The Agri Taxation strategy document recently submitted to the Revenue Commissioners by the Irish Cattle and Sheep Farmers Association (ICSA) contains a number of ideas that are worthy of further debate and consideration.

Specifically, it points out that income averaging is a tool used to ensure that the tax liability over an extended period takes account of fluctuations in income and ensures that one good year in three does not lead to an excessive tax burden relative to the longer term income generation on the farm. However, as the document points out, it is questionable as to whether it is proving sufficient to deal with the extremes in product price and input cost volatility seen in the past 4 to 5 years.

It is, therefore, recognised by ICSA that income averaging – as currently recognised – can lead to problems for farmers when incomes are decreasing and there is a need for government to re-examine whether farmers should be allowed flexibility in opting out without penalty in cases where incomes have fallen sharply in 12 months.

“Moreover, it does not adequately facilitate ‘rainy day’ planning which is becoming more vital for farm enterprises subject to increasing extremes of volatility. Events such as the prolonged winter of 2012-2013 also point to the need for farmers to build up funds to cope with extremes in product price, cash flow challenges, weather events etc,” an ICSA spokesperson added.

The tax treatment of land purchase is a topic dealt with at length within the ICSA submission.

The document points out that the current tax regime remains extremely onerous and certainly is a factor for farmers who wish to expand their holding. ICSA recognises that there has been some improvement to assist with farm consolidation which allows essentially for relief on capital taxes where land (typically an outside piece of land) in order to finance the purchase of an adjacent piece of land. And this is extremely important in the context of the inefficiencies associated with fragmented holdings.

“However, it does not deal with the more typical situation, which is a straightforward purchase of land. A farmer who buys land gets no tax relief on the capital cost of the land. However, the purchase of land is an investment in the viability of the holding and moreover, is a pre-requisite to planning for expanding production,” the ICSA spokesperson continued.

“It is almost impossible for a farmer to purchase land- where land costs of the order of €10,000/ acre- out of after-tax profits when tax rates are 52% on income in excess of €32,800. Land purchase is limited to a great extent to those with inherited wealth or windfall gains from non-farming sources. This is not a desirable situation.

“It is submitted that capital allowances should be available for the purchase of land, which would reflect the typical repayment periods for land of 10 to15 years. This would, essentially, mean that tax relief would remain constant over the entire loan repayment period whereas at present, the tax burden increases on a year-by-year basis as the interest portion of the repayment diminishes and the principal portion increases.”

ICSA also point out that capital allowances on land purchase would create the potential for profitable farming enterprises to buy land using farm profitability as the means of finance. While the majority of farms will never have the income potential to achieve this, it is likely that commercial dairy farms will be capable of generating income in the 52% tax bracket.