Families need these tax reliefs
Particularly for younger farmers, to plan with certainty, Government intentions must be clarified immediately, after the four year plan announcement that reliefs and exemptions from capital gains tax, capital acquisitions tax and stamp duty will either be abolished or greatly restricted.
This blanket treatment could spell disaster for the family farm business model.
For example, the 25% or 100% relief where a farmer’s stock value has increased over an accounting period — this reflects the reality that a higher stock value in farming does not necessarily reflect long term unrealised profits or value build-up, which is often the case outside of farming. Hence, stock relief, worth €2m to farmers in 2007.
Even as the Food Harvest 2020 vision of increased food production is adopted by the government, it proposes to withdraw the very reliefs which would enable farmers to gear up for that challenge.
Farmers benefited from an estimated €52.3m of relief from capital gains tax (retirement relief) in 2007. Were the exemption on the disposal or transfer of land to be withdrawn, and a farmer were to sell or transfer 100 acres worth €1m, which he had held since before 1974, a capital gains tax bill of up to €175,000 could be incurred. The exemption, known as retirement relief, is in place for a good reason — to free up land movement to the next generation. Farming is not profitable enough to sustain capital gains tax at 25% (which the government has indicated it will increase) when passing land on to the next generation.
Not surprisingly, agricultural relief from capital acquisitions tax, worth an estimated €113m in 2008, is the biggest capital tax relief availed by farmers. This relief makes it possible for a son or daughter to receive farm land and assets of up to €4,147,990, without becoming subject to capital acquisitions tax. Without it, the inheritor of a 100-acre farm from a parent would face a crippling tax bill of about €250,000 — about 30 years profit on an average Irish cattle farm.
No one can argue with the moves to broaden the tax base, but the four-year plan also includes aspirations for farmers to increase output by one-third in 10 years, and for the food industry to take this raw material and boost value added and exports by around 40%. The plan says the agri-food sector performed particularly well in 2010, and is a key sector for growth. But even the threat of ending tax reliefs leaves farmers wondering what they are working for, if the land cannot be passed on without crippling tax bills.
Nor is it inspiring that, again, the Department of Agriculture is budgeted to take the biggest cut of all departments.
A 23% cut is budgeted in the department’s current expenditure, from 2011 to 2014. Cuts in other departments range from 0.4% in Foreign Affairs to 18% in Environment and 22.8% in the Department of the Taoiseach.
Next year, compared to 2010 estimates, the Agriculture Department is budgeted to take an 8% cut. It is expected to save €35.7m on REPS, which is being wound down; €6.3m of disease eradication costs due to reduced disease; €5m in the Early Retirement Scheme, which it has closed; €4.5m on intervention costs, because agricultural markets are buoyant; €3m through more efficient running of state bodies; €26m in payroll savings; and €15.1m in other administrative savings.
Extra savings of €120 per year by 2014 are suggested from prioritisation to active farmers of financial support (“while taking into account CAP reform”).
As for capital expenditure budgeting, the Department of Agriculture must also suffer the biggest cut of 53% between 2011 and 2014, matched only by Community, Equality & Gaeltacht Affairs which also does much work in rural Ireland. There’s no cut in Defence or Health, and 30% in the next hardest hit, Environment and Transport.
