1398 NEW ZEALAND GAZETTE No. 36

the same type under the national standard cost scheme, any reduction in the number of livestock of that type below the number on hand at the end of the immediately preceding income year must first be accounted for from the relevant class (in any case where the taxpayer adopts a class by class separation of livestock numbers) or inventory grouping valued at the end of the immediately preceding income year under the national standard cost scheme.
Accordingly, any reduction in the number of livestock of that type shall only commence to reduce the number of livestock valued under the herd scheme:

(a) In any case where the taxpayer uses an inventory system which separates out livestock of that class, where no livestock of that class is on hand at the end of the income year to be valued under the national standard cost scheme; or

(b) In any case where the taxpayer uses an inventory system which does not separately identify livestock of that class, where no livestock of the relevant inventory grouping is on hand at the end of the income year to be valued under the national standard cost scheme.

18. Treatment of livestock bailed by a taxpayer which may be valued under the national standard cost scheme

Under section 86C(3) of the Act, taxpayers who bail livestock are only eligible to use the national standard cost scheme in relation to bailed livestock where the taxpayer expects to have the livestock originally bailed to be re-delivered. In such a case, the provisions of this determination shall apply as if the bailed livestock were livestock on hand.

Movement between National Standard Cost and Other Livestock Valuation Schemes

19. Changing from herd scheme, market value option or replacement price option to national standard cost scheme

In respect of each livestock type, in the income year in which the national standard cost scheme is first adopted by the taxpayer, the opening inventory structure and cost must be calculated, in accordance with the appropriate paragraph 20 or 21 of this determination, in order to allow calculation of the closing inventory number and cost in respect of that type of livestock in that income year under the provisions of paragraphs 13 to 15 of this determination.

20. Where the taxpayer adopts the average cost system of cost flow identification

If a taxpayer is to use the average cost system in respect of livestock valued under the national standard cost scheme, in respect of each relevant inventory grouping of livestock, the average cost at the beginning of the income year will be deemed to be equal to the amount calculated in accordance with the following formula:

$$
\frac{a}{b}
$$

where—

a is the aggregate value adopted for income tax purposes in the preceding income year by the taxpayer in respect of all classes of livestock of the taxpayer of the type which would have been included in the inventory grouping on hand at the end of the immediately preceding income year;

b is the number of livestock in the taxpayer of the type which would have been included in the inventory grouping on hand at the end of the immediately preceding income year.

21. Where the taxpayer adopts the FIFO system of cost flow identification

If a taxpayer is to use the FIFO system to account for livestock under the national standard cost scheme, the value of the opening inventory of mature livestock of the taxpayer in the relevant income year will be equal to the values for income tax purposes of each class of livestock of the taxpayer in an inventory grouping of the type in question on hand at the end of the immediately preceding income year. For the purposes of application of the FIFO system in the income year of the change and subsequent income years, the opening inventory of mature livestock (in all cases other than pigs) shall be subdivided and be deemed to be aged as follows (from newest to oldest):

(a) Rising two year female breeding stock;

(b) Older classes of female breeding stock (subdivided and ranked from newest to oldest to the extent possible having regard to the taxpayer’s preceding tax accounting system);

(c) Non-breeding livestock (excluding male non-breeding dairy cattle and male non-breeding beef cattle);

(d) Male breeding stock.

In the case of pigs, the mature livestock included in opening inventory in the income year shall be subdivided and be deemed to be aged as follows (from newest to oldest):

(a) Weaner pigs less than 10 weeks of age;

(b) Growing pigs between 10 and 17 weeks of age;

(c) Pigs over 17 weeks of age;

(d) Breeding sows less than one year old;

(e) Breeding sows over one year of age;

(f) Breeding boars.

The FIFO system will be applied accordingly, in the income year in which the national standard cost scheme is first adopted and in subsequent income years in which it is used, so that dispositions and deaths are deemed to reduce first the oldest still existing class of mature livestock.

22. Change from national standard cost scheme to the herd scheme, market value option or replacement price option for any complete inventory grouping

Irrespective of which cost flow identification system was used in the income year preceding the year of the change, the opening value of the livestock of the inventory grouping in the year of change shall be treated as being equal to the value for tax purposes at the end of the immediately preceding income year. A value of the livestock at the end of the year of change will be calculated accordingly under the chosen valuation option on an class-by-class basis.

23. Change from national standard cost scheme to the herd scheme for some livestock only

If the number of livestock of an inventory grouping moved to valuation under the herd scheme in any income year still leaves some livestock of the particular inventory grouping to be valued under the national standard cost scheme at the end of the income year, then paragraphs 24 to 26 (as appropriate) of this determination shall apply.

24. Average cost system used in year preceding the year of change

If the average cost system of cost flow identification was used in the income year preceding the income year of change to the herd scheme, the number of livestock moved to the herd scheme shall be accounted for as if they were livestock disposed of or dying in the income year (see paragraphs 14 and 15 of this determination). No adjustment is required to opening inventory numbers and costs.

25. FIFO system used in year preceding the year of change

If the closing inventory system used in the income year preceding the income year of the change to the herd scheme was the FIFO system, then the number moved to the herd