Following on from Budget 2016, the Finance Bill which contains the legislative changes was published in the past week.
It’s a case of the devil being in the detail when it comes to some of the key changes announced in this year’s budget.
Looking at two changes of particular relevance to farmers; firstly Section 3 of the Finance Bill introduces a new earned income tax credit which is worth up to €550 per annum to the self-employed.
This new tax credit is not available if the individual is entitled to a full PAYE credit.
For persons in receipt of employment income, taxable social welfare income such as pension income, or Farm Assist, the announcement of this new credit may not bring any benefit, where such employment type income exceeds €8,250 (that is, where a full PAYE credit is granted).
Where an individual has income that qualifies for both the employee (PAYE) tax credit and this new earned income tax credit, the aggregate tax credits are capped at €1,650.
For those without employment income, or at least with a minor amount of employment income, this new self-employed or earned income credit is worth up to €550 per annum, but the credit is calculated at a 20% rate — as such, an individual must have assessable profits of €2,750 in order to benefit from the full credit.
The Budget included the announcement of a new phased farm transitioning model called Succession Farm Partnerships, and the Finance Bill sets out how this scheme is proposed.
The scheme effectively gives a farmer and their successor a tax incentive, with an annual tax credit worth up to €5,000 per annum for a five-year period, where the farmer and successor enter an approved partnership which culminated in the transfer of at least 80% of the farm assets to the successor.
Firstly, those seeking to avail of the relief must be participants of a registered farm partnership, and must apply to be included on a register of succession farm partnerships.
In order to be registered on the register of succession farm partnerships, a registered farm partnership must have at least two members (being individuals).
At least one of the members (the farmer), must have been farming for at least two years prior to commencement of partnership, farming at least three hectares of usable farm land.
The second member (the successor) must have an appropriate qualification in agriculture, or a qualification of equivalence as determined by Teagasc, and under the terms of the farm partnership, the member must hold an entitlement to at least 20% of the profits of the partnership and be under 40 years of age.
In advance of approval, a business plan must be submitted by the farmer, the farmer shall enter an agreement with one or more than one of the successors to transfer or sell at least 80% of the farm assets to the successor, or successors, within a period of three to 10 years after the date that the succession farm partnership application is made.
At the outset, the plan must specify:
(i) the farm assets of the farm partnership on the day that the application is made.
(ii) any conditions to which the transfer or sale will be subject.
(iii) the year in which the proposed transfer may take place.
(iv) and any other terms agreed between the farmer and successor, or successors, including in relation to the farm assets, the conduct of the farming trade, or the creation of any rights of residence in dwellings on the farm land.
Where the farm assets are jointly owned prior to the formation of the succession farm partnership, (such as the case for husband and wife), the farm partnership agreement must factor in this.
The tax credit available is up to €5,000 per annum, split in line with the profit sharing ratio. The credit is reduced where the profits of the partnership are below this level.
The tax credit is available in any year where the successor is aged 40 or under. If the farmer chooses to withdraw from the plan, the tax credits claimed by all parties are repayable by him/her, similarly where the successor chooses to withdraw from the plan, the tax credits claimed by all parties are repayable by him/her.
The scheme is subject to EU approval, and further regulations will need to be drafted in order to deal with the administration of the scheme.
© Irish Examiner Ltd. All rights reserved