You can’t offset hobby farming losses, but...
ANSWER: It is unlikely that you will turn a profit for a good number of years, given your expected high outlays initially. For instance, you will an interest bill of close to €6,000 in the first year, which can be offset, and is likely to outweigh your farming income.
From a tax point of view, the Revenue will not allow a tax deduction for any farming losses against any other income — unless it can be shown that your farming activities are on a commercial basis, and are not simply hobby farming. It would be well worth while sitting down and evaluating how best to use your land and how to get the most profit from it — this should satisfy the requirement to show that your activities are more than hobby farming and that ultimately, your small farm will be profitable in years to come.
In relation to the offset of your losses against your PAYE income, in general, it is possible to offset your farming losses against your own and indeed your spouse’s PAYE income — this will give you a handy cash boost, in the form of a refund of your PAYE tax withheld on your employment income.
One key tax rule is that if your farm makes losses for more than the four years from start-up, these losses can no longer be offset against your PAYE income, until such time as your farm makes a profit again.
In the meantime, any losses build up from year four onwards can be carried forward for use against future profits from the farm.
As a strategy to maximise your tax relief on your farming losses, you should stagger the periods of significant expenditure on your farm, in order that your farm turns a profit every now and then, which will unlock the offset of farm losses against PAYE income.
It is well worth while sitting down with an agricultural advisor and tax consultant in order to make the most of your new venture.
As always, each individual’s circumstances should be looked at, for the best advice.
Your questions on this and other farming issues are welcome.
