Climate Change Tax Incentives
Among various incentives introduced in recent years to help Ireland meet its climate change targets, the Accelerated Capital Allowances (ACA) scheme is particularly relevant for farmers.
This scheme, which is administered by the Sustainable Energy Authority of Ireland (SEAI), is designed to encourage investment in energy-efficient equipment. It runs until 31 December 2020.
What are the benefits of ACA?
The ACA allows qualifying businesses, including farmers who pay Corporation Tax, to deduct the full cost of equipment from their profits in the year of purchase. This is significantly more attractive than the long-standing ‘wear and tear’ capital allowance which spreads the tax reduction over an 8-year period.
The ACA scheme is available to companies and unincorporated businesses that incur expenditure on eligible energy-efficient equipment for use in their trade. To qualify for the ACA, the equipment purchased must be new and cannot be leased, let or hired to any person, body or organisation. In addition, the equipment must fall into one of ten designated classes of technology specified by the SEAI. These are:
- Building Energy Management Systems;
- Heating and Electricity Provision;
- Motors and Drives;
- Information and Communications
- Process and Heating, Ventilation and Air-conditioning (HVAC) Control Systems;
- Electric and Alternative Fuel Vehicles;
- Catering and Hospitality;
- Electromechanical Systems;
- Refrigeration and Cooling.
A minimum amount of expenditure applies which varies depending on the particular category to which the product belongs. For cars coming under the category ‘Electric and Alternative Fuel Vehicles’ the accelerated allowance is based on the lower of the actual cost of the vehicle or €24,000. For employers purchasing electric vehicles, the ACA allows you to front-load the depreciation which can result in substantial savings on your tax bill.
You do not have to obtain approval for expenditure on the energy-efficient equipment however it is important to ensure that the required conditions are met. The allowance should be claimed on your income tax return (Form CT1 or Form 11) along with any other wear and tear allowances for machinery and plant. Energy-efficient equipment that is machinery or plant but that has not been approved can avail of the normal wear and tear allowances (12.5% over 8 years).
Timing and Business Case
If capital expenditure on energy efficient equipment is planned for 2021, it may make sense to bring this forward into 2020 so as to avail of the ACA before the deadline at the end of this year. Bear in mind that where farmers invest in buildings or equipment for farm use, other allowances in respect of Income Tax and Corporation Tax may also be available on the expenditure net of grants and VAT. As always, the timing and business case for capital investments should be carefully assessed.
If you would like further information in relation to the above, speak to your local ifac team today.
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