Farming, fishing, income averaging 'step out', restructuring relief, capital allowances for energy efficiency, raised bogs, loan fund, flat-rate VAT.
The minister acknowledged in his Budget speech that the farming and agri-food sectors have been going through a tough time recently due to lower world prices, weather, Brexit and the subsequent weakening of sterling. To assist these sectors, the minister announced the following package of measures.
The net accounting profit is the normal basis for calculating taxable profits of any business including farming. Income averaging is an alternative method of calculating taxable profits of a farming business. This works by averaging taxable profits over a five year period on a rolling basis with the objective of counteracting volatility in taxable income. Where the profit level is increasing, income averaging reduces the tax liability. However, where profits reduce, the tax liability for a year may be higher than the actual liability for that year alone.
The minister is introducing cashflow relieving measures to allow a farmer who is facing an exceptionally poor year to ‘step out’ of income averaging for that year. That farmer will then pay tax due on the actual profits of that year with any deferred liability becoming payable over subsequent years. This option will be available for the 2016 tax year.
Capital gains tax relief for farm restructuring applies where the proceeds of the sale of farm land are reinvested within 24 months of the sale in other farm land and a number of conditions are met. This relief has been extended to 31 December 2019. All other conditions of this relief remain unchanged.
In line with a recommendation of the 2014 agri-tax review (undertaken jointly by the Departments of Finance and Agriculture) the existing scheme of accelerated capital allowances for investment in energy efficient equipment is being extended to sole-traders and non-corporates. This scheme was previously available only to companies and is aimed at assisting businesses in the farming and marine sectors to invest in energy efficient equipment.
Under this scheme, the full cost of acquiring qualifying energy-efficient equipment can be written off for tax purposes in the year of purchase. Such claims can be made only in respect of equipment that is included on ‘the specified list’ which is maintained by The Sustainable Energy Authority of Ireland.
As noted in the VAT and Other Indirect Taxes section of Taxing Times, the flat-rate VAT addition that is available to unregistered farmers will increase from 5.2% to 5.4% with effect from 1 January 2017. The flat-rate addition compensates unregistered farmers for VAT on their farming costs.
Payments to relevant owners and rights holders under the new raised bog restoration incentive scheme will be exempt from capital gains tax.
A new €150 million flexible loan fund is being developed in conjunction with the Strategic Banking Corporation of Ireland to enable farmers to borrow at a low cost so that they can improve the management of their cash flow and reduce the cost of their short term borrowings. The interest rate on loans from this fund (which will utilise EU exceptional adjustment aid) will be below 3% per annum.
In line with a recommendation of the 2015 marine tax review (published as part of Budget 2016), a new income tax credit of €1,270 is being introduced for fishers who have fished for wild fish or wild shellfish for at least 80 days in a tax year. The minister noted that this is aimed at assisting the viability of the fishing sector and at attracting and retaining staff. This credit will shelter income of up to €6,350 per annum.
The minister has committed to providing an attractive income tax package in respect of the decommissioning of fishing vessels. The expected cost of these measures is €2 million but no other details on this package were announced in the Budget.
Budget 2017 is the second budget in a row where the choices have been about how to distribute benefits; read our professional tax analysis.