Currently around 10.5% of total land area in Ireland is forest but Coillte estimates that Ireland’s forestry industry will double in size over the next 10 years. If you are a farmer and considering moving into forestry, ifac, the farming, food and agribusiness professional services firm, advises that while there are tax advantages there are also pitfalls to bear in mind.
Martin Clarke Partner at ifac’s Mayo office looks at the main forestry taxes that farmers should be aware of before considering a move into the forestry industry.
If you are a landowner who has planted trees and managed them on a commercial basis you may be exempt from income tax on your profits, subject to satisfying certain conditions. This is because profits or gains from the occupation of woodland which is managed on a commercial basis with a view to a profit are exempt from income tax and corporation tax (but not USC and PSRI ). However, if you incur a loss when woodland expenses are deducted in any given year, you cannot offset this loss against other income.
Capital Tax Gains
Where land is sold with timber standing on it, the gain from the land is liable to CGT but the gain from the timber is exempt. This exemption does not apply to companies.
Relevant Contracts Tax
RCT is withholding tax that applies to payments by principal contractors to subcontractors in certain industries, including forestry. This means that if you engage a subcontractor to carry out forestry activities, you will need to register with Revenue as a principal contractor and deduct tax from your subcontractor. The relevant deduction depends on the subcontractor’s tax status. It can be 0%, 20% or 35%.
Capital Acquisitions Tax
Capital acquisitions tax on gifts and inheritances. You can receive gifts and inheritances up to a set value over your lifetime tax free. Once due, CAT is currently charged at 33%.
Where you inherit or receive a gift of agricultural property, you may qualify for Agricultural Relief if you meet certain requirements. This is a substantial relief which reduces the taxable value of agricultural property by 90% for CAT purposes.
For VAT purposes, forestry is deemed to be a farming activity. If you are not registered for VAT, you will need to apply the 5.4% VAT addition when selling timber to a VAT registered trader. This should be kept in mind when agreeing a price with the timber merchant. If you are not VAT registered, you can claim the 5.4% flat rate refund on certain fixed capital costs, such as fencing and roadways (but not planting ). Claims are submitted to Revenue via the VAT 58 form.
If you are VAT registered, you must charge VAT at 23% on timber sales apart from fire wood, which is chargeable at 13.5%
While Ireland’s private afforestation has increased steadily since the 1980s, there is still considerable scope for development in the forestry sector. Individual circumstances vary and it is always advisable to seek accountant advice on your particular situation.
A representative from ifac will be speaking at Talking Timber on Thursday June 13 at the Abbeyleix Manor Hotel in Laois.