Spreading the Load

You’ve had another successful year on the farm: your accountant does the maths, tells you how much belongs to IRD, and you (willingly? begrudgingly?) write the cheque.

Sound familiar?

That’s certainly one option. But farming income is rarely consistent from one year to the next. The milk price moves, the next “100-year” weather event hits, or perhaps the price of diesel teeters at $3.80 a litre. Fortunately, our tax system contains provisions designed with that volatility in mind.

In a year where everything is going your way, Inland Revenue’s Income Equalisation Scheme can be the hero you’ve been waiting for. Farming, fishing, and forestry businesses can make payments to the scheme, and those payments are recorded as a deductible expense. If the money is left there longer than 12 months, IRD will pay you interest at a rate of 3% per annum. The funds can sit with IRD for up to five years, until a leaner year comes along and you withdraw them, recording the refund as taxable income. You may not have heard much about it, but at 30 June 2025 Inland Revenue was holding almost $193 million in deposits.

Timing matters. If you have an extension of time to file your return, you can generally make a deposit up to six months after your balance date and include it in the previous year’s return. This means you may still have an opportunity to use the scheme once your accountant has calculated your tax position.

Let’s put this in practical terms. In a good year, taxable income of $1 million would mean $280,000 of tax (at a 28% tax rate). Deposit $300,000 into the scheme and taxable income drops to $700,000, reducing that year’s tax to $196,000.

In a leaner year, say taxable income falls to $400,000, you can withdraw that $300,000, bringing taxable income back to $700,000, and your tax bill up to $196,000 again.

Clearly a manufactured example – but you get the idea. This isn’t a scheme to reduce your overall tax obligation (we’re not magicians). Instead, taxable income that would have swung from $1 million to $400,000 has effectively been levelled at $700,000 in each year – smoothing your tax payments and, importantly, your cashflow.

There are caveats. The payment must be made in cash – it can’t be creative accounting we perform at year end – and generally your deposit needs to stay with IRD for 12 months. Early withdrawal is possible, but only if you meet specific criteria.

Income isn’t the only thing we can move between years. Sometimes, we can shift expenses too.

Enter: Deferred Fertiliser.

Under the Income Tax Act, farmers can spread the deduction for fertiliser – including cartage and spreading costs – over any or all of the following four income years. The fertiliser boosts pasture and production for seasons to come, so matching the deduction to when the benefit is realised makes more sense.

Say you spend $100,000 on fertiliser this year. You could claim the whole lot now or claim $20,000 and spread the remaining $80,000 over the next four years. Through smart tax planning with your trusted advisor, you can strategically claim and defer fertiliser expenditure each year, effectively rolling the benefit forward into a new four-year window until you need it most.

Neither of these is a loophole. They’re legitimate tools that recognise farming income doesn’t arrive in neat, predictable instalments, so why should the tax treatment pretend otherwise? The trick isn’t making the tax disappear – despite what you may expect from your accountant – it’s making sure you’re paying it at the time that makes the most sense for your business.

Content in this article is general and does not constitute advice – please get in touch if you'd like to discuss your specific circumstances.

Erin Neale, Associate at Brown Glassford & Co Limited.