Farming and Accounting in New Zealand: A Practical Guide for Rural Landowners

Farming has long been a cornerstone of New Zealand’s economy and identity. From dairy and sheep to horticulture and viticulture, New Zealand farms supply food, fibre, and innovation to the world. Yet behind the gumboots and green paddocks lies another vital component of any successful farm operation: accounting.

Whether you’re running a large commercial farm or managing a small lifestyle block, understanding farm accounting, allowable expenses, and Inland Revenue Department (IRD) obligations is critical. This article explores key financial and tax considerations for New Zealand farmers and lifestyle landowners.

1. Understanding Farming as a Business

Farming in New Zealand is not just a way of life—it’s a business, and the IRD treats it as such. Whether you operate as a sole trader, partnership, company, or trust, your farm income must be declared, and expenses carefully managed.

Common forms of farm business structures include:

• Sole Trader – Simple setup; the farmer personally earns all income and claims all expenses.

• Partnership – Often used for family farms; profits and losses are shared.

• Company – Offers limited liability and easier succession planning.

• Trust – Frequently used for asset protection and estate planning.

Each structure has different tax implications, so getting tailored accounting advice is essential when choosing or reviewing your business setup.

2. Claimable Farm Expenses

Running a farm involves significant operating costs. Fortunately, the IRD allows farmers to deduct business-related expenses from their taxable income. Accurate record-keeping is vital to prove these expenses and ensure compliance.

Common deductible expenses include:

Expenses must relate directly to the earning of income, and personal use must be excluded. For instance, a vehicle used for both personal and farm purposes must have its business use portion correctly calculated.

3. Special Farming Tax Provisions

Farming has several unique tax rules and options under New Zealand tax law. These provisions recognise the seasonal and capital-intensive nature of agricultural operations.

A. Income Equalisation Scheme

The Income Equalisation Scheme allows farmers to even out income across years. Farmers can deposit income into an IRD-managed account during high-income years and withdraw it in low-income years, reducing overall tax liabilities.

• Useful for managing fluctuating weather or market cycles

• Deposits must be made within the year or shortly after balance date

• Funds can be withdrawn after 12 months (with some exceptions)

B. Spreading of Income

Certain income from the sale of livestock, bloodstock, or forestry can be spread over multiple years, especially during significant disposals such as farm sales or death. This prevents farmers from being pushed into higher tax brackets in a single year.

C. Livestock Valuation Methods

Farmers can choose different methods to value livestock, which directly affects taxable profit:

• Herd scheme – Values livestock based on IRD-published national values. Good for long-term holders.

• National standard cost (NSC) – Reflects actual rearing costs. Useful for trading operations.

Farmers can switch methods under certain conditions, so it’s important to consult an accountant to find the most tax-effective strategy.

4. GST and Farmers

Most farmers in New Zealand must register for Goods and Services Tax (GST) if their turnover exceeds $60,000 per year. GST applies to most goods and services, but farming has some peculiarities.

• Zero-rated sales: Livestock exports and certain land sales are zero-rated.

• Exempt supplies: Interest income and financial services are GST-exempt.

• GST on capital assets: Claimable if the asset is used for farming purposes.

Farmers must file GST returns (monthly, two-monthly, or six-monthly) and keep thorough records of all GST-included purchases and sales. Some choose the payments basis (based on cash flow) while others use the invoice basis (based on invoicing date).

5. Lifestyle Blocks: Farm or Hobby?

Lifestyle blocks—small rural properties of a few hectares—are increasingly popular in New Zealand. But how does the IRD view them?

A. Hobby vs Business

The key question is whether the block is operated as a business or as a hobby. If it’s just a personal pursuit without an intention to make a profit, the IRD will treat it as a hobby—and no deductions are allowed.

Indicators of a business:

• Regular income-generating activity

• Business plan or budgeting

• Marketing or selling produce or animals

• Profit motive and reasonable expectation of profitability

• Record keeping and invoicing

If you graze animals, sell eggs or honey, or operate a vineyard—even on a small scale—you might be in business. But if the costs continually exceed income without a reasonable prospect of turning a profit, the IRD may deny expense claims under the tax avoidance provisions.

B. GST and Lifestyle Blocks

Some lifestyle block owners register for GST and claim deductions on fencing, sheds, and vehicles. However, GST registration is only valid if you are carrying on a taxable activity. Overstating a hobby as a business to claim GST is a red flag for the IRD.

If your property includes a mix of business and private use, expenses and GST must be apportioned accordingly. For example, if a ride-on mower is used 70% for maintaining paddocks for grazing and 30% for your lawn, only 70% of the cost is deductible.

6. IRD Expectations and Compliance

The IRD expects all farmers and rural business owners to:

• Maintain accurate and complete records (7 years minimum)

• File income tax and GST returns on time

• Pay provisional tax if required

• Use correct valuation methods and disclose all income

Common compliance risks in rural settings include:

• Incorrectly claiming private expenses as business-related

• Failing to declare cash sales of produce or livestock

• GST overclaims on lifestyle blocks

• Unreported changes in land use or asset sales

The IRD has increased its focus on rural taxpayers, especially where GST refunds are claimed or high-value assets are purchased. Keeping detailed documentation—including invoices, mileage logs, and stock records—is essential for defending your tax position.

7. Working with an Accountant

A rural-focused accountant is one of the most valuable assets for any farm or lifestyle landowner. They can help you:

• Choose the right business structure

• Navigate complex livestock and depreciation rules

• Maximise tax efficiency

• Stay compliant with IRD

• Plan for succession or farm sale

Accountants also play a key role in budgeting, cash flow forecasting, and benchmarking your performance against similar farms.

If you own a lifestyle block and are unsure if your operation qualifies as a business, an accountant can assess your activities and help prepare the necessary documentation.

8. Technology and Farm Accounting

Modern farms are increasingly adopting accounting software to streamline operations. Programs like Xero, Figured, Cashmanager RURAL, and Farm Focus integrate financials with farm data like stock numbers, milk production, and forecasts.

Benefits include:

• Real-time cash flow visibility

• Easier GST and tax returns

• Better financial decision-making

• Improved record-keeping for IRD audits

Cloud accounting also enables collaboration between you, your accountant, and your bank—vital for seasonal borrowing and long-term planning.

Conclusion

Farming is one of the most rewarding yet financially complex sectors in New Zealand. From claiming legitimate expenses and managing GST to understanding IRD expectations and planning for the future, accounting is at the heart of every successful rural operation.

Whether you run a 500-hectare sheep farm or raise a few alpacas on a lifestyle block, treating your land as a business—with the right advice and systems—can protect your investment and improve your profitability.

Work closely with a rural accountant, stay up to date with IRD rules, and invest in quality accounting tools. By doing so, you’ll not only comply with the law—you’ll give your farm or block the best chance to thrive.