Taxation of farm income

Question 1

Whats the dominant farm business structure in ireland?

Answer 1

Sole trader business structure

Question 2

Whats the key dates in terms of annual filing of returns ?

Answer 2

–31 October -note: extension until 14November 2024 (available for returns made on-line)
–File tax return (Form 11)

Question 3

What are the 2 rules when filing annual tax returns?
What’s the most common preliminarily tax used and why?

Answer 3

–90% of the final tax payable for the current year (“90% rule”) or

–100% of the final tax payable for the previous tax year (safer option, most common )

–Interest charges applied where minimum prelim tax not paid

Question 4

How do we calculate farm profit for tax purposes, what’s the big difference ?

Answer 4

The big difference is :
Same procedure as for simple P&L account but some basic differences relating to tax rules.

• We don’t include depreciation as an expense. We remove it, and instead, we put in capital allowances; this is a way of looking at a fixed asset when we buy it. This reduces the amount of income that you are subject to tax on.

Question 5

Explain Capital allowance?

Answer 5

*Capital allowances instead of depreciation
*Defined writing down or wear & tear allowances that can be claimed on expenditures, currently:–Straight line basis used:
» Plant, machinery & vehicles: 12.5% over 8 years »Capped for motor vehicles to €24,000
»Farm buildings, land improvements: 15% for 1st 6 years, 10% final year
–Accelerated CA in some specific case

Question 6

When calculating farm profit for tax purposes: What do you need to keep?

Answer 6

1- Receipts for all transactions (working only from cheque stubs no longer sufficient)
–Can be issue in event of audit
– must have receipts

2- Stock Valuations : Production Costs or deamed cost methods

Question 7

Whats tax credits used for?

Answer 7

Tax credits are a method of reducing your tax.

Question 8

What are production costs based on?

Answer 8

Direct and indirect costs of getting stock to its condition at Statement of Financial Position (Balance sheet) date

Question 9

Deemed cost basis: a fixed percentage of the open market value (Stock Valuations)

Answer 9

*75% for harvested crops
*75% for sheep & pigs
*60% for cattle

Question 10

In 2025 what is the minimum tax credit you will be allowed if you are a
1- Single person
2- Married Couple
3- Single Person Child Carer
4- Employee PAYE
5- Earned Income MAX

Answer 10

1- €2,000
2- €4,000
3- €1,900
4- €2,000
5- €2,000

Question 11

What can soul traders claim as they cant claim tax credits as there soul traders?

Answer 11

Earned income at €2,000

Question 12

How are tax rates applied to income

Whats deducted them to calculate net tax payable

Answer 12

Tax rates are applied to income ranges to calculate gross tax due

Applicable tax credits are then deducted to calculate net tax payable

Question 13

What are the additional Charges that you need to pay?

Answer 13

PRSI
USC

Question 14

If farmers are registered as a self employed individual what sort of PRSI does a farmer pay?

Answer 14

Class S (self employed) PRSI contributions

Question 15

Whats the current rate 2024 PRSI %?

Answer 15

4.1% of all income

-Subject to a minimum payment of €650 from 1st oct 2024

-Paid where annual self-employment income over €5,000

-Payable is aged between 16 and 66 years

–Payable on gross income after capital allowances have been deducted

–Other Classes and rates apply for non self-employed individuals

Question 16

What is the update with PRSI for Budget 2025?

Answer 16

PRSI contribution rate will increase by 0.1% to 4.2% from 1 October 2025

Question 17

When was USC introduced?

Answer 17

2011 to replace Income Levy and Health Levy

Question 18

Who are reduced rates available for in terms of USC charge?

Answer 18

–Individuals aged 70 years or over whose aggregate income for the year is €60,000 or less

–Individuals (aged under 70 years) who hold a full medical card and whose aggregate income for the year is €60,000 or les

Question 19

People that have a non-PAYE income that exceeds €100,000 in a year, what happens?

Answer 19

A surcharge of 3% is applied on individuals who have non-PAYE income that exceeds €100,000 in a year
i.e. on non PAYE income > €100,000 the USC is effectively 11%

Question 20

When is USC charge payable?

When are you allowed to deduct capital allowances ?

Is there a relief from USC for employee pension contributors?

