Revenue expenditure is identified with the direct costs or inputs such as seeds, labour, feedstuffs, haulage, veterinary fees, AI, rent etc. incurred in developing produce to the point of sale. A Revenue expense is allowed fully as a tax deduction in the year incurred.
Capital expenditure on the other hand is incurred in providing assets which are necessary in carrying out the farming operation but do not themselves form part of the finished product when it is sold e.g. farm buildings, motor car, tractor, farm implements, yards, roadways. An allowance for capital expenditure as a deduction against trading profits is not given in the normal manner by deducting the amounts paid from profits in the year in which the money is spent. The capital expenditure is written off on a straight line basis over a number of years as follows:
|Expenditure 04/12/2002 onwards||Expenditure Incurred 01/01/01 to 03/12/2002|
|Plant & Machinery||12.5% per year||20%|
|Farm Buildings & land improvement||15% per year||15%|
|Motor Vehicles||12.5% per year||20%|
Farm Buildings Allowance - Pollution Control
There is a special Capital Allowances Scheme for work on farm buildings and structures associated with pollution control where the work was carried out between 1st January 2005 and 31st December 2010. For works carried out after 31st December 2010 the normal 7 year write-off period applies. There is an accelerated allowance in Year 1 of the lesser of €50,000 or 50% of the qualifying expenditure. This Year 1 allowance is regarded as a “floating allowance” which may be taken in whole or in part at any time over the writing down period i.e. 3 years. The balance of the expenditure is written off over the 3 years (33% per annum). The allowance is calculated on the expenditure net of grants and vat refund/credit.
Conditions to be satisfied
- Work must be carried out prior to 31st December 2010.
- A Farm Nutrient Management Plan must be drawn up by an agency or planner approved by the Department of Agriculture, Food & Forestry.
- The plan must be delivered to the Department of Agriculture, Food & Forestry.
- The buildings and structures must be constructed in accordance with the Farm Nutrient Management Plan and certified as being necessary for the purpose of securing a reduction in or the elimination of any pollution arising from the trade of farming.
- The building must be in use before the claim is allowable.
Milk Quota - Capital Allowances
Capital allowances are available to farmers for expenditure incurred on or after 6th April 2000 on the purchase of any qualifying milk quota. The rate of the allowance is 15% per year for six years and 10% in the 7th year.
The amount of expenditure which qualifies for relief is limited to the lesser
(i) The amount of the capital expenditure incurred on the purchase of a qualifying quota or
(ii) The amount of capital expenditure which would have been incurred on the purchase of that milk quota under a Milk Quota Restructuring Scheme.
Sale of Milk Quota
Where a tax deduction has been claimed on the purchase of milk quota and the quota is subsequently sold, a balancing charge or a balancing allowance will arise which is calculated by reference to the tax written down value of the quota at the date of sale.
Capital Allowances - Motor Vehicles
1.Cars purchased prior to 1st July 2008
The calculations are based on the value of the car at the time of purchase, subject to a ceiling of €24,000.
|Capital Allowances on a Car|
|Restricted to €24,000||€24,000|
|Allowance @ 12.5% (12.5% of €24,000)||€3,000|
|Disallow 1/3 x €3,000 for private use||(€1,000)|
|Capital allowance for year||€2,000|
2. Cars purchased on or after 1st July 2008
In an effort to promote the use of cleaner low emission cars, Vehicle Registration Tax (VRT), Motor Tax and Income Tax capital allowances on cars are now linked to C02 emissions. The C02 emissions of a car replaces engine size and are graduated as one moves up the C02 bands, as follows:
|C02 Emissions per Kilometre|
|Band A||Less than 120 grams|
|Band B||Between 121 and 140 grams|
|Band C||Between141 and 155 grams|
|Band D||Between 156 and 170 grams|
|Band E||Between 171 and 190 grams|
|Band F||Between 191 and 225 grams|
|Band G||More than 225 grams|
Cars registered before 2008 (i.e.) cars in the motor tax system before 2008 continue to be taxed under the pre 2008 system related to engine size (cc).
CALCULATING THE MOTOR CAR CAPITAL ALLOWANCES
Categories A, B and C (emission band g/km 0-155)
For vehicles in bands A, B and C the allowable cost for capital allowances purposes is €24,000 irrespective of actual cost.
|John Farmer purchases a car with a carbon emissions level of 130g/km (a category B car) for €20,000.|
|John Farmer can claim capital allowances based on a cost of €24,000 even though he paid €20,000 for the car.|
Categories D and E (emission band g/km 156-190)
For vehicles in bands D and E the allowable cost for capital allowances
Where the retail price of the vehicle is less than or equal to €24,000, 50% of that price or
Where the cost is greater than €24,000, 50% of €24,000.
|Mary Farmer purchases a business car with a carbon emissions level of 160g/km (a category D car) for €36,000. Capital allowances are claimable by Mary but the amount on which the allowances are available is restricted to €12,000 i.e. 50% of €24,000.|
Categories F and G (emission band g/km 190+)
For vehicles in bands F and G no capital allowances are available.
A full guide to individual motor vehicles and their CO2 emission status is available on the Society of Irish Motor Industries website at www.simi.ie
In reading this taxation section interpret the word "he" as meaning he or she and the law stated as at 6th December 2011 incorporating the 2012 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.