New Zealand’s Inland Revenue has released an exposure draft clarifying the income tax treatment of forestry businesses, timber sales, deductible expenses, forestry rights and emissions units, with public submissions closing on 4 December 2026.
New Zealand’s Inland Revenue has released an exposure draft (Draft Interpretation Statement IS XX/XX), titled “Income Tax – Forestry”, which provides comprehensive guidance on how the Income Tax Act 2007 applies to forestry activities and timber sales in New Zealand. Public submissions on the draft close on 4 December 2026.
The key measures are summarised below:
Carrying on a forestry business vs. other activities
Inland Revenue looks at scale, time and money committed, pattern of activity, financial results, and intent to make a profit. Strong involvement includes the right to direct operations, inspect the land, receive progress reports, choose foresters, and grow trees. Forestry done to earn emissions units counts as a forestry business automatically. Investors in partnerships or look-through companies (LTCs) are treated as carrying on the entity’s business, and work can be done through agents or contractors. Farmers planting shelterbelts, erosion control, or water catchment trees do not run a separate forestry business unless the scale and profit motive are there.
Deriving income from forestry and timber activities
No forestry business is needed to earn assessable timber income. Proceeds from cut timber, logs, standing timber, slash, waste wood, and thinning are taxable. When land with standing timber is sold, the part of the price tied to commercial timber is taxable, though certain ornamental trees, trees under existing forestry rights, and pre-1984 profit à prendre rights are exempt. Rent, premiums, goodwill, and payments for granting or transferring forestry leases or licences are also assessable. Taxpayers can spread timber income over the current year and up to three prior years, with no use-of-money interest on reassessed years.
Deductions for forestry expenses
Forestry businesses can deduct running costs in the year incurred, including planting, maintenance, fertiliser, pest and weed control, interest on borrowed capital, and access tracks used for 12 months or less. Plant used mainly in forestry can be depreciated. Assets first available for use on or after 22 May 2025 qualify for a 20% first-year investment boost. Land improvements under Schedule 20, Part G are deducted at diminished value rates: 20% for permanent roads, 10% for fencing, and 5% for land clearance. Harvested timber becomes trading stock, and the cost of acquiring standing timber is deducted when the timber is sold.
Forestry companies on Māori-Owned land
A forestry company is one incorporated under a formal agreement between the Crown, a holding company, and Māori owners holding a beneficial interest in the land. Its income from disposing of standing timber is exempt, so the expenses producing that income cannot be deducted. Interest from qualifying debentures is also exempt when paid in further qualifying debentures, and the company cannot deduct interest it pays on them.
The forestry rights regime
The Forestry Rights Registration Act 1983 created the forestry right, a statutory profit à prendre that separates tree ownership from land ownership. Creating or selling one is a disposal of a right to take timber, so the grantor or vendor earns assessable income. For income tax, it is treated as a lease and falls under the excepted financial arrangements rules. Permanent forests under the Emissions Trading Scheme cannot be clear-felled for 50 years, so their holders mainly earn income through emissions units.
