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EC 33: Determining depreciation percentages
or “How the tax office calculates yearly value loss for expensive farm animals”
You could also call this:

“How to calculate the value of expensive livestock for tax purposes”

When you buy expensive livestock, you need to know how much it’s worth at the end of the tax year. This is called the closing value. To find the closing value, you start with what you paid for the animal and take away some money. This is called a reduction. You keep doing this each year until the value of the animal is the same as or less than the average market price for that type of animal.

You can choose two ways to work out the reduction: the straight-line method or the diminishing value method.

If you use the straight-line method, you multiply the cost price by a percentage to get the reduction.

If you use the diminishing value method, you do it differently for the first year and later years. In the first year, you multiply the cost price by a special percentage. In later years, you multiply the value of the animal at the start of the year by this special percentage.

The special percentage used in the diminishing value method is found in schedule 12. If the exact percentage isn’t there, you use the closest one. If two percentages are equally close, you use the lower one.

These rules don’t apply in some cases, which are explained in sections EC 35 and EC 36.

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Next up: EC 35: Livestock reaching national average market value and livestock no longer used for breeding

or “Valuing livestock that reaches market value or is no longer used for breeding”
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Part E Timing and quantifying rules
Valuation of livestock: Definitions

EC 34General rule

  1. The closing value of high-priced livestock at the end of the income year in which it is acquired is its cost price minus the reduction applying in the income year. In a later income year, the value is its opening value minus the reduction applying in the income year until the value reaches or falls below the national average market value for the class to which the livestock belongs.

  2. When a person has chosen to use the straight-line method, the reduction is calculated using the formula—

    cost price × depreciation percentage.

    Where:

    • When a person has chosen to use the diminishing value method, the reduction is calculated as follows:

    • in the first income year in which the election applies, the cost price multiplied by the diminishing value equivalent of the depreciation percentage for the income year:
      1. in later income years, the opening value of the livestock multiplied by the diminishing value equivalent of the depreciation percentage for the income year.

        1. In this section, diminishing value equivalent, for a depreciation percentage, means the diminishing value depreciation rate in schedule 12, column 1 (Old banded rates of depreciation) to which the amount in column 2 equal to the depreciation percentage is the straight-line equivalent. Two qualifications are—

        2. if no amount in column 2 is equal to the depreciation percentage, the amount closest to it is taken; and
          1. if 2 amounts in column 2 are equidistant from the depreciation percentage, the depreciation percentage is rounded down.

            1. This section does not apply in the cases described in sections EC 35 and EC 36.

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            Notes
            • Section EC 34(1) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
            • Section EC 34(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).