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Farmers – Tax Planning

At Denis Breen and Co we have a large number of farming clients.

When preparing Financial Statements and Tax returns we ensure that generous tax reliefs unique to farmers are claimed. A brief summary of some of these are listed below.

Tax Reliefs

Income Averaging

A full time farmer may elect to average annual profits over 3 years. This has the effect of delaying the tax charge and is beneficial when profits are rising. On opting out of averaging the timing is important to minimise tax liabilities. Therefore a close inspection of the annual benefit of remaining or opting out of averaging is essential.

Stock Relief

A deduction of 25% of any increase in stock values is allowable against Profits. The relief cannot increase or create a loss. There is a 100% relief in place for ‘young trained farmers’ for the year in which the individual begins farming and for three successive years. At present these reliefs are available until the 31st December 2010.

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Capital Allowances Farm Buildings

Capital Allowances at a rate of 15% for 6 years and 10% in year 7 are available on Farm Buildings.

There are accelerated allowances available where a farmer incurs necessary capital expenditure on certain buildings and structures for the control of pollution. A farm nutrient management plan must be in place to avail of this. For expenditure incurred after 1st January 2005 and before the 1st January 2011 the rates available are 50% of qualifying expenditure (or €50,000 if less) in year one and the balance written off over three years.

Capital allowances are also available to farmers in respect of expenditure incurred on or after 6th April 2000 on the purchase of any qualifying milk quota.

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Exemption from letting of farm land

Exemption from Income Tax is granted in respect of certain leasing income obtained by a lessor of agricultural land.

A written lease for a term of five years or more to an unconnected individual or partnership for the purpose of a trade of farming must be in place. The lessor must be 40 years of age or more or who is permanently incapacitated by reason of mental of physical infirmity from carrying on a trade of farming.1

The current exemption limits are as follows:-

Term of Lease €

5 to 7 years 12,000

7 to 10 years 15,000

VAT

As a farmer you are not obliged to register for vat but you may elect to do so. In general it would be unfavourable to do this.

However an unregistered farmer may claim a vat refund on expenditure incurred on Farm Buildings, land drainage and land reclamation. Vat is not claimable on machinery and equipment.


Tax  – Trap / Benefit

Losses

Unlike other businesses there are restrictions on farm loss relief. Relief against other income is claimable only where the farming is carried on on a commercial basis with a view to the realisation of profits. What this means is that you can’t continually incur losses in your farming business and have those losses set-off against your other business profits. You are however allowed to write off losses incurred over three consecutive years against other income and in special cases, four consecutive years. Once you exceed this period losses may only be carried forward for set-off against future farming profits.

If you have any queries please contact Denis Breen and or Mary Sheehan at 051 876366