Tax planning for Farmers: What you need to know for 2025/2026

Tax planning for Farmers: What you need to know for 2025/2026

After a challenging few years, tax has often taken a backseat for many farming businesses. But as we approach the end of the 2025–26 financial year, it’s time to bring it front and centre. Without careful planning, farmers risk unexpected tax bills, interest charges, and cashflow pressures. Understanding your obligations now can save headaches later.

Provisional tax: Spreading your tax payments

Provisional tax is designed to help businesses manage their income tax by paying in instalments throughout the year. For most farmers with a 30 June balance date, these instalments fall in November, March, and July.

Here are three methods of calculating provisional tax that are particularly relevant for farming businesses:

1. Standard Option

• • This method calculates provisional tax as last year’s Residual Income Tax (RIT) plus 5%.
  • Because 2024–25 was a relatively low-profit year for many, relying on last year’s RIT could result in underpayment this year.
  • Underpayment may trigger a large terminal tax bill in April 2026, along with interest charges, called Use-of-Money Interest (UOMI).

2. Estimated Option

• • This method calculates provisional tax based on your current year’s expected profit.
  • It’s the most suitable choice for years of sharply increased profits—like 2025–26.
  • Paying the full estimated provisional tax by your final instalment in July means no interest is charged, providing a smoother cashflow experience.

3. GST Ratio Method

• • This method calculates provisional tax based on a percentage of your actual income each GST period.
  • It’s a suitable method to use when profits are on a rising trajectory and helps to align tax payments with cashflow.
  • When using and paying provisional tax correctly based on the GST Ratio, you will not incur any UOMI if your payments fall short at year end.
  • The GST Ratio method cannot be used if your RIT is below $5,000 or above $150,000.

Terminal tax: The final adjustment

Terminal tax is the “wash-up” payment after your actual Residual Income Tax is calculated.

Key points:

• • Due 7 April following your balance date.
  • If your RIT exceeds provisional tax already paid, interest may apply.
  • The “safe harbour” rule generally applies if your RIT is under $60,000, meaning no UOMI is charged.
  • For RIT over $60,000, UOMI is charged at 8.97% from the last provisional tax instalment date (typically July).

Failing to plan for terminal tax can lead to unexpected liabilities, which can impact cashflow during a busy season.

Why this year is different

After several quieter years, 2025–26 is shaping up as a high-profit year for many farming businesses. Factors such as stronger commodity prices, improved production, and favourable seasonal conditions mean that provisional tax based on last year’s figures will likely be insufficient.

Practical steps for farmers

To stay ahead of tax obligations, farmers should:

1. 1. Review projected profits for 2025–26 and assess whether the estimated provisional tax method is more suitable than the standard option.
   2. Check your cashflow to ensure you can meet upcoming instalments and any terminal tax liability.
   3. Maintain accurate records of income, expenses, and deductions to ensure RIT estimates are as accurate as possible.
   4. Consult your accountant or advisor early to optimise your tax position, consider planning strategies, and minimise exposure to interest charges.

Reducing your tax bill

Alongside working with your accountant here are a few ways you can look at reducing the tax bill:

1. 1. Review your Asset Schedule for any assets to be written off
   2. Bring forward any R&M or consumable expenses before balance date
   3. Distribute Trust income to beneficiaries in a lower tax bracket
   4. Are you claiming all home office expenses
   5. Discuss year end livestock valuation methods
   6. Allocate a market value shareholder salary
   7. Ensure your vehicle logbook is capturing the correct business portion
   8. Consider declaring a company dividend
   9. Get your budget & forecast up to date for best estimation of provisional tax
   10. Purchase a new asset and receive the “20% Investment Boost” deduction

What not to do:

1. 1. Stockpile consumables over the $58,000 IRD limit
   2. Purchase an asset and trade in an existing asset for more than book value
   3. Buy additional livestock, as stock on hand can increase profit

Things to note about Livestock Finance & year end Stock on Hand

1. Who owns the livestock?

• • Does the loan support the purchase of stock you will own, or are you receiving a profit margin
  • Does your year-end tally include all livestock owned, even if they are not on farm at balance date

2. GST treatment

• • Depending on who owns the livestock, there can be a GST deduction claimed upon purchase, not loan repayments

3. Interest charges

• • What is the tax deductible interest portion

Key takeaways

• • Provisional tax spreads your tax liability, but underestimating it can be costly.
  • The estimated method is often better in years of higher profits, helping avoid terminal tax shocks and interest.
  • Terminal tax can bring surprise liabilities if not planned for, especially when RIT exceeds $60,000.
  • Early planning with your accountant ensures you’re prepared, compliant, and financially confident heading into the new financial year.

By taking a proactive approach now, farmers can avoid unnecessary stress, manage cashflow effectively, and stay on top of their tax obligations, leaving more time to focus on running their farm.

Talk to our experts

Talk to your local Nexia advisor to get tailored guidance on your tax obligations. We can help you plan provisional and terminal tax payments, manage UOMI exposure, and ensure your farm’s finances are in order heading into the new financial year.

About Nexia New Zealand

Nexia New Zealand is one of New Zealand’s leading full-service chartered accounting and business advisory consultancy firms, offering the full range of chartered accounting, business advisory, corporate advisory, tax and audit services. 

Nexia New Zealand has four offices throughout New Zealand: Victoria Street in Christchurch, Albany on Auckland’s North Shore, Newmarket in the Auckland CBD and Hastings in Hawke’s Bay.