Entitlement transfers shifting up a gear ahead of May 15
Farmers who lease in entitlements, or landowners who lease out entitlements, must pay particular attention, following clarifications of how the new Single Payment Scheme is to operate.
At the risk of repeating the obvious, existing Single Farm Payment entitlements are expiring on December 31, 2014.
Many farmers, particularly those whose circumstances have not changed between 2013 and 2015, will receive new entitlements in 2015, which are substantially similar to their existing entitlements.
To receive new entitlements in 2015, a farmer must have been farming land in 2013.
Such farmers, who farmed in 2013, and more important-ly, received or were eligible to receive a single farm payment in 2013, have an automatic allocation right to new entitlements.
The number of new entitlements granted are to be based on the number of eligible hectares the farmer declares in his or her single farm payment form for 2013 or 2015 (whichever is the lower).
The value to be given to each entitlement is to be based on a fixed percentage of the total value of entitlements owned by the farmer on May 15, 2014.
Over recent years, it has become popular for retiring farmers to lease out their land and their single farm payment, because the income from both the land and the entitlements could be received free of income tax, where certain criteria were met.
Figures from the Department of Agriculture suggest approximately 6,000 such farmers will be affected by the conditions which bestow a right to new entitlements in 2015.
Where a landowner had leased out all of their land and entitlements in 2013, such farmers, otherwise known as â100% lessorsâ will not have an allocation right to receive new entitlements from 2015 onwards.
In such circumstance, these lessors will not be granted new entitlements, regardless of what the terms of their existing lease may state, and without action, lessees also will not receive any entitlements under the new scheme.
The options for such land owners are summarised in the accompanying table.
For such land owners, for there to be any residual benefit in the form of new entitlements after 2014, a transfer must occur by May 15, 2014.
Without selling or gifting entitlements â both of which may result in taxation â a land ownerâs only option is to receive one final yearâs rental income from the lease of entitlements â and this is ultimately now setting the base price in the entitlements trading market at face value (value x 1).
Apart from not being able to write of f entitlement purchases as a tax-deductible expenses, modulation cuts wrapped into the new lower entitlement payments, as well as national reserve and other deductions, coupled with a large number of entitlements now coming on stream, are all expected to lead to a rapid fall-off in the prices being attained in entitlement sales, as the deadline for trading comes near.
Problems identified with leased entitlements are not unique to third party landowners and tenants. They are also manifesting themselves in family situations, where entitlements were never properly transferred, or where parents kept back a parcel of land around their dwelling. Meanwhile, there has been repeated calls from farm organisations such as the ICMSA and the IFA for a temporary waiver to tax rules, in order to facilitate sales of such entitlements without VAT or CGT liability.
At this point, such a waiver seems unlikely to arise.
Minister Michael Noonan recently said: âOfficials in my Department are considering this issue with officials from the Department Agriculture, Food and the Marine.
âHowever, I have no plans at this time to alter the tax treatmentâ.
As per De par tment of Agriculture communications, it is recommended that persons who may be affected by these rules should consult with an agricultural advisor well in advance of May 15, in their best long term interest.
