USE OFF ARM LOSES-PART-TIME FARMERS

A PART-TIME farmer will usually have a job and be subject to PAYE or he/she may have another business as a self-employed person.

Where he/she suffers a trading loss in farming, he/she can then offset the loss against the other income and recover some of the PAYE deducted from the employment.

If farming activity shows a loss in three successive years there is no offset against other income in year 4. The reason is that Revenue is entitled to treat the farming as not on a commercial basis if there are 4 successive years of losses. It follows that one should try to avoid showing a loss in year 4 so that the cycle of losses is interrupted and a new three-year span of potential tax effective losses are created from year 5 onwards.

Note that we are only looking at trading losses. This is separate to the offset of Farm Buildings Allowances for investment in buildings, roads, and land reclamation. Claims for offset of Capital Allowances are made at 15 per cent per annum and are not subject to the three-year successive losses rule. Neither are Allowances at 12.5 per cent per annum for investment in tractors and farm machinery.

In exceptional circumstances, claims for more than three years successive losses, which are supported by an Agri- Consultants master plan which shows no profits for the first 5/6 years due to the state of the farm when taken over, then a claim for successive losses in a longer period than three years may be allowed against total income.

Where the farmer is married and the couple is subject to Joint Assessment then the claim for loss relief may be offset against the total income of the farmer and his wife/her husband. If the farmer’s wife/husband is not employed off the farm, it may save tax to prepare accounts in joint names so that her/his 20 per cent rate band, currently €24,800, is used. If the farmer owns the farm and is employed elsewhere then they will likely have used up the 20 per cent rate band. A minimum requirement to show one’s spouse is trading is that the farm bank account be in joint names.

As a consequence of being assessed to Income Tax as a famer, the spouse will be liable to PRSI in their own name and entitled to a separate full State pension at 66 years of age. It is currently €238.30 per week.

A full-time farmer is less likely to have losses but it can and does arise. Here, the farmer can offset the losses to any other income that either he/she or their spouse has in the same tax year. If they have no other income, then the loss can be carried forward to offset against future profits.

Good farm records are essential as Revenue can challenge farm loss offsets to other income and seek the records for examination.

If in PAYE employment and have inherited or received by gift a farm on which Inheritance or Gift Tax Agri-Relief has been claimed, there is now a requirement to get the relief to be a full-time farmer. One is required to spend 50 per cent of one’s working time engaged in farming. A simple and effective way to meet the condition is to keep a diary every week of one’s farming activities and their duration.