Rise in applications for young trained farmer top-ups

The legal and tax implications of various farm partnerships.

The deadline is nearly upon us for submitting applications for Department of Agriculture farm payments this year. Next Monday, May 29, marks the date, and after this penalties are applied in a linear fashion.

Other key deadlines include:

May 29: Closing date for transfer of entitlements.

June: Area monitoring check notification commences.

June 14: Amending your application (no penalty).

23 June: Late application deadline (with a penalty).

July 5: Preliminary checks response deadline.

This year there seems to be a big pickup in interest in applications for young trained farmer (YTF) top-ups.

Of course, YTFs within their first five years of farming who are members of registered farm partnerships or succession farm partnerships will get the young farmer top-up, but in the case of joint herd numbers, conditions for availing of the young farmer top-up have become more stringent.

To obtain the YTF top-up (now called a complementary income support for young farmers, or CISYF), the YTF must be added onto the herd number, which involves completing a form Er1 or ER1.1 that needs to be submitted to the Department of Agriculture ahead of the Basic Income Support for Sustainability (BISS) and CISYF submission date of May 29.

Secondly, the YTF needs to complete a declaration witnessed by a solicitor confirming they are exercising financial and managerial control of the holding.

Thirdly the YTF needs to have their name included on the farm bank account, or a new farm bank account will need to be opened in the names of the YTF and the existing farmer. This can prove an obstacle as many banks will not facilitate the addition of a name to an existing sole trader bank account.

Separately the inclusion of the YTF’s name on trading accounts of merchants, marts, co-op and other suppliers is simply good practice to reflect the fact that the YTF is immersed in the business.

There is no formal need for a partnership agreement under the CISYF scheme but farmers would be well advised to consider whether such an agreement would be of value.

From a legal perspective, that two or more persons are carrying on a business in common with a view to the realisation of profit is deemed to be a partnership under the Partnership Act of 1890.

From a tax perspective, there are a variety of rules dealing with the commencement and cessation of a partnership with the addition of a partner into a partnership and the exit of a partner. Of significant concern is the loss of capacity to claim income averaging in the year prior to the year in which the farmer ceases as a sole trader and commences in partnership.

In plain speak, this means that a farmer who was operating as a sole trader in 2022 and who proceeds to apply for young farmer top-up through the addition of a YTF onto the herd number will have their 2022 accounts prepared on a calendar year basis and will not benefit from averaging (ie where the average profits are lower than the actual profits, then the farmer non the less gets tax on the actual profits).

From a tax perspective, in the absence of a partnership agreement or formal agreement on how profits are to be split, the Partnership Act of 1890 would deem the partners to share in the profits equally, and this of course may not necessarily be the intention of the parties.

Persons should obtain specific tax advice relevant to their own specific circumstances.