Answer 20

When total income exceeds €13,000

You are allowed to deduct Capital allowances for plant and machinery and certain buildings before USC is calculate

There is no relief from USC for employee pension contribution

Question 21

What are legitimate ways to reduce tax liability? (9)

Answer 21

-Employing family members

-Stock relief

-Young trained farmers stock relief

-Capital Allowance

-Averaging farm profits

-Leased farm land exemption

-Forestry

-Personal Pension Contributions

-Limited Company (rather than sole trader)

Question 22

Employing family members: (3)

Answer 22

–Must register as employer, have evidence of payments, pay reasonable rates

-Wages are a farm business expense and can be offset against farm income for purposes of calculating farm taxable profits

–Farmer pays employer PRSI on wag

Question 23

Stock Relief: (6)

Answer 23

–Relief for increases in stock values

–Ascertain the increase in stock values for accounting period

–Relief will be 25% of the increase and is treated as a trading expense in that period

–E.g. cattle stock increases in value during year by €10,000
*Stock relief €10,000 x 25% = €2,500 i.e. reduces profit by €2,500

–Farmers in registered partnerships – as for above except relief at 50%

• extended to end 2027 in Budget 2025

–General relief extended to 31/12/2027 in Budget 2025

Question 24

Young trained farmers stock relief: (4)

Answer 24

–Tax relief of 100% of any increase in stock values

–Relief available for year in which individual begins farming and for 3 consecutive years

–Must comply with “young trained farmer” rules as set down in tax law e.g. <35 years, ag qualifications, business plan

–Relief extended to 31/12/2027 in Budget 2025

Question 25

Capital Allowances : (4)

Answer 25

–Time investments in periods of increasing farm profits

–Note limit on the allowable expenditure on a car, €24,000.
*The vehicles in relation to which the limit applies are, in effect, ordinary motor-cars.
*It does not apply to any vehicle of a type not normally used as a private vehicle and unsuitable to be so used, for example, vans, trucks and tractors.
*Such vehicles can qualify for unrestricted capital allowances.

–Accelerated CA in some cases e.g. farm safety equipment, slurry storage facilities (extended to 31/12/2026 in Budget 2024 and list of qualifying items extended in Budget 2025

Question 26

Averaging farm profit: (5)

Answer 26

–Farmer may elect that his/her farming profits chargeable to income tax are computed by reference to an average of profits arising in each of preceding 5 years (3 years up to & including 2014)

–Where election is made, it remains except where famer decides to opt out of system

– may opt out only if was charged to tax on average basis for each of 5 years of assessment immediately preceding the year in which he/she wishes to revert to normal basis

–Tax benefit in years when profits rising but clawed back when falling

–Amended in 2017 budget to provide option to elect out for a single year

–Extended to include farmers who, or whose spouses or civil partners, carry on another trade or profession, or are directors of a company carrying on a trade or profession

Question 27

Leased farm land exemption (4)

Answer 27

–Exemption from income tax in respect of certain leasing income obtained by lessor of agricultural land

–Only where all conditions are met

–Budget 2024 -> only becomes available when the land has been owned for seven year

-Exemption limits are also there too

Question 28

What are exemption limits of Leased farm land exemption?

Answer 28

1- Between 5-7 years = €18,000

2- Between 7-10 years= €22,500

3- Between 10-15 years= €30,000

4- 15 years or more= €40,000

Question 29

Forestry (2)

Answer 29

–Income from woodlands managed on a commercial basis and with a view to the realisation of profits is exempt from income tax but not PRSI & USC

–Income is subject to high earners restriction limits

Question 30

Personal Pension Contributions: (4)

Answer 30

–Contributions to a pension can be deducted from gross income before that income becomes liable to tax, subject to certain limits

–Relief available determined by age (15%– 40%, depending on age)

–Limit on earnings that can be taken into account

–Still pay PRSI & USC on pension contribution

Question 31

Limited Company (rather than sole trader): (4)

Answer 31

–Pay corporation tax rather than income tax on profits

–12.5% rate of corporation tax on trading profits

–Advantage when growing business (reinvesting profits in business) & repaying loans

–Not straight forward however!*Higher administrative/reporting burden for company
*Under remit of company law
*Any non-trading income does not qualify for the 12.5% of tax – 25% applies e.g. rental income

Question 32

What are the tax implications when taking money out of company?

Answer 32

–Directors salaries, dividends –all taxed through personal income tax system

–Some profits (passive non-trading profits) held in company & not distributed to shareholders within 18 months may be subject to a surcharge of 20%

–Also possible CGT implications when moving assets in/out of company

Question 33

When did the Irish government join up the OECD International Tax Agreement ?

Answer 33

October 2021

Question 34

What does the OECD International Tax Agreement provide? (2)

Answer 34

–Global minimum effective corporation tax rate of 15% for multinationals with revenues in excess of €750 million

–There will be no change to the 12.5% rate for businesses with revenues below €750 million

Question 35

Whats the objective of farm tax management?

Answer 35

should be to maximise after-tax income

Question 36

How long should you maintain tax records for?

Answer 36

Minimum of 6 years

Question 37

Businesses selected for an audit with revenue is based on what?

Answer 37

–Screening (Revenue checks for anomalies, inconsistencies, profit trends, etc.)

–Target audits on specific business sectors

–Random selection

–“Tip off” situation

Question 38

Whats the outcomes to Revenue Audits?

Answer 38

–Return is correct

–Return is incorrect/inaccurate -> adjustment calculated -> additional tax due (will include additional tax + interest + charges)
*Penalties will depend on nature of non-compliance:
–Deliberate default; gross carelessness; insufficient care