Income Tax (Trading and Other Income) Act 2005 section 127

Preventing abuse of the herd basis rules

Section 127 provides anti-avoidance rules to prevent manipulation of the herd basis tax rules through non-arm's length transfers of production herds between connected parties or where a herd basis tax benefit is a main purpose of the transfer.

• The section applies where a farmer transfers all or part of a production herd either not by way of sale, or at a price below open market value, and either a control condition or a herd basis benefit condition is met.
• The control condition is met where the transferor and transferee are connected through common control — for example, one controls the other, or both are controlled by the same person.
• The herd basis benefit condition is met where a sole or main benefit of the transfer is obtaining a herd basis election right, or manipulating whether or how the herd basis rules apply.
• Where the section applies, the animals are treated for profit calculation purposes as having been sold at their open market value, overriding the actual transfer terms.

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