Consultation paper draws big response
The consultation document sought views on current agri-taxation reliefs, exemptions and policy initiatives, and on what changes should be made.
Along with submissions from farm representative bodies, the consultation also attracted many submissions from less obvious places such as agricultural processors, the Institute of Professional Auctioneers and Valuers, and the Society of Chartered Surveyors Ireland.
The quantity and detail of the submissions is a testament to the importance of agriculture in Ireland, and a barometer of the requirement for change in Ireland’s agri-taxation policy.
Some interesting proposals arose in the submissions.
Getting down to specifics, in terms of land leasing, the general consensus was that the relief should be continued and extended. Many proposals suggested that the relief should be extended to include company leases between third parties, and leases between close family members.
Current reliefs for land leasing are hugely generous, yet the uptake of leasing is very low, with about one sixth of land being rented by way of lease.
Interestingly, while many cited issues with the current conacre system, there was little comment in relation to the introduction of any measures to actively discourage this system.
Some interesting proposals were expressed to address volatility. An increase in the volatility of income, expenditure, and profit over recent years has certainly registered as being an area of concern for Ireland’s farmers.
Most submissions suggest that the current system of income averaging, albeit with deficiencies, should be retained. However, there was a general consensus among proposals that the current system of income averaging does need some reform, with easing of the criteria for those who can avail of the relief to include farmers and their spouses with off-farm income.
In terms of additional measures to address volatility, a variety of solutions were offered, including the ability for farm businesses to calculate their profits on a cash-received basis; the introduction of co-op/processor-based farmer funds; as well as introduction of tax-deductible farm deposit-based schemes, similar to the Farm Management Deposit Scheme in Australia and the Income Equalisation Scheme offered in New Zealand.
IFA had certainly done its homework and (similar to my own submission), their paper also referred to the Déduction Fiscale pour Aléas (France’s Tax Deduction for Hazards), and the Swedish income equalisation scheme as working examples of such income management schemes in Europe.
The IFA proposal suggested that such a scheme should be introduced in Ireland, with farmer deposits qualifying for a deduction for tax purposes, but also being offset against loan balances with the applicable institution, thereby having the extra benefit of reducing interest on farm borrowings.
In terms of granting tax deductibility for farm improvements, our capital allowances should be available for farm improvements, with allowances granted over a short period.
Some proposals suggested that minor amounts expended on capital improvements should be fully deductible in the year in which the expenditure was incurred.
On stock relief, most proposals recognised that farmers incur a tax cost in expanding their herds. In order to meet our Food Harvest 2020 targets, there will be a considerable investment on farm in additional stock. From a dairy farming perspective, it is expected that there will be an increase of about 380,000 head in the number of dairy cows. As a general principle, profits are calculated regardless of whether the taxpayer has invested in additional stock at year end.
From a farming perspective, an increase in stock is likely to generate additional future taxable profits, and therefore, such investment should be encouraged through the tax system.
At present, farmers can avail of stock relief which grants a deduction of 25% for the increase in stock at farm level.
In response to the consultation, a range of views were expressed, including recommendations that the 100% stock relief available to young trained farmers should be extended outright to encourage expansion.
Some more tenable solutions were offered, including a granting of relief upfront with subsequent clawback in order to alleviate cashflow pressure in the year in which the expenditure on stock was incurred.
More to follow on the submissions next week.
Kieran Coughlan,
Chartered tax adviser
Belgooly,
Co Cork
(086-8678296)
www.coughlanaccounting.com
