To encourage private investment in forestry, successive Irish governments have taken a long-term approach to both woodland income and capital taxation. Up until 2006, all income from forests was exempt for individuals and companies regardless of their residence or domicile.

However, the taxation regime has changed since the introduction of Section 17 of the Finance Act 2006 and the high earner’s income restriction. This limits the amount of reliefs which a high earner (income over €125,000) can claim.

From 2007, income tax applied when annual taxable income exceeded €250,000. The exemption level was reduced to €80,000 per person four years later.

At first glance, this income tax exemption of €80,000 seems reasonable. The average private plantation size in Ireland is less than 10ha, so most forest owners will have an annual income of less than €5,000. Why then are organisations such as the Irish Timber Growers Association (ITGA) and the IFA opposed to the current tax system?

The main reason is that forest income is not generated on an annual basis like other crops and the ITGA believes that taxation should take account of this. Even fast-growing forests provide revenue every four or five years during a 30- to 35-year rotation, while fewer than six commercial crops are harvested over a 100-year rotation for slow-growing broadleaves such as oak and beech.

The bulk of revenue is generated as the forest matures, with the big payday when final harvest – or clearfell – occurs, but this is followed by high reforestation costs and up to 20 years without any income.

While grants and premium payments compensate for loss of income after afforestation (new planting), there are no State supports for reforestation (second and subsequent forest rotations).

Yet Revenue insists on treating forestry as an annual crop, which is patently unfair, according to the IFA and ITGA.

Taking a generic 20ha fast-growing coniferous plantation as an example, the owner could be taxed over €100,000 in one year alone, even though his/her annual net income from timber sales over a 30-year period may be only €10,500 (Table 1). In addition, this forest owner is likely to make €36,000 Universal Social Charge (USC) and PRSI payments over the 30-year period.

At the moment, the obvious way to avoid or reduce paying once-off large tax bills is to spread clearfell harvesting over a number of years.

The staggering of clearfells is inevitable, but ideally should be avoided as it may lead to poor forest planning at local and national level. Partial felling to keep income below the income tax allowance threshold can increase the risk of windblow as well as adding to harvesting and reforestation costs.

The simplest solution, therefore, is to allow forest owners to average their revenue and income tax allowances over a number of years without resorting to prolonged clearfelling.

“Farmers are permitted to claim averaging for farming income, but not for forestry income, even where the two operations are run side by side, with forestry having the significantly longer timeframe,” said ITGA technical director Donal Whelan.

He and Michael Fleming, chair of the IFA forestry group, maintain that forestry income should be excluded from the high earner’s income restrictions. While even a modest-sized forest can create a once-off annual revenue of over €125,000 set in the high earner’s income restriction, average annual income is less than 10% of this, even for a 20ha forest.

“Categorising forest owners as high earners doesn’t appreciate the unique nature of a growing forest which only realises its life’s revenue at the end of its growing cycle and as a result discriminates against owners who have grown timber over a long period,” Donal Whelan said.

Michael Fleming said the need for averaging income was highlighted last February when farmers experienced large-scale storm damage. While the storm has reduced timber quality, their once-off revenue in a number of cases is over the income tax threshold limit.

There is an argument to be made for the reintroduction of total tax exemption in the case of forests damaged by natural causes such as wind and disease because of loss of future revenue as well as high costs of reforestation.

Both Ministers Coveney and Hayes have been listening to the IFA and ITGA and have accepted the argument that income tax allowances of final crop revenue should be spread over a number of years. They have agreed to review forestry taxation in Budget 2016, but the final decision rests with the Department of Finance.

Although potential investors in Irish forestry are influenced by high timber yields and good markets for logs, a taxation regime that acknowledges the long-term nature of forestry is a major incentive in attracting investment. This compensates for long periods when no income is generated as well as the legal requirement to maintain planted land under forest cover in perpetuity.

The decision to plant is a major long-term commitment to building a sustainable natural resource by farmers and other landowners with benefits to rural development and the national economy. The Department of Finance needs to match this commitment by providing tax concessions that encourage rather than discourage greater investment in forestry by the private sector, now mainly farmers.