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Deposits to the scheme are allowed as a deduction and when withdrawn those refunds are treated as income.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 A third type, the adverse event income equalisation scheme, has been repealed for income years beginning after 18 March 2019.
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:
30 June 2019 balance date (with extension of time arrangement to 31 March 2020). The specified period is the earlier of:
30 June [this year] balance date (without extension of time arrangement). The specified period is the earlier of:
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:
Some rules to consider
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.
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 taxpayer must explain how the adverse event has affected them.
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:
However, these are not automatically accepted. The Commissioner will consider all factors before accepting the deposit as being made in the requested tax year.
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.