Understanding the IRD’s Livestock Valuation Schemes: Herd Scheme vs. National Standard Cost

For many New Zealand farmers, livestock is one of the biggest assets in the business - and how you value that stock at the end of each financial year can have a big impact on your taxable income. The IRD offers two main livestock valuation methods: the Herd Scheme and the National Standard Cost (NSC) method.

Understanding the difference between these schemes - and which one is right for your operation - is key to managing tax and planning for the future. We've broken it down into a top-line overview:

What Are Livestock Valuation Schemes?

Each year, farmers need to assign a dollar value to their livestock. This isn’t just for the balance sheet - it also determines how much income or loss is recognised for tax purposes. The IRD allows you to choose between two main methods for certain livestock types:



• Herd Scheme
• National Standard Cost (NSC) method

1. The Herd Scheme (Market Value Approach)

This method treats livestock more like capital assets (think long-term investments, not just inventory). Livestock are valued based on average market values set by the IRD each year.

How it works:

• Values are published annually by the IRD for each livestock class (e.g. dairy cows, beef cattle, sheep).
• You don’t track the individual costs for animals.
• Once you enter the Herd Scheme for a livestock class, it’s generally considered a long-term election (you can’t switch in and out easily).

Best for:

• Long-term farmers who want stable, less volatile tax outcomes.
• Those who are building up or holding steady livestock numbers.

Pros:

• Simpler over time - less record-keeping.
• Smooths out income fluctuations (less taxable income when stock values go up).
• Useful for succession planning and long-term strategies.

Cons:

• You can’t easily change back to NSC once you elect into the Herd Scheme.
• In the year you switch, increased values may create a tax bill if values are higher than your NSC book value.

2. National Standard Cost (NSC) Method

This method values livestock based on standardised cost calculations - the average cost of rearing and purchasing livestock, adjusted annually by the IRD.

How it works:

• You calculate the cost of raising livestock (e.g. feed, vet, labour, depreciation).
• The IRD provides guidelines for this cost each year, depending on stock type.
• Tax is paid on increases in value (from births or purchases).

Best for:

• Growing farms that are increasing stock numbers year-on-year.
• Farmers wanting to maximise deductible expenses upfront.

Pros:

• Can reduce taxable income in years when you’re building stock.
• More detailed control over accounting.

Cons:

• More admin - requires tracking costs and stock changes carefully.
• Can result in higher tax when selling livestock or reducing stock numbers.

Can You Switch Between Schemes?

Yes - but there are rules. You can elect into the Herd Scheme from NSC, but switching back is generally not allowed unless special permission is granted. So it’s a decision to make carefully, ideally with your accountant.

Which Scheme Is Right for You?

The right method depends on your farm’s size, goals, and stage. Many established farmers prefer the Herd Scheme for its simplicity and long-term stability. Meanwhile, newer or growing operations might benefit from NSC’s ability to lower tax early on.

Need Help Choosing?

Every farm is different - and the best tax choice today might not be the best for next year. If you're unsure which scheme suits your business, get in touch. We can walk you through the numbers and help you make a smart, tax-efficient decision for your operation.