We examine how Budget 2020 impacted the agriculture sector and review a recent Tax Appeals Commission case which involved loss relief claimed by a part time farmer.
Capital Gains Tax (CGT)
Farm restructuring relief provides for an exemption from CGT on the disposal of agricultural land as part of farm restructuring. The exemption applies where the proceeds are used within a two-year period to purchase different agricultural land that leads to an improvement in the operation and viability of the consolidated farm. The relief was due to expire on 31 December 2019 but has now being extended to 31 December 2022.
Stamp duty on agricultural land has been increased from 6.0% to 7.5%. This is subject to transitional arrangements whereby the existing 6% rate will apply to instruments executed before 1 January 2020 where a binding contract existed prior to Budget day (8th October 2019).
The earned income tax credit has increase from €1,350 to €1,500. This increase will benefit self-employed farmers.
The home carer tax credit has increased from €1,500 to €1,600. This credit applies to married couples who are jointly assessed and where one spouse stays at home to care for a dependent person (i.e. children or incapacitated persons). In order to qualify for the credit, the carer spouse must have income of less than €7,200.
The reduced rates of Universal Social Charge (USC) for medical card holders has been extended to 31 December 2020. These reduced rates apply to individuals aged under 70 who hold a full medical card and whose aggregate income for the year is €60,000 or less.
Capital Acquisitions Tax
The Group A tax free threshold, which applies primarily to gifts and inheritances from parents to children, is being increased from €320,000 to €335,000. This change applies from 9th October 2019.
Tax Appeals Commission (TAC) Determination
Earlier this year, the TAC published a determination concerning the entitlement of a taxpayer to offset farming losses they incurred against their other income.
In 2001 the taxpayer inherited 26 acres of farmland from his father, which he farmed on a part time basis while also working as a shop assistant. The farm was in a poor condition when inherited and the taxpayer had invested considerable time and money over the years to improve the lands and to build up his farm trade to a point where it would become profitable. Despite the taxpayer’s work and expenditure, he had not yet been able to generate a profit and incurred significant losses over several years which he had claimed against his other income for this period.
In December 2016, Revenue issued tax assessments for the years 2010 to 2014 inclusive after the farmer’s income tax returns for each of these years were selected for a Revenue desk audit. The tax assessments raised disallowed the losses claimed in each year on the basis that the farming trade was not being carried out on a commercial basis with a view to realisation of profit.
Tax legislation restricts relief for farming losses in situations where a loss has been incurred in each of the three preceding years. However, this restriction will not apply where the claimant proves that the farming activities have a justifiable expectation of generating a profit in the future.
Based on the information provided, the Appeal Commissioner was satisfied that the time, work and money invested by the taxpayer were all intended to improve the farm and develop the farm trade to a point where it would become profitable. The Commissioner commented that due to the individual’s personal circumstances he was limited in the time and money which he could invest in the farming trade however it was evident that his wish and intention was for his farming trade to ultimately become profitable and to be in a position to carry out this trade on a commercial basis.
The Commissioner concluded that the farmer was trading in exceptional circumstances having received the farm in very poor condition and that the losses incurred were necessary to get the farm to a point where a trading profit is now a realistic expectation. As such, the Commissioner ruled that the farmer had been overcharged tax for the years 2010 to 2014, as a result of the tax assessments issued by Revenue in December 2016.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars private client team below:
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01 449 6480
Senior Tax Manager
01 449 6418
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