Labour supported sending the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill to the Finance and Expenditure Select Committee for submissions from the public. But Parker said the bill did not fix the problem of the dairy sector paying too-low rates of taxation.
Revenue Minister Peter Dunne said changes to livestock valuation rules would be made as “a question of fairness”. The bill proposes to tighten the rules for people generally by deducting costs of assets such as holiday homes, boats and aircraft that are used by the owner, both privately and to earn income.
It also proposes to hit dairy farmers with:
- An exception to the herd scheme irrevocability rule that was enacted as part of Budget 2012 legislation. This will apply to farmers changing to a fattening operation.
- New rules for the disposal of herd scheme livestock.
Farmers generally have two options for valuing their livestock (mainly beef and dairy cattle, and sheep) at balance date for tax purposes. As an Inland Revenue Department (IRD) paper explains, the herd scheme treats livestock more as if they were a capital asset by using national average market values, commonly called “herd values”, with changes in values from year to year on tax-free capital account.
National standard cost (NSC) is similar to a typical trading stock scheme, where changes in values from year to year are on tax account. The major difference from a standard trading stock scheme is that on-farm costs for breeding, rearing and growing home-bred livestock are, for simplicity, standardised nationally.
The Budget change prevented farmers swapping from one scheme to another, backdated to take effect from August 18, 2011. But the IRD recognised there could be legitimate reasons for opting out of the herd scheme, particularly when a farm is changed from breeding to fattening, for which a cost-based regime is more natural.
So under the latest bill a farmer changing to a fattening operation would be an exception to the irrevocability rule. In that case, a farmer might make a one-off election to change, in the year that the last of the female breeding livestock is disposed of. This exception also will be effective from August 18, 2011.
The bill further proposes to amend sections of the Income Tax 2007 dealing with disposals and the cessation of farming and disposals of livestock on a person’s death.
During the first-reading debate, Parker said he was sure some of the rules prescribed would be questioned at the select committee hearings by those with an interest. The livestock valuation issues were long overdue for remedy, he said. The dairy sector was one of the most successful in the country, yet it paid very low rates of taxation.
One gaping hole in the tax system was that capital income is not taxed in New Zealand, producing distortions and unfairness in the system.
This bill did not fix that, Parker said, despite the fact that it drove unusual and economically inefficient and unproductive outcomes in the rural sector, as well as in other sectors.
He also said switching methods of livestock valuation had provided farmers with an unfair tax advantage for a long time.
“Those farmers who followed the rules as they were intended to be used were placed at a competitive disadvantage.
“The Labour Party supports this change because it is a fair change that makes sure these rules are applied in a fair way.”
Mallard said the Government had been quick to hammer paper boys in the Budget but was taking its time to close what was a much bigger rort.
The ability of people to switch their tax systems, to say one day they were dairy farmers and the next day they were fattening their beasts, and to switch back again the next year because their stock numbers were different or the valuations were different was wrong.
Only New Zealand First voted against the bill being given a first reading.
Trevor Mallard – bigger rort.
