DET A10
Issued
10 Oct 2017

Tax adjustments for livestock under AIM

Determination A10 covers tax adjustments for livestock under the accounting income method - applies for the 2018-19 and later income years.

Scope

  1. Under the Accounting Income Method (AIM), taxpayers can calculate their provisional tax payments by using accounting software if that software is in accordance with determinations made under section 91AAX of the Tax Administration Act 1994.

  2. An AIM-capable accounting system calculates provisional tax using year-to-date accounting income and expenditure adjusted for tax purposes (if required). The purpose of this determination is to detail the tax adjustment for valuing livestock on hand to calculate year-to-date net positive accounting income and expenditure, after tax adjustments, for an AIM instalment period.

  3. This determination applies to livestock that is excluded from being trading stock due to the application of section EB 2(3)(f) of the Income Tax Act 2007.

Application

This determination applies for the 2018-19 and later income years.

Tax adjustments: some periodic inventory systems

  1. This clause requires tax adjustments to the extent to which a person’s accounting income and expenditure does not already accord with the adjustments described in this clause.

  2. If a person does not use a perpetual inventory system to determine the closing value of livestock and calculate accounting income and expenditure in relation to it for an AIM instalment period, the tax adjustment provided in subclause (3) must be made for the period.

  3. For the AIM instalment period, the person must make a tax adjustment to accounting income and expenditure on the basis of the closing value for their livestock determined by a physical stocktake done for the period.

  4. A person using national standard costs to value livestock must—
     
    1. use the Commissioner’s most recent determination issued under section EC 23 of the Income Tax Act 2007 to calculate the value of homebred livestock and the value of livestock listed in schedule 18, column 2 of the Income Tax Act 2007; and

    2. value purchases at cost in terms of section EC 24 of the Income Tax Act 2007.

  5. A person using the herd scheme and national average market values to value livestock must use the Commissioner’s most recent determination issued under section EC 15 of the Income Tax Act 2007 to calculate the value of livestock.

  6. Where the Commissioner has received a valid election from a taxpayer under section EC 17 of the Income Tax Act 2007, the value of livestock under subclause (5) may reflect the adoption of a herd value ratio for a type of specified livestock subject to the herd scheme.

Example:

Liam operates a dairy farm and uses an AIM-capable accounting system to calculate his provisional tax liability.

To value his livestock Liam uses the national standard cost scheme.

For the current income year Liam acquired a perpetual inventory system which provides a continuous record of each stock movement.

In the above circumstances applying clause 3(1) of this determination, Liam may rely on the output of his perpetual inventory system, and on the relevant values under subpart EC of the Income Tax Act 2007.

Liam may also rely on the Commissioner’s determination under section EC 23 of that Act setting national standard costs which was issued for the income year prior to the current income year.

Tax adjustments: manual and automatic

A tax adjustment under this determination must be made by—

  1. the user of the accounting software, manually:
  2. the accounting software, automatically:
  3. any other means, as appropriate.

Tax adjustments: errors and oversights in previous instalment period

An error or oversight affecting accounting income or expenditure (including income or expenditure adjusted by a determination) for an instalment period in an income year must be corrected by making a tax adjustment in the next instalment period after the one in which the error or oversight is identified.

Interpretation

  1. In this determination, unless the context otherwise requires,—

    instalment period, for a person, means the 2-monthly or monthly period given by schedule 3, part AB of the Income Tax Act 2007 for the applicable instalment date:

    livestock means livestock, as defined in section YA 1 of the Income Tax Act 2007, excluded from being trading stock due to the application of section EB 2(3)(f) of the Income Tax Act 2007:

    perpetual inventory system means a system which tracks each individual stock movement as it occurs and does not solely rely on periodic stocktakes to determine the closing value of trading stock and calculate accounting income and expenditure in relation to it:

    trading stock has the same meaning as in section EB 2 of the Income Tax Act 2007.

  2. Any word or term that is defined in a Revenue Act and used, but not defined, in this determination has the same meaning as in that Act.

  3. Examples used in this determination are included in this determination only as interpretational aids. If there is conflict between an interpretational aid and a provision of this determination, the provision prevails.

This determination is made by me, acting under delegated authority from the Commissioner of Inland Revenue under section 7 of the Tax Administration Act 1994.

This determination is signed on the 10th day of October 2017.

Keith Taylor

Manager, PAS