Research@Lincoln
    • Login
     
    View Item 
    •   Research@Lincoln Home
    • Research Centres and Units
    • Agribusiness and Economics Research Unit (AERU)
    • AERU Technical Paper series
    • View Item
    •   Research@Lincoln Home
    • Research Centres and Units
    • Agribusiness and Economics Research Unit (AERU)
    • AERU Technical Paper series
    • View Item
    JavaScript is disabled for your browser. Some features of this site may not work without it.

    The optimal use by farmers of the income equalisation scheme

    McArthur, A. T. G.
    Abstract
    A progressive income tax penalises those taxpayers with a fluctuating income (for example, farmers), as compared with those on a stable income with the same average. However there are various methods of smoothing taxable income and hence reducing average tax payments. One such scheme is the Income Equalisation Scheme which was proposed by the Taxation Working Party of the Agricultural Development Conference in 1965 and was subsequently adopted by the Government. Under this scheme a farmer can deposit up to a quarter of his income from one year in the Income Equalisation Fund. He must withdraw a deposit within five years, adding the withdrawal to his income for that year. However, using the Income Equalisation Scheme has an opportunity cost, an opportunity foregone elsewhere. The funds deposited with the Government earn no interest. A thousand dollars deposited in the Fund for a year could have reduced a farmer’s overdraft with his bank by that amount, saving him about $75, In deciding how best to use the Income Equalisation Scheme to smooth taxable incomes, the tax saving gain from a smoother income must be balanced against the opportunity cost of storing the income in the Equalisation Fund. This paper describes a method for farmers and their advisers for making optimal use of the Income Equalisation Scheme. Optimal is defined as the maximisation of the present value of post-tax incomes. However readers should be aware that the scheme is of little value in reducing tax payments unless the farmer’s income is highly variable. In presenting the method which involves dynamic programming, the mathematics has been put in appendices so that the paper can be followed by those not skilled in mathematical techniques. The paper is divided into four sections. Firstly, a method of estimating farm income variability is given. Secondly, a method is presented for estimating the extra tax paid because of a fluctuating income. Thirdly, the results of using the Income Equalisation Scheme on historical incomes from Lincoln College's Ashley Dene farm are discussed. Finally, the rules for making optimal use of the Income Equalisation Scheme under realistic circumstances are presented.... [Show full abstract]
    Keywords
    taxation; income variability; Income Equalisation Scheme (IES); farm income; post-tax incomes; farm policy and planning; farm finance; farmers; economic aspects; tax planning; agriculture; Ashley Dene
    Date
    1971-12
    Type
    Monograph
    Collections
    • AERU Technical Paper series [10]
    Thumbnail
    View/Open
    aeru_tp_17.pdf
    Share this

    on Twitter on Facebook on LinkedIn on Reddit on Tumblr by Email

    Metadata
     Expand record

    Related items

    Showing items related by title, author, creator and subject.

    • The effect of taxation method on post-tax income variability 

      McArthur, A. T. G. (Lincoln College. Agricultural Economics Research Unit., 1970)
      Income variability is one of the serious disadvantages of farming. It makes it difficult to organize farm development wisely and upsets the farm family's standard of living. In the past there have been boom years when ...
    • Organic farming in Thailand : case studies on fruit and flower production in Chiangmai, Thailand 

      Dechachete, T.; Nuthall, Peter L. (Lincoln University. Farm and Horticultural Management GroupLincoln, Canterbury, 2002-06)
      The purpose of this study was to examine organic horticultural production in Chiangmai, Thailand, through discovering the farmers' objectives, economic performance, as well as elucidating other impacts including social and ...
    • Organic farming in Thailand: case studies on chemical-free vegetable production in Chiangmai, Thailand : a dissertation submitted in partial fulfilment of the requirements for the degree of Master of Applied Science (International Rural Development) at Lincoln University 

      Dechachete, Thawatchai (Lincoln University, 2000)
      The purpose of this study was to examine the outcomes of organic farming, in particular chemical-free vegetable production, in Chiangmai, Thailand. The main objective of the study was to assess the outcomes in terms of the ...
    This service is maintained by Learning, Teaching and Library
    • Open Access Policy
    • Copyright and Reuse
    • Deposit Guidelines and FAQ
    • Contact Us
     

     

    Browse

    All of Research@LincolnCommunities & CollectionsTitlesAuthorsKeywordsBy Issue DateThis CollectionTitlesAuthorsKeywordsBy Issue Date

    My Account

    LoginRegister

    Statistics

    View Usage Statistics
    This service is maintained by Learning, Teaching and Library
    • Open Access Policy
    • Copyright and Reuse
    • Deposit Guidelines and FAQ
    • Contact Us