Livestock valuation - previous years' invalid elections (June 2004)

We have been asked what would happen to elections for livestock valuation in previous years, which have been confirmed as invalid. This question has again arisen following the finalisation of a recent statement on the method of election for livestock valuation (Livestock Valuation - Election of Method), as published in this edition of the Tax Information Bulletin. We have also been asked what the Commissioner would do in respect of invalid elections where taxpayers have already filed their income tax returns.

Application of the legislation

Section EL 2(5) of the Income Tax Act 1994 provides that a taxpayer electing to exit the herd scheme must also specify a proposed valuation method in order to make a valid election.

Where an invalid election has been made, section EL 2(8) requires the Commissioner to make a determination of the correct method after consulting with the taxpayer.

What happens to previous years' invalid elections?

As confirmed by the QWBA on Livestock Valuation - Election of Method, the following elections to exit the herd scheme are invalid:

• taxpayer filed an election that states they will adopt either national standard cost or market value/replacement cost for all classes of livestock within a type, or
• taxpayer filed an election to exit the herd scheme but failed to state any proposed valuation method(s).

Inland Revenue practice

It is not considered practical, nor an efficient use of resources (of the Commissioner and of the taxpayers) to make large-scale enquiries of taxpayers, for back years, to ascertain whether invalid elections have been made. Under these circumstances, the Commissioner will determine the valuation method to be applied by a taxpayer as that method actually used by the taxpayer, providing the method used is a valid option available to the taxpayer at the time the election notice was filed. Inland Revenue will not accept further requests to change the valid valuation method used in the income tax return.

Where a taxpayer has not yet filed their income tax return, they may seek agreement from the Commissioner to use a different valuation method, providing the method used is a valid option available to the taxpayer at the time the election notice was filed.