A number of clients have invested in forestry over the years and many forests are now being harvested or will be within the next decade.
Often the income generated is substantial with most if not all taxed at the top rate o f 33 percent.
For many this is a form of retirement saving so getting the best tax result is important.
There are two main options available:-
- Spreading some or all of the forestry income back into the prior tax years,
- Using the Income Equalisation Account with IRD.
The first option allows tax to be reduced if any of the three earlier years had lower tax rates, and can also reduce or eliminate provisional tax requirements.
The Income Equalisation scheme allows a deposit to be made (up to 100 percent of forestry income). This is treated as a tax deduction in that year. Normally it needs to be in the account for at least 12 months and is treated as income when withdrawn. Interest is paid upon withdrawal at 3 percent per annum once there at least 12 months.
Other terms and conditions apply but it works well in practice.
The option is ideal if income is likely to be low going forward.
Please contact us if this applies to you and we shall advise the best course of action in your circumstances.