Ahead of next Tuesday’s deadline for the submissions, this article sets out a ‘wishlist’ for changes to the farm taxation system.
Capital gains tax
retirement relief
Issue 1: Currently, in order to avail of the relief the landowner must own and farm the land for 10 years prior to the transfer. This can cause difficulties where land is held jointly by spouses, especially where one of the spouses works off farm.
Can a spouse working off farm be said to have farmed the land for 10 years prior to the transfer? While the non-farming spouse can step into the shoes of the farming spouse for the purposes of satisfying the 10-year ownership test, the same does not apply for the period of usage test. The legislation specifically provides that the non-farming spouse can only step into the shoes of the farming spouse, in terms of usage of the land, in cases where the farming spouse is deceased.
Solution: The legislation should be amended to provide that only one of the spouses should have to meet the conditions to avail of the relief in joint ownership situations. This would encourage more female ownership of land, which Minister Coveney has highlighted as an aspect to be addressed as part of the review.
Issue 2: Currently, if a farmer disposes of assets which exceed €750,000 (€500,000 if the farmer is 66 years old or over) there maybe a clawback of retirement relief previously claimed. Consequently, farmers may leave land in their wills to non-farming children who may not farm it to its full potential. Solution: The legislation should be amended to provide that disposals of up to €750,000 (€500,000) are ring-fenced and qualify for the relief. Anything in excess of this amount is subject to CGT in the normal way. This could serve to encourage farmers to sell land rather than pass it on to the next generation. Capital acquisitions tax agricultural relief
Issue 1: No requirement for agricultural qualifications in order to avail of the relief.Solution: Introduce a requirement that the person being gifted or inheriting the land must have agricultural qualifications in order to avail of the relief. This will ensure that the relief is targeted at those committed to farming and will encourage the next generation to participate in accredited agricultural training before taking over a farm.
Issue 2: In order to avail of the relief, the person being gifted or inheriting the land must satisfy a financial test, which requires that 80% of their assets after taking the gift/inheritance must comprise agricultural property. This financial test is no longer fit for purpose.Solution: Introduce a requirement that in order to avail of the relief, the claimant must spend not less than 50% of their time farming the land for five years from the date of transfer or lease. This will ensure that the relief is targeted at those committed to farming and will encourage long-term leasing of land.Issue 3: Currently, there is no distinction regarding the availability of the relief where the land is transferred as a gift during a farmer’s lifetime, or as an inheritance under his/her will. Solution: There should be greater incentives for a lifetime transfer, such as a greater tax-free threshold for gifts, eg €300,000 in line with the cap of €3m introduced to CGT retirement relief.Issue 4: If land is being transferred to a farmer and his/her spouse, both must meet the financial test in order to avail of the relief.Solution: The legislation should be amended to provide that only one of the spouses should have to meet the conditions to avail of the relief in joint ownership situations. This again would encourage more female ownership of land. Issue 5: Shares in a farming company do not qualify as agricultural property.Solution: Expand the definition of agricultural property to include shares in a farming company and co-op shares. This is especially necessary given the obligation in some co-ops for suppliers to ‘share-up’ to certain levels before they can supply or continue to supply the co-op at existing levels.
Stamp duty relief for young trained farmers
Issue 1: The requirement that farmers must spend not less than 50% of their time farming the land for five years from the date of transfer can force farmers who may not be committed to farming to hold on to the farm and engage in a low level of farming activity to prevent a clawback of the relief.Solution: Widen the provision so that a farmer can lease out the farm for a minimum of five years from the date of transfer and still avail of the relief. This should encourage more long-term leasing of land. 100% stock relief for young trained farmers
Issue 1: The condition that stock relief automatically applies as soon as a farmer commences farming is too restrictive.Solution: Allow the new entrant to elect the year in which stock relief is claimed and for the next three consecutive years. Long-term leasing
income tax exemption
Issue 1: Exemption is currently not available where the lease is between connected parties, including parent to child.Solution: Allow leases between parents and children to qualify for the exemption. This would provide more income for the older generation and would increase the capacity of the farm in supporting two families during the succession transition period. Issue 2: Currently, the landowner must be 40 years of age, or over, in order to claim the exemption. Therefore, there is little incentive for landowners under 40 years old to lease their farm long-term.Solution: Remove the age restriction so that the exemption is available to all landowners.Issue 3: Farming companies are not eligible lessees and, consequently, if a farming company is leasing the land the landowner cannot claim the exemption.Solution: Widen the definition of eligible lessees to include farming companies.Farm restructuring relief
Issue 1: The conditions to avail of the relief are too restrictive.Solution: Introduce a form of roll-over relief, whereby the CGT arising from the sale of agricultural land can be rolled over, provided the proceeds are invested in purchasing other agricultural land within two years of the disposal. This could serve to aid consolidation of land.
Income averaging
Issue 1: No longer fit for purpose given the wide fluctuation in income levels and costs arising from competing in a global market.Solution: Introduce a scheme similar to the Australian Farm Management Deposit Scheme (FMDS), whereby farmers can put aside ‘rainy day’ funds on deposit, which can be drawn down and become taxable in low income years. Also there is scope for the creation of a future farmers fund with a percentage of the proceeds of the FMDS which would give new entrants an opportunity to access funds at low interest rates.
