Herd Scheme

For any farmers who still have their livestock valued at the National Standard Cost Scheme (NSC) 2021 could be an opportune time to consider whether they should look at changing over to the Herd Scheme (National Average Market Values).  The downside to moving is that it brings forward the tax cost on the difference between the NSC and Herd value.   The upside to moving to Herd is that any future increases in the Herd Values is tax free from year to year. 

Because we do not know what increases (or drops) there will be in future it is difficult to do a calculation to work out at what level the breakeven point is as to whether the interest cost of paying tax in advance is outweighed by a saving of the actual amount of taxable income on which tax is calculated.

Below is a table of the Fonterra Milk Prices and Herd Values for the past ten years.

 

Milk Season

Fonterra Milk Price

Tax Year Ended

Herd Value MA Cow

2010-11

$7.60

31 March 2012

$2,155

2011-12

$6.08

31 March 2013

$1,873

2012-13

$5.84

31 March 2014

$1,963

2013-14

$8.40

31 March 2015

$1,655

2014-15

$4.40

31 March 2016

$1,356

2015-16

$3.90

31 March 2017

$1,649

2016-17

$6.12

31 March 2018

$1,529

2017-18

$6.69

31 March 2019

$1,513

2018-19

$6.35

31 March 2020

$1,525

2019-20

$7.14

31 March 2021

$1,528

2020-21

$7.45 - $7.65  ?

31 March 2022

  ?

2021-22

$7.25 - $8.75  ?

31 March 2023

  ?

 

Although the Herd values do not exactly correlate with the price of milk there is a definite pattern of the Herd value increasing and decreasing as the milk price changes.  The Herd values have been reasonably static over the past four years as the milk price has increased slowly from $6.12 to $7.14 over the same period.  With more confidence that the higher milk prices are here to stay for the next two seasons at least we can assume there could be a big jump in herd values next year.

If we used an example of a farmer with a NSC value for a MA cow of $828 the difference between the NSC and Herd value in 2021 would be $700.  If that farmer retired or sold the herd he would be liable for tax on $700 (or thereabouts).  If the market value increases $400 to $1928 in 2022 and the farmer sells his herd he will be taxed on $1100.  By moving to the herd scheme in a low year the tax cost is minimised but you have to pay the tax in that year you move over.  Any farmer thinking of selling up in the next few years should discuss this with their accountant.

BACK TO NEWS>

What Our Customers Think

Great local Accountants. They provide an excellent service with great explanations for the layman. They provide accounting services for non rural clients too.

Quinn Wilson, Restaurant Owner, The Wagon
What Our Customers Think


Rural Accountants is a real asset to our business.

The team at Rural Accountants pretty much manage all our administrative tasks for the group including payroll and tax planning, ensuring we don’t pay any more than necessary. They are at the forefront of technology and have helped us get up and running with Xero and Figured which is much more efficient than the way we used to work.

Sam Jones, Managing Director, Sybton Farm Ltd Partnership
What Our Customers Think


Christine is very knowledgeable, great to deal with and knows our business well. She is also a sheep & beef farmer so knows the industry really well and understands our needs.

Rural Accountants keeps us on track through strategic and forward planning meetings throughout the year. Christine knows our business inside out so she can deal with our questions instantly.

Mathew & Gemma Barham, Hawke’s Bay Farmer of the Year 2012
What Our Customers Think

What Our Customers Think

I used to work out my GST and process it manually which would take me at least a full day every two months. The team set up reconcilliation rules and other quick tools, and showed me how to do all my reconcilliations and process my GST returns through Xero which now takes me no time at all!

Mike O'Neill, Financial Services Northland Ltd
What Our Customers Think


As a farmer, Christine understands our business and how farmers and growers operate.

We use Rural Accountants to provide a full accounting service to an orcharding partnership which operates a number of orchards with a wide spread of varieties and management systems. Rural Accountants are always timely and accurate, and their annual financial accounts are extremely easy to understand and very grower-friendly.

Paul Jones, Orchardist