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 2012 is as follows:
| Single/Widow(er) First €32,800 taxable at 20% Balance at 41% |
One Parent Family First €36,800 taxable at 20% Balance at 41% |
| Married Couple - only one spouse working First €41,800 taxable at 20% Balance at 41% |
Married Couple - both spouses working First €65,600 taxable at 20% Balance at 41% * |
* The €65,600 rate band (20%) is subject to the lower earning spouse having income of at least €23,800 in 2012. If the lower-earning spouse was earning €10,000, then the rate band would be €41,800 plus €10,000 = €51,800.
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%.
SALE OF CERTAIN ZONED/RE-ZONED LAND - 80% Rate
The sale of land which was zoned/re-zoned (or existing re-zoning amended) on/after 30th October 2009 may be subject to the 80% Windfall Tax on traders and investors where the profits or gains arise from the sale of such land.
HIGH EARNERS - Over €125,000.
From tax year 2010 onwards taxpayers benefitting 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 Tax 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: |
€18,000 €36,000 €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.
PRSI
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 4% of all earnings or the sum of €253 whichever is the greater.
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 (provided at least one years contribution is paid prior to attaining 66 years of age) there is an obligation to fund back years since 1988/89.
Voluntary PRSI 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.
UNIVERSAL SOCIAL CHARGE (USC)
The Universal Social Charge (USC) came into effect on 1st January 2011 and replaced the income and health levies. It is a tax payable on gross income, including notional pay, after any relief for certain trading losses and capital allowances, but with no allowance for pension contributions.
All individuals are liable to pay the USC if their gross income exceeds the threshold of €10,036. The standard rates and income thresholds are as follows:-
| Part of Aggregate Income | Rate | |||
| Aged under 70 years | Aged 70 years and over | |||
| No Medical Card | With Medical Card | No Medical Card | With Medical Card | |
| The first €10,036 | 2% | 2% | 2% | 2% |
| The first €5,980 | 4% | 4% | 4% | 4% |
| The remainder | 7% | 4% | 4% | 4% |
Rates applying to self-employed individuals with income in excess of €100,000 are as follows:
| Part of Aggregate Income | Rate | |||
| Aged under 70 years | Aged 70 years and over | |||
| No Medical Card | With Medical Card | No Medical Card | With Medical Card | |
| Self-employed income in excess of €100,000 | 10% | 7% | 7% | 7% |
Persons aged 70 or over
While there is no age related exemption, individuals aged 70 or over, with no self-employment income, or self-employment income of less than €100,000 will only pay the USC at a maximum rate of 4% irrespective of the level of their income. Self-employed individuals aged over 70 with income in excess of €100,000 are subject to a 3% surcharge i.e. a rate of 7% applying to any selfemployment income in excess of €100,000.
Medical Card Holders and the USC
A medical card holder at any time during the year will qualify for the maximum 4% rate except where they have self-employment income in excess of €100,000 with 7% USC applying to the excess over €100,000.
Self-employed individuals with income in excess of €100,000 and aged under 70 years are subject to a 10% USC rate on that income in excess of €100,000. Where that person is aged 70 years or over the USC rate applicable is 7% on the excess over €100,000.
Exemptions from the Universal Social Charge
- Where an individual’s total income for the year does not exceed €10,036.
- All Dept. of Social Protection payments (and Social Welfare payments).
- Payments that are made in lieu of Dept. of Social Protection payments such as Community Employment Schemes paid by the Dept. of Enterprise, Trade and Innovation or Back to Education Allowance paid by the Dept. of Education and Science.
- Income already subject to DIRT.
- Statutory Redundancy Payments.
- Tax relieved ex-gratia redundancy payments.
Income Tax Exempt Income liable to the Universal Social Charge (USC)
Because income is exempt from income tax does not exempt it from the Universal Social Charge. Examples include, tax-free income from occupation of woodlands and tax exempt leasing income from farmland.
Farming losses carried forward from previous years will be allowed as a deduction in the calculation of the Universal Social Charge as will ordinary capital allowances, 4% industrial buildings allowances, capital allowances for farm buildings and capital allowances for farm pollution control expenditure.
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.
The 2012 Budget proposes the extension of reclaim of vat incurred on Wind Turbines on or after 1st January 2012 under this category
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
For gifts or inheritances taken after 6th December 2011 the rate of tax is 30% 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.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 of the person receiving to the giver | Tax Free Amount from 6th December 2011 | |
| Group A | 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. | €250,000 |
| Group B | Grandparent, grandson (other than minor child of a deceased child), brother, sister, niece/nephew. | €33,208 |
| Group C | Any other person. | €16,604 |
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.