Taxation of farmers and planning opportunities

Did you know that Budget 2017 announced a package of measures to support the agri-sector. These included an “opt-out” of income averaging for 2016 however the difference must be made up over the subsequent three tax years. An increase in the flat rate VAT addition to 5.4% and an extension of the CGT relief for farm restructuring to 2019.

Let’s face it most people want to pay as little tax as is possible. Farmers are no different and the following paragraphs will highlight the many opportunities farmers have to make savings on the amount of tax they pay.

Major challenges for farmers

The thrust of many of the tax reliefs available to farmers attempt to address three major challenges in the industry:

  1. Farm cashflow – farming is recognised as a being a capital rich, cash poor enterprise.
  2. Farm succession/ opportunities for young farmers. Many farms are owned by older farmers which makes it difficult for young farmers to acquire holdings.
  3.  There are many small-scale farm enterprises. The consolidation and scaling-up of farms through partnerships and other forms of collaboration is being actively encouraged.

The transfer of assets

Generally, tax reliefs for farmers/ farm enterprises are based on the transfer of farm assets arising from the following events:

  • Sales of farm property
  • Gifting of farm property
  • Inheritance of Farm property
  • Becoming a company
  • Setting-up a Farm Partnership

These events trigger liabilities to capital taxes; Capital Gains Tax, Capital Acquisition Tax and Stamp Duty.

Reliefs available:

Below is a summary of the available reliefs:

  1. Income Averaging – tackles the issue of income volatility by allowing a farmer to pay income tax based on average profits over a 5 year period. Budget 2017 introduced a “step-out” option to support farmers who experience lower income in a year.
  2. 5.4% Flat rate VAT addition for sales to VAT registered organisations. Allows some relief for the VAT incurred by unregistered farms in operating their farm enterprise.
  3. Stock relief of 25% – provides an increased deduction against farm income.
  4. Retirement Relief from CGT.
  5. Entrepreneur Relief from CGT may be available in the case where retirement relief doesn’t apply.
  6. Agricultural Relief or Business Relief provides a reduction in CAT of 90% for gifts or inheritances of a farm enterprise.
  7. CGT relief for farm restructuring extended to 31/12/2019
  8. Accelerated Capital Allowances for Energy-Efficient Investment  – 100% allowances available in the first year.

9. Increased Stock relief for Young Trained Farmers (100%) & Farm Partnerships (50%).

10. Leasing of farmland – exemption from Stamp Duty.

11. Consanguinity Relief – conveyances and transfers of farmland between close relatives – stamp duty applies at 1%

12. Transfer of a site to a child – CGT & Stamp Duty exemption

13. Land leasing income exemption – gives an income tax exemption of up to €40K pa for farm leases of greater than 15 years.

14. Succession Farm Partnerships aid of €25k pa over 5 years.

Some of the above reliefs have contributed in recent years to moves towards different types of farm structures including:

  • Incorporation – setting-up a company
  • Farm partnerships
  • Farm collaborations – share farming, share milking, contract rearing
  • Cow leasing

Seeking advice from a tax advisor at an early stage can significantly minimise your tax liabilities. The Tax Man can assist you.

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