Kieran Coughlan: Innovative farmer tax proposals submitted by IFA

IFA have made their Pre-Budget Budget submission to the Department of Finance.

Last week, we covered their Farm Transfer Partnership proposal here, which effectively seeks a phased approach to farm succession, with an incentivised income tax deduction for participants.

IFA also proposes a new earned income credit to put self-employed on the same footing as employees who currently benefit from a €1,650 annual tax credit.

Another innovative tax proposal in the submission suggests a new “individualised income volatility measure” should be introduced, operating along the same principles as the French investment and contingency deduction schemes.

This French scheme, called DPA or “Deduction Pour Aleas“, translated as deduction for risks or hazards, allows a farmer to ring fence up to €27,000 per annum, up to a maximum of €150,000, which can be used as a contingency fund.

The withdrawal of funds from the account results in the taxation of this income, and in the case of non-withdrawal, such income is taxable after a period of six years.

The scheme differs substantially from our income averaging approach, which simply offers a levelling out of the amount of income taxed each year, taking out the peaks and troughs.

Given the recent volatility in commodity prices, its introduction now may be too little too late to stave off the worst of the downturn, in the case of milk suppliers, but maybe it’s better late than never.

Our income averaging system is criticised for failing to support farmers in times of negative economic turmoil — in that a farmer experiencing a poor year is left facing a tax bill based on his average earnings.

Interestingly, last year’s agri-taxation review suggested that the agri-taxation working group should remain in place to monitor the agri-taxation measures and examine other issues arising, including the feasibility of a risk deposit scheme similar to the French model.

The appetite for introducing such a scheme is likely to be stronger now that in 2014, when dairy markets were buoyant.

Across the country, dairy farmers have invested substantially inside the farm gate in expanding their operations, however expansion within the milk processing sector has also come at a direct cost to farmers in many cases, through the requirement for farmers to part fund the cost, through compulsory purchase of co-op shares or milk production licenses.

Despite the compulsory nature of these costs, no tax deduction has been available.

This is significantly at variance with the old milk quota regime, where the cost of quota qualified for capital allowance write-off over seven years, as well as benefiting from agricultural relief and capital gains tax relief.

The IFA proposal highlights and seeks to amend this anomaly.

Referring to the amendments to income averaging, the IFA believes that “a more targeted and individualised volatility scheme is required.”

For the often overlooked aquaculture and marine sector, the IFA submission is more comprehensive than in previous years, undoubtedly as a result of the current marine taxation review.

The proposals here generally seek to apply existing tax relief available to conventional farmers to the aquaculture sector, including the extension of stock relief, income averaging, agricultural relief and young trained farmer stamp duty exemption for this specialised sector.

Branching out to the forestry sector, the submission suggested that forestry clearfell income should be removed from the high income earners’ restriction.

The full IFA Budget Submission is available on www.ifa.ie 


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