TAXATION ADVISORY
CAPITAL GAINS TAX
Where a farmer disposes of property such as land, buildings, assets of a business and company shares, the disposal of which is not liable to Income Tax, another tax may be payable if there is a gain. This tax is called Capital Gains Tax and is payable by the person who disposes of the property.
Disposal
The word used is "disposal" - not sale. Therefore if you gift your land to someone without receiving one cent consideration, you could still end up with a capital gains tax bill. Another example of a disposal is where insurance proceeds are received for buildings destroyed, and is a disposal for capital gains tax purposes. Transfers between husband and wife who are living together do not attract capital gains tax.
Transfers on Death
Property transferred on death does not attract a capital gains tax charge and the person who receives the property can use the market value of the inheritance as their cost to calculate the gain on any future sale or disposal.
How is the gain calculated?
Simply deduct 'A' from 'B' where 'A' is the cost of the asset disposed of (adjusted for inflation up to 31st December 2002) and 'B' represents sale proceeds less selling costs or market value at date of disposal in the case of a gift.
How do I arrive at cost price?
If the asset you are disposing of was owned by you prior to 6th April 1974, then your deemed cost is the market value of the asset at 6th April 1974.
Assets acquired after 6th April 1974
If you purchased the asset after 6th April 1974, the actual cost plus legal fees, stamp duty etc. is the base cost. If the assets were received by way of gift since 6th April 1974, the cost is the market value of the assets at the date of the transfer.
Expenditure not allowed as a deduction
No deduction is allowed for expenditure which qualified as a tax deduction in the profit and loss account for income tax purposes. Interest on borrowings is not an allowable deduction for capital gains tax purposes.
Additional expenditure since acquisition - enhancement expenditure
Capital improvement expenditure (net of grants) is allowable as a deduction provided the improvement is reflected in the asset at the time of disposal. Income tax capital allowances claimed on such capital improvement expenditure are disregarded.
Assets which have qualified for Income Tax capital allowances.
Where the proceeds from the sale of such assets are in excess of the original cost, such excess is liable to capital gains tax.
Grants
Where any part of the cost of an asset has been met directly or indirectly by the Government, by any Board established by statute or by any Public or Local Authority, whether in the State or elsewhere the grant or subsidy must be deducted in arriving at the cost of the asset for capital gains tax purposes.
Inflation Indexation
Inflation indexation is a mechanism by which allowance is given for the increase in asset values as a result of inflation occurring up to 31st December 2002. The indexation factors for expenditure from 6th April 1974 to 31st December 2002 are as follows:
CAPITAL GAINS TAX INDEXATION FACTORS
| Year of Expenditure |
Year of Disposal | ||||
| 2000/01 | 2001 | 2002 | 2003 | 2004 onwards | |
| 1974/75 | 6.582 | 6.930 | 7.180 | 7.528 | 7.528 |
| 1975/76 | 5.316 | 5.597 | 5.799 | 6.080 | 6.080 |
| 1976/77 | 4.580 | 4.822 | 4.996 | 5.238 | 5.238 |
| 1977/78 | 3.926 | 4.133 | 4.283 | 4.490 | 4.490 |
| 1978/79 | 3.627 | 3.819 | 3.956 | 4.148 | 4.148 |
| 1979/80 | 3.272 | 3.445 | 3.570 | 3.742 | 3.742 |
| 1980/81 | 2.833 | 2.983 | 3.091 | 3.240 | 3.240 |
| 1981/82 | 2.342 | 2.465 | 2.554 | 2.678 | 2.678 |
| 1982/83 | 1.970 | 2.074 | 2.149 | 2.253 | 2.253 |
| 1983/84 | 1.752 | 1.844 | 1.911 | 2.003 | 2.003 |
| 1984/85 | 1.590 | 1.674 | 1.735 | 1.819 | 1.819 |
| 1985/86 | 1.497 | 1.577 | 1.633 | 1.713 | 1.713 |
| 1986/87 | 1.432 | 1.507 | 1.562 | 1.637 | 1.637 |
| 1987/88 | 1.384 | 1.457 | 1.510 | 1.583 | 1.583 |
| 1988/89 | 1.358 | 1.430 | 1.481 | 1.553 | 1.553 |
| 1989/90 | 1.314 | 1.384 | 1.434 | 1.503 | 1.503 |
| 1990/91 | 1.261 | 1.328 | 1.376 | 1.442 | 1.442 |
| 1991/92 | 1.229 | 1.294 | 1.341 | 1.406 | 1.406 |
| 1992/93 | 1.186 | 1.249 | 1.294 | 1.356 | 1.356 |
| 1993/94 | 1.164 | 1.226 | 1.270 | 1.331 | 1.331 |
| 1994/95 | 1.144 | 1.205 | 1.248 | 1.309 | 1.309 |
| 1995/96 | 1.116 | 1.175 | 1.218 | 1.272 | 1.272 |
| 1996/97 | 1.094 | 1.152 | 1.194 | 1.251 | 1.251 |
| 1997/98 | 1.077 | 1.134 | 1.175 | 1.232 | 1.232 |
| 1998/99 | 1.059 | 1.115 | 1.156 | 1.212 | 1.212 |
| 1999/00 | 1.043 | 1.098 | 1.138 | 1.193 | 1.193 |
| 2000/01 | 1.053 | 1.097 | 1.144 | 1.144 | |
| 2001 | 1.037 | 1.087 | 1.087 | ||
| 2002 | 1.049 | 1.049 | |||
| 2003 onwards | 1.000 | ||||
What is the rate of Capital Gains Tax?
The rate at which capital gains tax is applied is 25% on non-rezoned land.
80% Windfall Capital Gains Tax
A new 80% Windfall Gains Tax applies to disposals on/after 30th October 2009 of lands rezoned since that date on that increase in the market value resulting from the rezoning. Land disposed of by CPO is excluded.
In reading this taxation section interpret the word "he" as meaning he or she and the law stated as at 1st November 2008 incorporating the 2009 budget proposals.
Disclaimer: The taxation content prepared by IFAC Accountants in this publication is intended as an aid to farmers and has been written in general terms and is intended as a guide only and is not intended to be a comprehensive statement of relevant law or regulation with its application to specific situations depending on the particular circumstances involved.
It should not be used as a basis of any conclusion drawn or argument made and the original legislation should be consulted at all times. Accordingly, the reader should seek proper professional advice if acting on any of the issues outlined in this publication and this publication should not be relied upon as a substitute for such advice. While every effort has been made to ensure accuracy, the author or publisher will not accept any liability for loss, distress or damage resulting from any errors or omissions.