In his budget day speech, Minister Michael Noonan recognised the significant role played by the farming and agri-food sector in Ireland’s economic recovery. This important sector employs approximately 169,000 people across the country and its produce is one of Ireland’s top 10 exported commodities.
This sector has traditionally seen farming incomes taxed harshly, with few tax credits and reliefs and little incentive to assist with the inter-generational transfer of family farms. It is welcomed that the Minister appears to have addressed a number of these issues in his budget speech.
Farm Transfer Partnerships
Recent government policy in respect of the farming sector has been progressively focused on increasing productivity while enabling the smooth transfer of farms between generations.
Many farms in the State are family run smallholdings and are often not sufficiently profitable to support two families simultaneously.
With this in mind, the Irish Farmers Association (“IFA” ) made a proposal to the government which addressed the major issues facing the farming sector. Budget 2016 addressed these issues by announcing a new income tax relief for farming partnerships. The proposed relief consists of a tax credit of up to €5,000 per annum for 5 years. The relief would be allocated between the farming partners based on their profit sharing agreement. The partnership arrangement may be extended up to 10 years, at which time the farm would be required to transfer to the young farmer.
The introduction of this relief is subject to EU state aid approval.
Extension of a number of existing agri-food tax reliefs to 2018
In recognition of the importance of the agricultural and food sectors to the Irish economy, the Minister announced the extension of a number of valuable farming reliefs for a further 3 years to the end of 2018.
The reliefs covered include general stock relief, stock relief for young-trained farmers, and stock relief for registered farm partnerships. Stock relief is available only to farming trades and is a relief given in respect of increases in the value of farm trading stock.
The Minster also announced the extension of stamp duty relief for farm transfers to young-trained farmers under the age of 35 for a further 3 years to 2018.
Profits from the occupation of Woodlands
To support the forestry sector, profits or gains from the occupation of woodland in Ireland which is managed on a commercial basis and with a view to profit are exempt from Income Tax and Corporation Tax (but not Universal Social Charge and Pay Related Social Insurance ).
However the exemption for woodland profits has been subject to the High Income Earners Restriction (HIER ) which caps tax reliefs so that the minimum income tax rate for an individual is 30%. The budget proposes a new measure to remove profits from the occupation of woodlands from the list of tax reliefs subject to the HIER.
Capital Acquisitions Tax
The increase in the Capital Acquisitions Tax Group A tax-free threshold, which applies primarily to gifts and inheritances from parents to their children, from €225,000 to €280,000 will be of benefit to farmers and those with agricultural property. When considered in conjunction with the existing agricultural relief, this increase should result in an appreciable reduction in the potential tax liability arising on the transfer of agricultural assets to a child.
Self-employed tax credit
Historically, it has been well reported that self-employed individuals suffer a greater tax burden than employees. One of the main inequalities between these groups has been the availability of the PAYE tax credit of €1,650 to employees only. The Minister has gone some way to reducing the disparity by announcing the introduction of an “earned income” credit of €550 for the self-employed and farmers for 2016.
It is hoped that the government will introduce further measures to close this gap in future budgets.
A potential sting in the tail of this new credit is that where an individual is entitled to both the PAYE tax credit and the new self-employed credit, the aggregate of these tax credits claimed cannot exceed €1,650 in a tax year. As a result, some part-time farmers may not benefit from the introduction of this new credit.
Separately from the budget, the Minister published an independent review of existing tax supports for the marine sector. The government had committed to review the sector in last year’s budget.
The recommendations provide for the extension of some reliefs and the introduction of others, together with overall recommendations for the marine industry. The report covers a wide variety of industries, from those engaged in international shipping to those involved in fishing and sea food processing. The report proposes a range of actions including the extension of many existing schemes and reliefs (such as CAT agricultural relief ) to those in the fisheries and seafood sector, increasing the availability of capital allowances for ports and port-related plant and machinery and amendments to the tonnage tax regime. Many of these measures will require EU approval.
Commercial vehicle transportation costs
The simplification of the commercial vehicle motor tax rate system should also benefit farmers. From the 1st of January 2016, the 20 existing commercial rates will be replaced by five new rates, ranging from €92 to €900. There were no changes announced to the motor tax rates for general haulage tractors or other agricultural tractors.
Separately from matters of taxation, Minister Brendan Howlin announced the allocation of €1.3 billion to the Department of Agriculture, Food and the Marine. It is intended that these funds will be directed towards the Rural Development Programme and a range of agri-environmental schemes.
The Minister’s announcements in his budget speech are practical and well-timed and should be welcomed by the farming sector. The proposed tax measures should enable farmers to pass on family farms in a more tax efficient manner and ensure that their farming incomes are taxed more fairly.
It is imperative that Ireland continues to recognise the importance of the farming sector in terms of the number of people employed by this sector and the role it plays in the country’s international export presence. Both of these factors will continue to be main contributors to Ireland’s economic recovery into the future.