss.


Both these scenarios are considered in isolation and ignore the impact of existing stock that may be already owned.


The key takeaway is that if your stock are valued on herd scheme and you paid less than herd scheme value then you will have created taxable income, and if you paid more than herd scheme value then you will have created a taxable loss.


If you paid more than herd scheme value, you should seriously consider valuing them on herd scheme rather than national standard cost as there are less taxable implications in future years with herd scheme, and you can claim the loss to get them onto herd scheme.


This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


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