Tax changes leave way open for farm succession

Published: Fri 14 Sep 2012 12:33 PM
12 September 2012
Tax changes leave way open for farm succession
Controversial changes to tax legislation around livestock valuation will no longer disadvantage new generation farmers following a successful submission process by accounting firm BDO.
Amendments to the proposed ‘Herd Scheme’ changes were released yesterday [Thursday 13 Sept], providing exemptions for farm succession that free up new generation farmers from restrictive tax barriers.
“The exemption for farm succession has come a long way from the original proposal,”’ says BDO Tax Specialist and Farm Accountant Charles Rau.
“We commend Government for listening but succession advisers will need to be careful how they structure their arrangements.”
The original changes, released in April this year, would have forced new generation farmers into adopting their parent’s herd scheme selection by way of the ‘associated persons’ rule.
“BDO immediately realised the economic restriction this placed on new farmers and raised the issue in the media.
“We also surveyed the BDO national network of farm accountants and found that the original Government proposals did not cover the most common forms of farm succession and made submissions to Government for change.”
Mr Rau says the amendments now cover the common 50/50 sharemilking arrangement where the child purchases the herd outright and the parents own the land. It also covers common dry stock succession arrangements such as the child purchasing the livestock and leasing the land.
“However, there are a number of restrictions, including the child not previously having an income interest in the livestock and the parents not continuing to have an interest in livestock.
“Consequently, farmers and their farm succession adviser will need to be careful to ensure that their succession plans fit within the exemption provided for farm succession.
“This is a very good example of why accountants should be an integral part of farm succession planning.”
A recent Massey University summit on farm succession showed that the average age of dairy farm owners is 57 years old while other farm owners' average age is 60 years old.
“Clearly there is the need for a lot of farm succession planning to be implemented over the next ten years,” says Mr Rau.
“For an industry that is the cornerstone of the New Zealand economy it is vital that no more barriers are put up to farm succession and that succession is planned well in advance.”
The changes to the legislation mean that a son or daughter purchasing livestock off their parents or grandparents may not be disadvantaged from a tax perspective compared to purchasing livestock from an unrelated party. It also allows these farmers to continue to be treated like non-farming business owners in New Zealand in allowing them to value their stock at cost.
Farmers are advised to contact their accountant or tax specialist to determine whether their succession arrangements qualify for the exemption from compulsory participation in the herd scheme.
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