Wicklow People (West Edition) - - NEWS - with Der­mot Byrne

THE av­er­ag­ing of farm prof­its has been lib­er­alised in that a farmer with an­other busi­ness owned by him or his wife can now qual­ify for the av­er­ag­ing of farm prof­its. This new rule op­er­ates from 2019.

This sys­tem had its ori­gin with tillage farm­ers in Eng­land where one har­vest in three was bad so that a three-year av­er­age gave a fairer re­sult.

In 2014, the law was changed in Ire­land so that the av­er­age was ex­tended to five years. It had knock-on ef­fects for new farm­ers in that a new farmer may have to be farm­ing for more than six years in order to opt for av­er­ag­ing. Pre­vi­ously, one could opt for av­er­ag­ing af­ter more than four years.

How­ever, the change to al­low av­er­ag­ing where a farmer or their spouse has an­other busi­ness (ei­ther as a sole trader or through a com­pany) is wel­come. Farm­ers tend to be good en­trepreneur­s and the change en­cour­ages them to get in­volved in an­other busi­ness.

An­other change that op­er­ates from 2016 is a fa­cil­ity to opt out of av­er­ag­ing for one year without ceas­ing av­er­ag­ing al­to­gether.

One might have a dis­as­trous year and not be able to pay the In­come Tax on the av­er­aged profit and also not able to pay the li­a­bil­ity if leav­ing av­er­ag­ing. The sin­gle year opt out car­ries a re­quire­ment to pay, over the fol­low­ing four years in equal in­stall­ments, the tax that was avoided by opt­ing out of av­er­ag­ing for one year. For the cal­cu­la­tion of the av­er­aged profit, farm losses are taken in the same way as farm prof­its to ar­rive at the true av­er­age. This farm loss can be off­set in the same year to other in­come such as wages of the farmer and the spouse.

Wear and tear on ma­chin­ery and al­lowances for build­ings are not af­fected by av­er­ag­ing. Also, any bal­anc­ing charge (i.e. a profit on the sale of ma­chin­ery) is not sub­ject to av­er­ag­ing.

When a farmer on av­er­ag­ing ceases to farm (e.g. by rea­son of retirement) and lets the land, then the tax­able prof­its will be on the ac­tual re­sults in the fi­nal year. For the sec­ond last year, the tax­able prof­its will be the higher of the av­er­aged prof­its of the ac­tual re­sults of the year.

In the cir­cum­stances where a farmer dies and the spouse suc­ceeds to the farm and con­tin­ues farm­ing, then Rev­enue grants a con­ces­sion that there is no ces­sa­tion of av­er­ag­ing by the de­ceased and no com­mence­ment of av­er­ag­ing by the suc­ces­sor.

While av­er­ag­ing en­ti­tle­ment may now be quite broad it has be­come quite com­plex. Good records are es­sen­tial and the tax agent needs to an­nu­ally re­view the po­si­tion to max­i­mize the tax sav­ings now avail­able.

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