TAXATION ADVISORY
CALCULATING YOUR INCOME TAX LIABILITY
Income tax is payable on your taxable income i.e. your taxable accounts profit less special farming reliefs, capital allowances, relief for tax efficient farm enterprises and personal allowances and tax deductions at the 41% rate. The Irish Taxation System is called a progressive tax system because the rate at which income is taxed increases by reference to the level of that income. The rate of increase depends on the marital/ domestic status of the individual and for 2010 is as follows:
| Single/Widow(er) €36,400 taxable at 20% Balance at 41% |
One Parent Family First €40,400 taxable at 20% Balance at 41% |
| Married Couple - only one spouse working First €45,400 taxable at 20% Balance at 41% |
Married Couple - both spouses working First €72,800 taxable at 20% Balance at 41% |
The €72,800 rate band (20%) is subject to the lower earning spouse having income of at least €27,400 in 2010. If the lower-earning spouse was earning €10,000, then the rate band would be €45,400 plus €10,000 = €55,400.
For farmers taxable at the marginal rate (41%) the payment of a commercial wage to a spouse for work carried out would yield an additional tax saving of 21%.
HIGH EARNERS - Over €125,000.
From tax year 2010 taxpayers benefiting from specific Income Tax reliefs and exemptions and earning €125,000 or more per annum will have their reliefs and exemptions restricted in order to effect a minimum tax yield to the exchequer
Income Exemption Limits
A person whose income does not exceed the following limits is completely exempt from income tax:
| Persons 65 and Over Single/Widowed Person: Married: Additional allowance per dependent child: Additional Allowance for 3rd and Subsequent child: |
€20,000 €40,000 €575 €830 |
Marginal relief is available for those whose total income exceeds the exemption limit which restricts the tax payable to 40% of the difference between the taxable income and the appropriate exemption limit.
INCOME LEVY
The Income Levy applies to gross income i.e. no allowable deduction for pension payments or capital allowances with the exception from 2010 of certain expenditure incurred to comply with the Nitrates Directive.
| Exemption Threshold (Under 65) | 15,028 |
| Income exceeding €15,028 to €75,036 | 2% |
| €75,036 to €174,980 | 4% |
| In excess of €174,980 | 6% |
Exempted Individuals:
- Holders of a full medical card
- Individuals over 65 whose income does not exceed €20,000
- Married couples where one of them was 65 or over during the tax year and their income does not exceed €40,000 where they are jointly assessed to Income Tax.
Income Tax exempt income will be liable to Income Levy:
Certain income which is exempt from income tax is subject to the Income Levy e.g.
- Income from leasing of farmland which qualifies for Income Tax exemption.
- Income arising under the Woodlands exemption - Forestry Income
- Deposit Interest received from banks which has been subject to Deposit Interest Retention Tax (DIRT).
- Dividend payments by Credit Unions which were subject to Deposit Interest Retention Tax (DIRT).
- Farm Retirement Pensions paid by the Dept. of Agriculture, Food & Fisheries.
- Life Policy Returns.
- Social Welfare and similar payments.
PRSI & HEALTH LEVY
Most self-employed people between the ages of 16 and 66 must pay Pay Related Social Insurance (PRSI) contributions on their combined yearly earned and unearned income if it exceeds €3,174. Self-employed individuals pay PRSI under Class S. The Class S rate of PRSI is 3% of all earnings or the sum of €253 whichever is the greater. When the level of earned and unearned income exceeds €26,000 a self-employed individual is also liable to pay a Health Contribution Levy of 4% of income up to €75,036 and 5% on any excess.
The following self-employed people are exempted from the health levy:
Medical card holders, persons to whom the Department of Family & Social Affairs is paying
survivors pension, and deserted wives on one parent family benefit. The benefits arising from
paying PRSI are entitlement to a Contributory Old Age Pension, Contributory Survivor's Pension,
Maternity Benefit, Bereavement Grant and Contributory Orphan's Pension.
Voluntary Contributions
Once 5 years PRSI has been paid, a person may become a voluntary contributor if they cease to be compulsorily insured because of ceasing farming or because of earning less than €3,175 per year. Applications to become a voluntary contributor must be made within one year of the end of the tax year in which they cease to be compulsorily insured. Where no contributions are made because of any of the circumstances outlined, a person may be missing out on vital contributions to ensure full entitlement to contributory old age, survivors or orphans pensions. Only in very exceptional circumstances is it possible to back-pay such contributions as the time limit for applying is strictly adhered to. The current rate of voluntary contribution is €253.
PRSI for those exempted from making a Tax Return
There is an important distinction between a farmer earning less than €3,175 per annum who does not have an obligation to pay PRSI and a farmer who is exempted from making a Tax Return. An exemption from making a Tax Return arises from a notification from the Inspector of Taxes that he/she is not required to make a Tax Return. An individual exempted from making a Tax Return is obliged to apply to the Department of Social, Community & Family Affairs to become a PRSI contributor and the total annual contribution is €157. While this treatment has the benefit of securing entitlements for back years there is an obligation to fund back years since 1988/89.
VALUE ADDED TAX
There is no obligation on a farmer to register for VAT. Vat un-registered farmers receive a "flat rate refund" of vat amounting to 5.2% on the sale of their farm produce. In general, farmers in dairying and drystock do not find it beneficial to register as the "flat rate refund" compensates them for vat suffered on farm inputs. All farmers should examine their own figures to assess if it would be worthwhile to register for VAT.
Un-registered farmers are entitled to reclaim vat incurred on capital expenditure on buildings and land improvements and also certain items of fixed plant such as bulk tanks, milking facilities etc. subject to a 4 year time limit.
Farmers Supplying Other Farm Services
Where a farmer supplies the following types of services he will be required to register if the
turnover from the source exceeds, or is likely to exceed €37,500 in any 12 month period:
Agricultural contracting, horticultural produce, bovine semen and racehorse training. A farmer
supplying by retail horticultural produce or supplies of bovine semen, or a combination of both,
the total turnover for which has exceeded or is likely to exceed €70,000 per annum.
GIFT & INHERITANCE TAX
Gifts and inheritances are taxed by Capital Acquisitions Tax which is a tax on the recipient of a gift or an inheritance and is taxed accordingly, as either Inheritance Tax or Gift Tax.
Inheritance Tax
A tax on the market value of property passing to you as a result of the death of a person.
Gift Tax
Gifts received by you from living persons attract gift tax.
Rate of Tax
The rate of tax is 25% of the taxable value of gifts and inheritances minus the relevant tax free threshold.
How Much Can I Receive Tax-Free?
The amount you can receive tax-free depends on your blood relationship to the person from whom property is passing and this amount is increased each year in line with the increase in the Consumer Price Index. This tax-free amount is not an annual allowance as any gifts or inheritances within the same grouping are added to all gifts and inheritances received since 5th December 1991 within that grouping. The groupings and the tax-free thresholds attaching are as follows:
| Relationship | Tax Free Amount 2009 | |
| Group 1 | Child, orphaned grandchild, favourite nephew/niece, certain foster children and inheritances (but not gifts) taken by a parent from a deceased child of an absolute interest in property. | €434,000 |
| Group 2 | Grandparent, grandson (other than minor child of a deceased child), brother, sister, niece/nephew. | €43,400 |
| Group 3 | Any other person. | €21,700 |
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.