TAX EFFICIENT FARM ENTERPRISES
The income from the sale of services of mares by a stallion within the state was tax free until 31st July 2008. The expenses that were incurred on maintaining the stallion were not allowable against other taxable income. With effect from 1st August 2008 Stallion fees are taxable in farmers hands as farming income and all expenses incurred wholly and necessarily for the carrying out of the farming business are tax deductible.
Horse breeding is a taxable activity in the same way as any other form of livestock farming; however when a horse is transferred to a racing stable the winnings or sale proceeds are not taxable, but the costs incurred in training and racing are not tax allowable. This treatment does not apply to race horse trainers.
Greyhound Stud Fees
The income from the sale of services of a stud dog within the state were tax free until 31st July 2008. As for other tax exempt activities the expenses that were incurred in maintaining the stud dog (up to 31st July 2008) were not allowable against other taxable income.
Income, including the grants and premiums, from forestry carried out in the State which is managed on a commercial basis are exempt from income tax but not from PRSI or the Universal Social Charge (USC). The establishment and maintenance costs are not allowed as a deduction against other income. The sale of growing timber is also exempt from capital gains tax but not the land on which it grows. Forestry is also eligible for Agricultural Relief in calculating Gift and Inheritance Tax.
Leasing of Farm Land
Where a person is aged 40 years or over, or is permanently incapacitated by reasons of mental or physical infirmity, leases his/her farm land for a period of 5 years or more, some or all of that income may be exempt from income tax as follows:
- For leases of 5 years and less than 7 years - an annual exemption of €12,000 p.a.
- For leases 7 years and less than 10 years the annual exemption is €15,000 p.a.
- For leases of 10 years and over the annual exemption is €20,000 p.a.
- Where the lease includes land and EU Single Farm Payment Entitlement, the rental income attributable to the EU Single Farm Payment also qualifies for the relief, subject to the appropriate ceiling.
The conditions applying are:
- The lease must be based on a formal lease document.
- The land must be leased to individual/s who are unconnected with the lessor and who use the land for the purposes of farming.
- The income of a husband and wife is treated separately whether they are jointly assessed or not.
TAX EFFICIENT NON-FARM ENTERPRISES
An income tax exemption applies to income derived from the provision of childcare services provided such income in the calendar year does not exceed €15,000 gross. Where the income exceeds €15,000, the entire amount is taxable as self-employed income. In determining whether the income level exceeds €15,000, no deductions of any kind are allowed. The childcare service must be provided in the service providers own home and the service cannot be provided to more than three children at any time.
Three Year Tax Exemption for Start-Up Companies
Companies commencing trading in 2012 are exempt from tax, including Capital Gains Tax, in each of the first three years to the extent that their tax liability in the year does not exceed €40,000 with its implementation subject to compliance with EU Rules of State Aid and EU Ratification. The value of the tax exemption is linked to the amount of Employers PRSI paid by the company. The exemption does not apply to the following activities:
- A trade or part of a trade previously carried on by another person to which the company has succeeded.
- Land development, mining and petroleum activities.
- Companies providing certain professional services.
- Activities in the fisheries and aqua culture sectors.
- Primary production of agricultural products.
- Processing and marketing of agricultural products.
- Export-related activities.
- Where the trade is contingent on the use of domestic rather than imported goods.
- Activities in the coal sector.
- Road-freight transport operations.
- Undertakings in difficulty.
Rent a Room Relief
Where an individual rents a room/rooms in their principal private residence and the gross income received, including sums arising for food, laundry or other similar goods and services, does not exceed €10,000 in the tax year, this income is exempt from income tax. Where the income exceeds €10,000 the entire amount is taxable. This income is not liable to PRSI but it must be included on an individual’s Annual Income Tax Return. The exemption does not apply where a child pays rent to a parent.
PERSONAL ALLOWANCES - TAX DEDUCTIBLE AT 41%
There are specified allowances which may be claimed euro for euro against your taxable income which can therefore yield a 41% tax saving for a higher rate tax payer. The benefit for the standard (20%) tax payer is 20%. These allowances are as follows:
- Pension Payments
- Permanent Health Insurance
- Certain Nursing Home Expenses
- Incapacitated Persons Special Carer's Allowance
- Interest on loan to Partnership
- Life Assurance Policies
- Employment and Investment Incentive Scheme (EII) (formerly BES Relief)
- Film Investment
- Nursing Home & Private Hospital Investment
- Investing in Tax Designated Property.
High income earners with incomes in excess of €125,000 per annum are restricted in the amount of property based and other tax reliefs they can claim. In calculating the income of €125,000, income otherwise exempt from income tax such as forestry, stallions etc. are included for the purposes of this calculation. The purpose of this limitation of reliefs and income tax exemptions is to ensure that income tax allowances and exemptions cannot be used by high income earners to reduce their tax liability to nil.
Payments to an approved Personal Pension Scheme, subject to the percentage ceilings as set out below, are fully allowable against a farmers taxable profits from his farming business. Taxable farm profits would not include rental income, deposit interest etc. Since 2002 it is no longer necessary for earned taxable farming profits to continue to exist in order to receive a tax allowance for pension contributions. This may be of interest and relevant to certain Early Farm Retirement Scheme participants.
Pension Contribution Tax Relief Limits
|Age||Percentage of earned taxable income *|
|Under 30 years of age||15%|
|30 and under 40 years of age||20%|
|40 and under 50 years of age||25%|
|50 and under 55 years of age||30%|
|55 and under 60 years of age||35%|
|60 years and over||40%|
Permanent Health Insurance
Premium payments to a Health Insurance Scheme which provides regular income in the event of sickness or disability are fully allowable against tax.
The premia being paid must not exceed 10% of current income and all receipts from a Permanent Health Insurance Plan are taxable, regardless of whether or not tax relief was claimed on premiums paid.
Certain Nursing Home Expenses
Where an individual has defrayed health expenses on healthcare in relation to maintenance or treatment in a Nursing Home, and where there is 24 hour nursing care on-site, there is a deduction for these expenses against total income available to that individual. It would appear that relief for such expenses is only available where the treatment or maintenance in the Nursing Home is necessarily incurred in connection with the services of a medical practitioner or in connection with diagnostic procedures. In other words, the availability of relief for expenses on Nursing Home maintenance where the maintenance is not medically required might be in doubt. However, it is understood that in practice the only question for availability of relief is whether the 24 Hours Nursing Home Cover on-site is available.
Contributions by the individual in defraying Nursing Home fees under the “fair deal” scheme are to be treated as health expenses qualifying for relief, however, the law would seem to indicate the relief is limited to the standard 20% rate but it is understood, in practice, relief at the marginal rate may be available.
If incurring Nursing Home expenses check out the tax position prior to incurring the expenditure to enable you secure the best tax deal.
Incapacitated Persons Special Carer's Allowance
This allowance of up to €50,000 is claimable where the taxpayer employs a person to take care of a family member who is totally incapacitated, owing to old age or infirmity.
Interest on Loan to Partnership
Relief is given to individuals for interest on loans applied in purchasing a share in or lending money to a partnership provided the money is used wholly and exclusively for the purposes of the trade or profession carried on by the partnership and in which the taxpayer is a partner.
Deeds of Covenant
If you pay tax at the higher rate, you may reduce your tax liability and increase the disposable income of the person to whom you are covenanting the income. In addition, if the covenantee pays tax at a lower rate or is exempt from tax, a tax advantage may be gained. For a Deed of Covenant to qualify for tax relief it must be capable of running for a period in excess of six years.
As a general rule there is no tax relief on Covenants to children. Tax relief is available on
(i) Persons who are permanently incapacitated
(ii) A permanently incapacitated minor child if paid by a person other than the parent
(iii) Persons who are aged 65 years or over
(iv) A University or College for the purposes of research or the teaching of the natural sciences, and
(v) Certain bodies established for the promotion of human rights.
Tax allowance on all of the above covenants will be restricted to 5% of the covenantor's total income, with the exception of covenants in favour of permanently incapacitated persons where unrestricted relief is available.
Life Assurance Policies
In general tax relief is not available for life assurance premiums but limited relief is available for certain policies that are stand alone or can be included in a personal pension contract. The relief is limited to 5% of taxable profits but, in the case of an individual paying pension contributions the overall pension premium limits covers the combined payments. A restriction to tax allowability is that this policy is non assignable e.g. it cannot be assigned to a bank/lending institution as security against borrowings.
Employment & Investment Incentive Scheme (formerly Business Expansion Scheme Relief (BES)
Employment & Investment Incentive Scheme (EII) formerly known as BES Relief, is a euro for euro tax relief for investment in certain types of companies. The maximum amount which qualifies for the relief in any one year is €150,000. The scheme is subject to European Commission approval.
The Employment & Investment Incentive Scheme (EII) differs from BES in that the period for which shares have to be held has been reduced from 5 years to 3 years and the maximum rate of tax relief for subscriptions for eligible shares has been reduced from 41% to 30% in recognition of the reduced holding period. However, a further 11% of tax relief may be available at the end of the holding period provided the company concerned has increased its number of employees since the investment was made, or the company has increased its expenditure on research and development.
Special tax incentives are available for qualifying investments in the film industry. Tax relief is available at the 41% tax rate on 100% of an individual's annual investment up to a maximum investment of €50,000 per annum and the return of your capital is not guaranteed.
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.