Kieran Coughlan: IFA makes strong Budget tax change case

The IFA have made their pre-budget submission to the Department of Finance.

In terms of farm taxation, IFA builds on measures introduced following last year’s agri-taxation review, with suggestions on how our tax code can be tweaked to “increase efficiency, encourage timely farm transfers and overall, grow output at farm level, leading to an increase in earnings for the economy”.

The document is comprehensive in detailing proposals which could benefit farmers, as follows.

IFA proposes a new Farm Transfer Partnership tax relief, the aim being to encourage early lifetime transfer of farms. The focus is to grant income tax relief for farm owners who engage in a structured farm partnership, with a view to transferring ownership of the farm within a pre-defined period ( up to 10 years is , suggested).

Tax relief is granted on the income of the land owner, to both encourage the lifetime transfer of land, but also to address the issue of inadequate income resources to support two families.

For young farmer successors, the benefits would include a pre-defined plan which will facilitate their transition to farm ownership.

If the farm is not transferred within the pre-defined period, farm owners would be subject to a claw-back of the income tax relief obtained.

Retention of Agricultural Relief and extension to CAT thresholds: Agricultural Relief is the second most important tax relief available to farmers, and in most farm transfers, this relief effectively mitigates against Capital Acquisitions Tax (CAT) which would otherwise apply on the transfer of a family farm from one generation to the next.

The IFA submission supports the continuation of this relief, following last year’s amendments, but suggests the CAT environment needs to be relaxed, by increasing the tax-free thresholds, and by reducing the CAT rate from 33%. Currently, the standard lifetime threshold for gifts or inheritances from parents to children is just €225,000 before any reliefs or exemptions, having been in excess of €540,000 in recent years.

Stamp duty exemption for young trained farmers: the current exemption from stamp duty on the sale or transfer of farmland to a young trained farmer who meets relevant conditions is set to expire on December 31, 2015. The IFA submission calls for this relief to be extended, because farms transfers could be delayed in its absence, or would leave a heavy taxation burden on a young farmer.

Tax credit for the self employed: we previously outlined here how our tax system discriminates against the self-employed across income tax, PRSI and USC.

This is most apparent at low levels of income. For example, a farmer earning €17,500 per annum pays five times more tax than an employee on the same wages.

The IFA submission highlights this disparity, and suggests that the Government must remove anomalies in the income tax system that discriminate against the self-employed and discourage entrepreneurial endeavour.

IFa says the main way this can be rectified is with an Earned Income Credit similar to the PAYE credit, currently worth €1,650, which is available only to employees.

Accelerated Capital Allowances: our existing tax regime allows for write-off of capital expenditure on machinery and farm buildings over set periods of eight and seven years, respectively. IFA suggests a more flexible approach for farm buildings, allowing up to 50% of costs as a deduction over two years, with the balance available over the following five years.

Although this increased flexibility would be welcome, and is broadly similar to the special farm building allowance regime which coincided with the farm waste management scheme, by comparison, the UK tax regime has been far more generous, allowing full write-off on expenditure up to £500,000 within one year.

Additionally, the IFA proposal suggests that accelerated allowances to encourage the installation of energy efficient equipment should be extended to sole traders (currently only available to companies).

More on the IFA pre-budget submission here next week.


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