This is a subscriber-only article
Under the Financial Provisions bill 2020, farmers who are normally assessed through income averaging have been allocated an additional step out for the 2020 tax year, even where the farmer has already stepped out of averaging within the previous 4 years.
Subject to the bill being passed, the new rules will allow a farmer who has made a loss in 2020 to get a second chance at opting out of averaging on a temporary basis. The tax saving achieved from taking this option must be paid back over the four succeeding years.
A farmer may wish to do this if the actual profits for the year are lower than the average profits which would otherwise be assigned to tax. The measure won’t in itself result in any less tax but rather a temporary cash flow saving.
Flexibility from Revenue
This is a welcome move from Revenue that farmers didn't directly look for but will be glad to accept, head of tax with ifac Declan McEvoy told the Irish Farmers Journal.
Farmers should be able to opt out much quicker if they can see profits will be down for the year
McEvoy said: “This tax relief will be best suited to drystock farmers whose profits may be down for 2020 and can now avail of the opportunity to step out this year.
“It shows Revenue has the ability to be flexible and it sets a precedent which must be built on and taken as an opportunity.
“Farmers should be able to opt out much quicker if they can see profits will be down for the year, one opportunity to step out every five years isn't enough.”
Deferred tax
Under normal rules a farmer can make an election to step out of averaging once in every five years and have their profits assessed under normal rules. The Finance Act 2016 introduced this saver to help farmers who might experience a severe dip in their income.
The additional tax which they otherwise would have paid had they remained in averaging for that specific year is referred to as deferred tax and must be paid in four instalments over the four following years.
SHARING OPTIONS: