BUDGET 2013 - SAVINGS GUIDE FOR FARMERS
INCOME TAX
DIRT INCREASED
The deposit interest retention tax (DIRT) has been increased from 30% to 33% and will also be the subject to the universal social charge.
TAX PLANNING ACTION
Certain investments with An Post are tax exempt.
EXTENSION OF STOCK RELIEF
What is Stock Relief?
Where the value of trading stocks (livestock, grain etc.) at the end of the accounts year exceeds the value of stock at the opening date, a farmer can receive a deduction from taxable farming profits of a percentage of the excess.
What does the budget propose?
The budget proposes:
(a) Extending the availability of stock relief to 31 December 2015.
(b) Broadening the definition of 'registered farm partnerships' so that partnerships
other than milk production partnerships can avail of the enhanced relief.
What are the Stock Relief rates?
(a) Standard Stock Relief rate – 25% of excess.
(b) Young Trained Farmer Stock Relief (YTR)– 100% of excess.
(c) Registered Farm Partnerships – 50% of excess.
TAX PLANNING ACTION
1. Stock Relief is available for a further three years – build it into your tax
and finance strategic plan.
2. Not now restricted to 'Milk Production Partnerships' – Would the creation of a partnership
entitle you to the enhanced 50% stock relief?
PRSI AND THE COST OF EMPLOYMENT
The employee's weekly PRSI exemption of €127 per week will be abolished from 1 January 2013. For farmers with a cash-inhand weekly wage arrangement with employees, this will increase the cost of employment.
How will it increase the cost of employment?
The employee's weekly PRSI exemption of €127 was worth €127 x 4% per week i.e. €5.08. Where your arrangement with the employee is on a gross wage per week basis the employee will suffer the reduction of €5.08 from their net wage.
Where you have guaranteed a cash-in-hand figure to an employee, you, the farmer, must fund the €5.08. This, as well as the universal social charge of 7%, PRSI of 4% and additional employer's PRSI of 10.75%, means the additional cost to you, the farmer, for an employee taxable at 20%, will be €8.15 per week – €424 per year. Where an employee is taxable at 41% this will be €11.71 per week – €609 per year.
TAX PLANNING ACTION
Be aware of the pitfalls of cash-in-hand wage arrangements – strive to agree gross wage agreements.
THE FARMER AND HIS OWN PRSI CONTRIBUTION
For the farmer personally, the minimum PRSI contribution is increased from €253 to €500, i.e. while the general PRSI rate is 4%, on incomes of up to €12,500 there is a minimum fl at €500 PRSI charge.
TAX PLANNING ACTION
Through pre-year end planning, by the timing of sales and expenditure, maximise your annual tax-free income of €8,250 (single person) and €16,500 (married couple) and capital allowances.
VALUE ADDED TAX
From 1 January 2013 the fl at rate addition, which compensates non VAT-registered farmers for VAT suffered, has been reduced from 5.2% to 4.8%.
TAX PLANNING ACTION
Run the figures and see if the new 4.8% VAT refund compensates you for the VAT on your inputs, bearing in mind you can receive VAT refunds on fixed capital expenditure without having to register for VAT.
CAPITAL GAINS TAX
The capital gains tax rate has been increased from 30% to 33% from 6 December 2012. In three years the capital gains tax rate has been increased from 20% to 33%.
BUDGET BRIGHT NOTE NEW CGT FARM RESTRUCTURING/CONSOLIDATION RELIEF:
Intensive lobbying by IFA and Macra has secured a relief from capital gains tax for farmers who sell land to fund the purchase of another piece of land as part of their individual farm restructuring/consolidation plan. The relief will also apply to land swaps. There is a qualifying time period and it is as follows:
- The initial sale or purchase transaction must occur within the period 1 January 2013 to 31 December 2015.
- The sale and purchase of the land parcels must occur within 24 months of each other.
TAX PLANNING ACTION
If you are currently involved in either the sale or purchase of farmland and are in the process of a farm restructuring/land consolidation plan, examine the feasibility of deferring the current transaction to 1 January 2013 to avail of the new Capital Gains Tax Relief.
SEVEN-YEAR CAPITAL GAINS TAX HOLIDAY
This was a good news element of the recent budget. It introduced a seven-year capital gains tax holiday on property purchased between 6 December 2011 and 31 December 2013, i.e. the opportunity to avail of this relief runs out on 31 December 2013.
TAX PLANNING ACTION
This capital gains tax holiday applies to land, buildings and property in the State and runs out on 31 December 2013. If you can identify assets which you feel will appreciate in value over time, availing of this capital gains tax incentive may be worthwhile.
CAPITAL GAINS TAX RETIREMENT RELIEF
A not so welcome part of the 2013 Budget was the introduction of a restriction, from 31 December 2013 onwards, for farmers aged over 66 selling or transferring property.
NON-FAMILY LAND SALES AND TRANSFERS
The €750,000 Capital Gains Tax Retirement Relief, which applies to the sale or transfer of land, sites etc. to non-family members, will be reduced to €500,000 for those transfers occurring after 31 December 2013 by farmers aged over 66 years.
INTRA-FAMILY LAND SALES/TRANSFERS AND CGT RETIREMENT RELIEF
Currently, there is no ceiling on the capital gains tax relief for qualifying intra-family sales and transfers. A €3m ceiling on the CGT intrafamily retirement relief will apply to transfers/sales after 31 December 2013 by farmers over 66 years of age.
TAX PLANNING ACTION
If you are approaching 66 years of age – re-examine your plans for what you intend doing in respect of land sales and/or transfers before 31 December 2013.
INHERITANCE & GIFT TAX
RATE OF TAX
The gift and inheritance tax rate has been increased from 30% to 33% with effect from 6 December 2012. In 2009 the rate was 20%.
REDUCTION IN TAX-FREE THRESHOLDS
The tax-free amounts which a person may receive were reduced by 10% in the budget and the
present tax-free thresholds, compared with December 2011 and 2009, are as follows in Table 1 below.
Table 1
| Relationship to Donor | 06/12/12 | 06/12/11 | 01/01/09 |
| GROUP A (Parents) | 225,000 | 250,000 | 542,544 |
| GROUP B (Brother, sister, uncle, aunt) | 30,150 | 33,500 | 54,254 |
| GROUP C (Other) | 15,075 | 16,750 | 27,127 |
The amount under the GROUP A threshold, i.e. parents to children, that may be transferred taxfree has been reduced by virtually 60% since January 2009.
These changes will have serious implications for the transfer of viable family farms in the future.
TAX PLANNING ACTION
For five budgets in a row we have seen the contraction of allowances and an increase in gift and inheritance tax rates:
- Review your will with your solicitor and your accountant.
- Wills drawn up three years ago are now outdated for the purposes of tax planning.
- The 60% reduction in the tax-exempt amounts make existing capital tax reliefs all the more valuable. It is imperative you arrange your affairs and that of your successor to avail of these reliefs.
- In the area of capital taxes, failing to plan is most certainly planning to fail.
THE HOME TAX
There has been much publicity surrounding the local property home tax and, in summary, the relevant points are as follows:
- The Property Tax will take effect from 1 July 2013, so only a half year's contribution will be payable in 2013 and it will be collected by the Revenue Commissioners.
- The Property Tax will replace the household tax (€100) which will not be payable in 2013 and will replace the second home property tax which will cease to be operational on 1 January 2014 i.e. 2013 will be the last year of payment.
- The house owner is the person liable to pay the tax. The market value of the house, as at 1 May 2013, is to be self-assessed by the owner and this initial valuation will be used for the years 2013 to 2016.
- The rates of payment of tax are 0.18% of the market value of the residential premises, with a value up to €1m, and 0.25% of the market value on that part of the value in excess of €1m. These rates are fixed for this Government's lifetime, however, from 2015 local Councils may alter this (+)/(-) 15%, depending on their funding requirements.
- The Property Tax return and payment must be received by the Revenue Commissioners in May 2013 and if either is not done on a timely basis it will subject your income tax return and liability to surcharge.
PLACING A VALUE ON MY HOUSE
The Revenue Commissioners have stated they will issue valuation guidelines in March 2013 and all taxpayers have the option to use a competent valuer.
From IFAC Accountants' experience in dealing with the Residential Property Tax from 1983 to 1997, the key to tax-planning in this area is in relation to the valuation process.
No two farmhouses are the same, be aware of how the location, proximity to farm yards, safety implications, rights of way etc. can influence the market value of a property.
EXEMPTIONS
The following will be exempt for three years:
- First-time residential homebuyers in 2013.
- Purchases between 1 January 2013 and 31 December 2016 of new or previously unoccupied houses.
- There are other exemptions similar to the exemptions that existed for the €100 household charge.
DEFERRAL OF PAYMENT
Single persons with gross income of €15,000 or less and married persons with gross income of €25,000 or less may seek a deferral of the payment of the property tax, subject to a 4% annual interest charge.
The deferred tax and interest will fall due on the sale/transfer of the residential property involved.
THE €100 HOUSEHOLD TAX
The €100 household tax was introduced with effect from 2012, which will be the last year in which it will operate.
Incentive to pay household tax
Arrears of household tax not paid before 1 July 2013 will be increased to €200.TAX PLANNING ACTION
- The levying of penalties and surcharges for non-filing or late filing of returns and payment of the property tax to a self-employed person's income tax bill makes it imperative to file and pay the property tax on time.
- The Revenue Commissioners will now collect outstanding 2012 household tax and there is an incentive to pay before 1 July 2013 when arrears will be doubled to €200.
- The house valuation process is the key to this tax – secure the services of a knowledgeable tax-adviser and valuer.