The Income Equalisation Deposit (IED) Scheme

January 31, 2020


Income equalisation is a useful option to help clients manage their tax. The scheme allows farmers, fishers and foresters who are eligible taxpayers to even out fluctuations in income by spreading their gross income from year to year.

Deposits to the scheme are allowed as a deduction and when withdrawn those refunds are treated as income.

There are two types of income equalisation scheme: the main scheme and the scheme for forestry thinning operations. A third type, the adverse event income equalisation scheme, has been repealed for income years beginning after 18 March 2019.

1. Main Income Equalisation Scheme

Who is eligible?

Who is NOT eligible?

Clients engaged in any farming or agricultural, fishing or forestry* business


This can include: beekeeping, animal husbandry, dairy farming, grain and seed growing, market gardening, fruit growing, poultry farming, share-milking, tobacco growing, vegetable growing, and vineyards.


* applicable to individuals engaged in a forestry business, for forestry companies see further at 2. below.

It does not include clients engaged in: dealing in livestock, leasing or bailing livestock by the bailer, aerial topdressing, hobby farming, services provided to a forester to manage tree stock, services provided to persons carrying on a farming or agricultural business, for example agricultural contractors or seed cleaners.

A deposit to the scheme can be treated as a deduction in the previous accounting year as long as it is made within the time frame specified by the legislation. This will be the earlier of:

  • Six months after the end of the accounting year or
  • One month from the date that the relevant return of income is due to be filed

Example 1

30 June 2019 balance date (with extension of time arrangement to 31 March 2020). The specified period is the earlier of:

  • 6 months from balance date – 31 December 2019
  • 1 month after return is due – 30 April 2020 

Example 2

30 June [this year] balance date (without extension of time arrangement). The specified period is the earlier of:

  • 6 months from balance date – 31 December [this year]
  • 1 month after the return is due – 7 November [this year] (being 1 month after return filing date of 7 October [this year])

In the first example the specified period ends on 31 December 2019, whereas in the second example the specified period ends on 7 November [this year].

It is possible to request that Inland Revenue accept a deposit outside of these time frames. Each case is assessed on its merits.

Deposits made outside the specified period

The Commissioner has statutory powers to accept income equalisation deposits for an accounting year outside the specified period. Briefly:

  • Beyond the specified period for an accounting year, the Commissioner will allow a taxpayer to make an income equalisation deposit for that accounting year if the deposit is made by the ‘required date’, this being the earlier of:
  • One month from the date of filing the income tax return for that accounting year; or
  • One month from the date that the relevant income tax return is due to be filed – this includes any extension of time arrangements agreed to by the department
  • On a case-by-case basis, the Commissioner will consider requests to make a deposit for an accounting year after the required date, and take into account the reasons why the deposit was not paid by the required date
  • Deposits made after the required date and not accepted by the Commissioner as applying to the requested accounting year may still be accepted by the Commissioner and applied to the accounting year in which the deposits are made. Inland Revenue will contact the taxpayer and ask whether the deposit is still to be made or the money refunded
  • A deduction will be allowed for the accounting year in which the deposit is deemed to have been made once the deposit is physically received by Inland Revenue

Some rules to consider 

  • The minimum deposit is $200 and there are limits for the maximum deposit. This is generally the net income for that year
  • A taxpayer is usually required to deposit the sum for a minimum of twelve months
  • A taxpayer may apply for a refund after six months if that refund is required to enable him/her to undertake planned development or maintenance work and purchase livestock
  • Refunds of deposits for less than six months or at any time may be made if the refund is required to
  • Prevent the taxpayer from suffering serious hardship
  • Where the refund is required for the purchase of replacement livestock
  • Anything else the Commissioner determines
  • After five years the deposit is automatically refunded
  • A refund is automatic on bankruptcy, death or retirement of an individual taxpayer, or on the liquidation of a corporate taxpayer. There are specific rules around what income year the deposit can be allocated to in these circumstances.
  • A refund is deemed to have been made in respect of the year in which the application for the refund is received by Inland Revenue. The refund may be deemed to be gross income in the previous year if the application is received within the specified period
  • If in the year of refund the tax attributable to the refund exceeds the tax saving which the client obtained previously in respect of the deposit, the client is entitled to a rebate for the excess. This is particularly relevant in times where the top personal marginal tax rate is dropping.
  • Interest is payable by Inland Revenue on deposits. The current rate is 3% but is only receivable after the deposit has been in the account for one year. The interest is credited at 31 March each year but is assessable as income in the year the deposit is refunded. Resident withholding tax (RWT) is liable to be deducted from any interest paid.

2. Income Equalisation Scheme – Forestry Income from Thinning

A forestry company can make deposits to the thinning operations income equalisation scheme for income from forestry thinning operations. To qualify, the company must be carrying on a forestry business on land in New Zealand.

Deposits may be made for income from thinning operations. The maximum deposit in a year is the gross receipts from thinning.

The scheme is governed by the same rules as the ordinary equalisation scheme. The exception is that there is no automatic refund after five years. That is, there is no maximum time for which deposits can remain in the account.

Adverse events

The Commissioner may extend the timeframe for eligible taxpayers to make a deposit or request an early refund, if they are affected by an adverse event. This could be a regionally declared event or it can be due to a self-assessed adverse event, such as:

  • a fire, flood, drought or other natural event; or
  • sickness or disease among livestock

A taxpayer must explain how the adverse event has affected them.

Exceptional circumstances

The Commissioner may accept a late deposit, an application for an early refund, or a late application for a refund under exceptional circumstances. These could include, but are not limited to:

  • a taxpayer receiving incorrect advice from their tax agent, or
  • a taxpayer experiencing a sudden or unexpected change in circumstances.

However, these are not automatically accepted. The Commissioner will consider all factors before accepting the deposit as being made in the requested tax year.

Other effects on taxable income

Additionally, deposits into income equalisation schemes (and some refunds from the forest thinning equalisation scheme) may count as income for the purposes of calculating thresholds for Working for Families credits and student allowance/loan repayments or where parental income is assessed to determine a student’s eligibility for Student Allowance.