Independent Farming
May 2011
Introduction
With the values of many items of farming stock having increased rapidly in the past 12 months, it is useful to be aware that there is a relief from income tax and corporation tax available to farmers operating as sole traders, through partnerships and through farming companies in respect of increase in stock values. This relief was due to expire in 2010 but it has been extended until the end of 2012, subject to the signing of a Ministerial Order.
The Relief
The relief is calculated by ascertaining the increase in stock values for the accounting period, and the amount of stock relief will be one quarter of the increase.
Example
| |
€ |
| Opening stock 01 January 2010 |
5,000 |
| Closing stock 31 December 2010 |
9,000 |
| Increase in stock value |
4,000 |
| |
|
| Stock Relief 4,000 x 1/4 |
1,000 |
The farmer’s taxable profits will therefore be reduced by €1,000.
The relief must be claimed in writing on or before the tax return filing date. This is 31 October 2011 in the case of a 2010 personal tax return and nine months after the year end in the case of a corporation tax return. Stock relief cannot create or increase a loss for tax purposes. Where unused capital allowances or losses are carried forward from prior years, it may not be advisable to claim stock relief, as these may be lost.
Relief for Young Trained Farmers
Enhanced stock relief of 100 per cent is available for a period of 4 years if an individual is a ‘qualifying farmer’. A ‘qualifying farmer’ means an individual who in the period 1 January 2007 to 31 December 2012:
- first qualifies for grant aid under the ‘Scheme of Installation Aid for Young Farmers’; or
- first becomes chargeable to income tax in respect of farming profits;
- is under 35 years of age at the commencement of the tax year;
- at any time during the tax year is the holder of a certificate issued by Teagasc certifying that the individual has met specific training requirements.
The specified qualifications include those awarded by FETAC, HETAC and other third-level institutions. Other courses which have been certified by Teagasc and the National Qualifications Authority of Ireland as being equivalent to these courses also qualify. Further courses qualify provided that they are supplemented by further agricultural/horticultural courses exceeding
100 hours duration and farm management courses exceeding 80 hours duration.
The 2007 Finance Act amended the list of courses required to satisfy the educational conditions for young trained farmers. However, any person that satisfied the educational requirements in place before 31 March 2008 will continue to satisfy the young trained farmer educational requirements.
Further Provisions
In the year of commencement of a farming trade, there will be no opening stock figure in the accounts. For the purpose of the stock relief computation, the person will be treated as having had an opening stock of such a value as appears to the Revenue to be reasonable and just.
In determining the value of the opening stock of an accounting period the Inspector will have regard to all of the relevant circumstances, including movements in the period in the costs of individual stock items and changes in the extent of farming during the period.
Provisions are in place to provide stock valuations in situations where it is more difficult to ascertain the increase in stock value in an accounting period, Examples include the following:
- the accounts are prepared for a period which is not of exactly 12 months duration;
- a person has acquired or disposed of trading stock otherwise than in the normal conduct of the trade of farming;
- there is a change in the basis of calculation of the value of the trading stock during the accounting period.
A person is not entitled to stock relief for an accounting period if the accounting period ends by virtue of the person ceasing to:
- carry on the trade of farming;
- be resident in the State; or
- be within the charge to tax in respect of that trade.
Conclusion
This is a potentially very valuable relief in instances where stock values are rising rapidly, particularly where one qualifies as a young trained farmer and full relief is available. There are a number of qualifying conditions to be met and farmers should speak to an appropriate adviser if they believe they may qualify for relief.
As there is no clawback of the relief, this represents a permanent saving.
Aidan O'Boyle is a manager is manager in the Grant Thornton's Tax department
Email aidan.oboyle@ie.gt.com