M. bovis highlights need to improve Adverse Events Scheme

17 September 2018

M. bovis highlights need to improve, not scrap, rural Adverse Events Scheme

Mycoplasma bovis (M. bovis) highlights that a scheme deferring tax on income from forced livestock sales should be improved not scrapped, Chartered Accountants Australia and New Zealand (CA ANZ) says.

“Ditching Inland Revenue’s Adverse Events Scheme would remove a valuable tool that farmers and rural businesses can use to smooth out the ups and downs of their income and expenditure after an adverse event,” said CA ANZ New Zealand Tax and Financial Services Leader, John Cuthbertson.

“In the case of M. bovis, the scheme helps farmers and rural businesses to match sometimes substantial income from capital livestock sales with often significant repurchase costs.”

Referring to an Inland Revenue proposal to repeal its Adverse Events Scheme, Mr Cuthbertson, said “Rather than repealing the scheme and transferring taxpayers to the main income equalisation scheme as proposed, we believe the Adverse Events Scheme should be retained and enhanced”.

The repeal proposal comes amid suggestions that uptake of the scheme is likely to increase in the wake of M. bovis.

Available to any taxpayer engaged in farming or agricultural business, the Adverse Events Scheme allows tax on additional income from forced sales to be deferred to the following year after adverse events that reduce a farm’s carrying capacity.

Self-assessed events such as fire, flood, drought, other natural events, and livestock disease like M. bovis, are included in the Adverse Events Scheme.

“CA ANZ’s Rural Advisory Committee has advised that overall the scheme is fit for purpose,” Mr Cuthbertson said.

“In the case of M. bovis and similar events, affected farmers could likely earn significant income from forced stock sale or culling, yet still be required to repurchase often more expensive healthy stock in the following year.

“The clear benefits of the scheme is the ability to earn interest over a short period to account for stock supply and price fluctuations, and the certainty of early withdrawal from the scheme, unlike the main income scheme where deposits have a minimum 12 month term.”

CA ANZ also believes the scheme’s current low uptake could be improved.

“A lack of recent adverse events, M. bovis excepted, and the fact that in many instances these did not result in significant livestock sale income, had also likely influenced reduced use of the scheme,” Mr Cuthbertson said.

“Several CA ANZ members have indicated their clients recently entered, or intended to enter, the scheme following M. bovis, and that we could expect to see greater numbers in the next six months.”

If the Adverse Events Scheme is repealed, CA ANZ believes the main income equalisation scheme should be amended to ensure fairness for those transferred from the Adverse Events Scheme, or changes should be introduced to the livestock valuation rules to deal with livestock replacement after adverse events.

A full copy of CA ANZ’s submission on the Taxation (Annual Rates 2018 – 19, Modernising Tax Administration, and Remedial Matters) Bill can be found here.

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