Agri contractors set to be hit with carbon tax rise on green diesel

With additional reporting by Claire Mc Cormack

Agricultural contractors are set to be hit with a carbon tax increase on green diesel announced in Budget 2020, it has been confirmed.

While a €20/t carbon tax already applies to green diesel – also known as Marked Gas Oil (MGO) – the Department of Finance has confirmed that this figure is set to rise to €26/t from May 1 next year.

Also Read: Explained: How will Budget 2020’s carbon tax hike impact on green diesel price?

However, farmers using agricultural diesel in the course of their own farm work can avoid the additional budgetary costs in light of a specific income tax deduction measure that was introduced by Revenue in 2012 – when the €20/t carbon tax was applied.

The outcome is different though for agricultural contractors.

Revenue guidance on the Taxes Consolidation Act 1997 outlines the details of the relief measure that come into play in relation to increases in carbon tax on farm diesel.

It allows farmers to avail of an “income tax deduction” in computing the profits of their farming trade for the increased costs of farm diesel used in that trade – attributable to the increase in the rate of carbon tax on such diesel.

Revenue notes state:

Farm diesel used by a farmer in the course of a farming trade is a deductible cost and, as carbon tax is included in the cost of that diesel, a farmer obtains a deduction for the amount of the carbon tax incurred on the purchase of farm diesel.

The notes continue: “As the deduction provided for is in addition to the deduction for the cost of farm diesel, farmers are entitled to a double deduction for the increased carbon tax they incur on farm diesel purchased on or after May 1, 2012.”

However, as this relief refers specifically to “farmers in the course of a farming trade”, contractors are therefore believed to be ineligible for the same relief.

This assertion is in line with comments made on the matter yesterday evening, Tuesday, October 8, by Minister for Agriculture, Food and the Marine Michael Creed – who spoke to AgriLand following the announcement of Budget 2020 in Leinster House.

Expert analysis: is the relief viable?

Meanwhile, a spokesperson for agricultural accountancy firm and tax specialist FDC commented on the existing tax relief available to farmers and how it is calculated, noting:

“It is determined by the formula ‘A – B’ where ‘A’ is the actual amount of carbon tax included in a farmer’s tax-deductible farm diesel costs.

“‘B’ is the amount of carbon tax that would have been included in the cost of the same quantity of green farm diesel, if the carbon tax had been charged at the rate of €41.30 per 1,000L – the rate which applied to farm diesel immediately prior to May 1, 2012.”

Subsequent calculations by FDC found:

On an average farm the rebate amounted to €50-60 with a lot of work involved – hence no take up; it related to rising fuel prices at the time.

“From this it seems, while the refund scheme exists, it may not be commercially viable,” the spokesperson concluded.