Ahead of next Tuesday’s deadline for the submissions, this article sets out a ‘wishlist’ for changes to the farm taxation system.
Capital gains tax
retirement relief
Issue 1: Currently, in order to avail of the relief the landowner must own and farm the land for 10 years prior to the transfer. This can cause difficulties where land is held jointly by spouses, especially where one of the spouses works off farm.
Can a spouse working off farm be said to have farmed the land for 10 years prior to the transfer? While the non-farming spouse can step into the shoes of the farming spouse for the purposes of satisfying the 10-year ownership test, the same does not apply for the period of usage test. The legislation specifically provides that the non-farming spouse can only step into the shoes of the farming spouse, in terms of usage of the land, in cases where the farming spouse is deceased.
Solution: The legislation should be amended to provide that only one of the spouses should have to meet the conditions to avail of the relief in joint ownership situations. This would encourage more female ownership of land, which Minister Coveney has highlighted as an aspect to be addressed as part of the review.
Issue 2: Currently, if a farmer disposes of assets which exceed €750,000 (€500,000 if the farmer is 66 years old or over) there maybe a clawback of retirement relief previously claimed. Consequently, farmers may leave land in their wills to non-farming children who may not farm it to its full potential. Solution: The legislation should be amended to provide that disposals of up to €750,000 (€500,000) are ring-fenced and qualify for the relief. Anything in excess of this amount is subject to CGT in the normal way. This could serve to encourage farmers to sell land rather than pass it on to the next generation. Capital acquisitions tax agricultural relief
Issue 1: No requirement for agricultural qualifications in order to avail of the relief.Solution: Introduce a requirement that the person being gifted or inheriting the land must have agricultural qualifications in order to avail of the relief. This will ensure that the relief is targeted at those committed to farming and will encourage the next generation to participate in accredited agricultural training before taking over a farm.
Issue 2: In order to avail of the relief, the person being gifted or inheriting the land must satisfy a financial test, which requires that 80% of their assets after taking the gift/inheritance must comprise agricultural property. This financial test is no longer fit for purpose.Solution: Introduce a requirement that in order to avail of the relief, the claimant must spend not less than 50% of their time farming the land for five years from the date of transfer or lease. This will ensure that the relief is targeted at those committed to farming and will encourage long-term leasing of land.Issue 3: Currently, there is no distinction regarding the availability of the relief where the land is transferred as a gift during a farmer’s lifetime, or as an inheritance under his/her will. Solution: There should be greater incentives for a lifetime transfer, such as a greater tax-free threshold for gifts, eg €300,000 in line with the cap of €3m introduced to CGT retirement relief.Issue 4: If land is being transferred to a farmer and his/her spouse, both must meet the financial test in order to avail of the relief.Solution: The legislation should be amended to provide that only one of the spouses should have to meet the conditions to avail of the relief in joint ownership situations. This again would encourage more female ownership of land. Issue 5: Shares in a farming company do not qualify as agricultural property.Solution: Expand the definition of agricultural property to include shares in a farming company and co-op shares. This is especially necessary given the obligation in some co-ops for suppliers to ‘share-up’ to certain levels before they can supply or continue to supply the co-op at existing levels.
Stamp duty relief for young trained farmers
Issue 1: The requirement that farmers must spend not less than 50% of their time farming the land for five years from the date of transfer can force farmers who may not be committed to farming to hold on to the farm and engage in a low level of farming activity to prevent a clawback of the relief.Solution: Widen the provision so that a farmer can lease out the farm for a minimum of five years from the date of transfer and still avail of the relief. This should encourage more long-term leasing of land. 100% stock relief for young trained farmers
Issue 1: The condition that stock relief automatically applies as soon as a farmer commences farming is too restrictive.Solution: Allow the new entrant to elect the year in which stock relief is claimed and for the next three consecutive years. Long-term leasing
income tax exemption
Issue 1: Exemption is currently not available where the lease is between connected parties, including parent to child.Solution: Allow leases between parents and children to qualify for the exemption. This would provide more income for the older generation and would increase the capacity of the farm in supporting two families during the succession transition period. Issue 2: Currently, the landowner must be 40 years of age, or over, in order to claim the exemption. Therefore, there is little incentive for landowners under 40 years old to lease their farm long-term.Solution: Remove the age restriction so that the exemption is available to all landowners.Issue 3: Farming companies are not eligible lessees and, consequently, if a farming company is leasing the land the landowner cannot claim the exemption.Solution: Widen the definition of eligible lessees to include farming companies.Farm restructuring relief
Issue 1: The conditions to avail of the relief are too restrictive.Solution: Introduce a form of roll-over relief, whereby the CGT arising from the sale of agricultural land can be rolled over, provided the proceeds are invested in purchasing other agricultural land within two years of the disposal. This could serve to aid consolidation of land.
Income averaging
Issue 1: No longer fit for purpose given the wide fluctuation in income levels and costs arising from competing in a global market.Solution: Introduce a scheme similar to the Australian Farm Management Deposit Scheme (FMDS), whereby farmers can put aside ‘rainy day’ funds on deposit, which can be drawn down and become taxable in low income years. Also there is scope for the creation of a future farmers fund with a percentage of the proceeds of the FMDS which would give new entrants an opportunity to access funds at low interest rates. 
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