Forced transfer of SFPs is a taxing problem
Finance Minister Michael Noonan said this week he had no plans to alter the tax treatment of farmers who are forced by Common Agricultural Policy changes to sell entitlements.
A 33% capital gains tax exposure is faced by many of the 6,417 farmers whose leased single farm payment entitlements will be lost to both lessor and lessee, unless they are transferred permanently by sale or gift before May 15, 2014.
Mr Noonan revealed officials in his department were considering this issue with officials from the Department of Agriculture.
But as it stands, he said a single farm payment entitlement is a chargeable asset for capital gains tax (CGT) purposes, and once acquired, it may be disposed of by way of sale, gift etc.
“Accordingly, gains arising from the disposal of single farm payment entitlements are chargeable to CGT in the same way as gains made on any other chargeable assets. Where total gains in any year do not exceed €1,270, they are not chargeable to CGT.”
The forced transfer of single far m payment entitlements, which may be worth up to €180m in sale proceeds, could also deliver a VAT windfall to the government.
In the D•il, Mr Noonan said, “With regard to the transfer of single farm payment entitlements, for VAT purposes, where a payment entitlement is sold without land, then VAT is due at the standard rate on the sale, if the sale proceeds exceed the relevant threshold for VAT registration (currently €37,500). However, where a payment entitlement and land are sold together to a person who intends to carry on the farming business, then the sale may be treated as the transfer of a business, and not subject to VAT. There may be other less significant tax implications in certain instances.”
Agriculture Minister Simon Coveney has said officials from his department have had discussions with the Department of Finance regarding the tax implications in the transfer of leased entitlements. “It has been confirmed that, in accordance with tax law, this will give rise to a tax liability. I have written to the Minister of Finance outlining the situation and asking him to consider whether there are any options in this regard.”
With single farm payments averaging about €10,000 in Ireland, the forced transfer by 6,417 farmers could be worth about €120m, if valued at two times face value — which is a conservative estimate, because entitlements have often traded at three times value —which could take sales proceeds to €180.
Having acquired their entitlements for no cost in 2005, sellers would normally incur a capital gains tax bill of 33% of the full gain involved.
Where a farmer sells more than €37,500 worth of entitlements per year, the sale is subject to VAT at 23%. The purchaser can reclaim the VAT, if they are VAT-regis-tered.
