Kieran Coughlan: Finance Bill: No income average opt-out for 2015

Each year, a Finance Bill is published to give legal effect to the changes announced in Budget pronouncements.

This year, the Finance Bill has been published rather quickly after Budget day, this being part of the Governments on-going commitment to improving the budgetary process.

The finer detail of the announcements can now come under scrutiny by both politicians and the general public.

The Finance Bill is discussed by both the Dail and the Seanad, with proposals for changes to the legislation offered by the opposition, but also in rare occasions by the Government of the day, to correct anomalies, or augment the legislation to cater for discrepancies.

Looking at some of the detail announced in the Budget, farmers are expected to benefit from an increased self-employed tax credit worth €950 per year for years 2017 onwards.

In relation to income averaging, the Minister announced the introduction of temporary opt-out from income averaging, stating, “I am allowing a farmer facing an exceptionally poor year to ‘step out’ of income averaging and, instead, pay only the tax due on a current year basis, with any deferred tax liability becoming payable over subsequent years.

“This facility will be available immediately, and should provide cash-flow assistance this year.”

However, on closer examination, the Finance Bill as initiated suggests the opt-out will apply for the years of assessment 2016 and subsequent years.

In practical terms, this means the tax returns to be filed next year for year 2016 can avail of the temporary opt-out, but not the returns being filed now for year 2015.

Where a farmer chooses the temporary opt out, they can pay tax based on that year’s profits rather than the five-year average, and instead pick up the difference over the following four years.

As such, a farmer who remains in averaging, but who avails of a temporary opt-out, is simply deferring their liabilities to future years.

A farmer who opts for the acheme can only do so once every five years.

To that end, with the potential for volatility in weather, input prices, crop and animal disease and output prices all having the potential to significantly undermine farming profits, farmers may be slow to activate the temporary opt-out, as to do so would preclude them from availing of this wild-card option for the following four years.

On the €150m fund to provide flexible loan facilities, in conjunction with the Strategic Banking Corporation of Ireland, it is clear from Dail debates on the Budget that it will be at least another two months before the facilities become available, in early 2017 at the soonest.

The Agriculture Minister said that he was not encouraging farmers to borrow money, rather farmers should examine whether these facilities are going to be of benefit to themselves.

The Minister indicated that the fund will most likely be available through one or more high street banks, and potentially through credit unions, in order to facilitate farmers looking to borrow from a local lending institution.

On capital acquisitions tax (gift or inheritance tax), the Finance Bill has confirmed the upward increase in the “Group A” tax-free threshold, usually applicable to gifts from parents to children, up from €280,000 to €310,000.

Although not announced on Budget Day, the Finance Bill does contain changes to the tax-free thresholds for the other “Group B” and “Group C” tax bands, up from €30,150 and €15,075 respectively to €32,500 and €16,250 respectively.

This means a slight improvement in the tax outcomes for gifts or inheritances between siblings, relatives and strangers.

The Finance Bill confirms an extension to Capital Gains Tax relief for farm restructuring from December 31, 2016, to December 31, 2019.

The basic principle of this relief essentially allows a farmer to avoid capital gains tax on the disposal of one or more parcels of land, where the farmer uses the proceeds to consolidate their farm holding.

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