Tax Accounting for Livestock: Mother or Meat/Capital or Revenue?
This article was first published by Thomson Reuters New Zealand in the New Zealand Journal of Taxation Law and Policy and should be cited as Alexander Fullarton and Dale Pinto, Tax Accounting for Livestock: Mother or Meat/Capital or Revenue (2021), 27(1) NZJTLP. For all subscription inquiries ple
36 Pages Posted: 18 Mar 2020 Last revised: 27 Nov 2020
Date Written: February 23, 2020
Australia is experiencing cataclysmic weather events largely due to rising atmospheric temperatures caused by greenhouse gas emissions – climate change. A consequence of droughts, floods, fires, tempests and family disasters is the sale or loss of valuable stud stock. In normal trading circumstances these animals would not be sold as trading stock. However the sale of pastoral properties can be beyond the will of the owners for a raft of reasons.
Presently the receipts from the sale of ALL animals sold as part of a primary production business are considered to be income according to ordinary concepts by the Australia Taxation Office (ATO) and taxed at ordinary income tax rates.
This paper considers the value of animals included in the sale of rural properties in Australia. It argues that the provisions of the Income Tax Assessment Act 1997 (ITAA 1997) are being misinterpreted by tax administrators and tax professionals. Sections 70-10, 995 ITAA 1997 provide that livestock are trading stock – a revenue item. However s 385-100 refers to breeding stock – a capital item. Many practitioners may be interpreting ss 70-10, 995 as applying to ALL livestock.
Considering the sale ALL animals traded on the sale of a pastoral lease or farm as revenue denies vendors of concessions permitted under the capital gains tax provisions. This paper considers the income and capital gains tax implications on the sale of animals in conjunction with the sale of pastoral and farming properties in Australia.
The distinction between classifying expenditure by an enterprise to be on items of a capital or a revenue nature has long been argued. Generally, in accounting terms, expenditure is considered to be of a capital nature if the benefit of the purchased asset is applied to more than one accounting period.
Keywords: Trading Stock, Breeding Stock, Livestock, Business Expenditure, Capital Gains Tax, Capital Gains Tax Concessions, Income Tax Deductions
JEL Classification: K34, Q14
Suggested Citation: Suggested Citation