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Ireland’s First Agri-Tax Review
Ireland’s First
Agri-Tax Review
Aisling Greene Business Tax Team, Sectoral Tax Incentives,
Fiscal Policy Division, Department of Finance
Introduction
young people are interested in careers in the agri-sector, but are
The agri-food sector is Ireland’s largest indigenous industry,
there sufficient opportunities for them when they graduate?
accounting for approximately 170,000 jobs, or 9% of total
employment. Agri-food exports increased to a record value of over
€10 billion in 2013. Many of the economic benefits generated are
dispersed throughout the country, making it particularly important
to rural areas.
The industry is well placed to take advantage of the opportunities
for sustained growth that are opening up with the abolition of EU
milk quotas in 2015. Many of the Food Harvest 2020 targets have
been met and exceeded. Third-level agricultural courses are more
popular than ever. This year’s Finance Bill sees another course
added to the qualifying list for the stock relief and stamp duty
exemptions for young trained farmers (YTF). It is apparent, then,
that the education sector is responding to this demand and that
Access to land for young farmers and productive use of land are
two of the biggest issues facing the farming sector. On average,
a field in Ireland changes hands every 500 years, and only 0.5%
of the total arable land area in the country is offered for sale
annually, with only about 0.2% of that land actually being sold
every year.
More than half of all farm holders are aged 55 years or over, and
only 6% of farm holders are under the age of 35.
Why Did We Need a Review?
So what can the tax system do to help? To better answer that
question, the agri-tax review was announced by the Minister for
Finance in 2013.
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Ireland’s First Agri-Tax Review
69
Tax is often one of the first places people look when they seek
Structure of the Review
change, but it is not the full picture, in any industry. The agri-sector
From the announcement of the agri-tax review, the stated purpose
benefits from other State and EU supports in the form of direct
was to assess the costs and benefits of the various agricultural tax
payments and grants. Tax policy can often be more flexible and
expenditures with a view to ensuring that the maximum benefit
targeted, if we have the right information, at the right time. The
to the sector and the wider economy was being obtained. The
Central Statistics Office, the Department of Agriculture, Food and
overall objective of the review was not to change the level of
the Marine, and Teagasc have a lot of information on the structure
Exchequer support to the sector through the tax system but rather
of the industry – farm size, size of holdings, age profiles etc. The
to maximise the benefits to the economy for the existing level
Revenue Commissioners have a lot of data on the tax paid by the
of State support. This is an important point to note, considering
sector, but not always at the levels of detail that might be required,
the number of suggestions that the working group received for
and of course, they are governed by taxpayer confidentiality rules,
changes and enhancements to existing tax measures and for
which mean that there are very strict limits on the use that may be
the introduction of new tax measures for the sector. Almost no
made of certain information.
respondents to the public consultation highlighted where savings
Before the review, what was not so readily available was an
could be made or what tax measures could be restricted.
assessment of all of this data that would allow a coherent picture
In addition, particular reference had to be made to the strategic
to emerge about the state of the Irish agri-sector. One of the
vision for the agriculture, food and fishing sector – the Food
Department of Finance’s functions is to make tax policy to address
Harvest 2020 Strategy – and its objectives of smart, green growth.
specific concerns and incentivise particular activities. In the case
of the agri-sector, some of the existing tax measures have been in
place for a very long time. Also, given that the tax measures range
over various tax policy areas, they had never been examined in a
holistic way. For the purposes of the review, 26 agri-specific tax
measures were examined in the following categories:
›› capital allowances,
›› stock reliefs,
›› capital gains tax measures,
›› capital acquisitions tax measures,
›› stamp duty measures,
›› income tax exemptions for land leasing,
›› income and corporation tax exemptions for woodlands and
›› the double deduction for carbon tax on farm diesel.
This review was the first time that the tax treatment of the sector
has been examined in such a comprehensive way, but it follows
recent trends. The Department of Finance has recently carried out
a number of major tax expenditure reviews. In addition, on Budget
Day this year, the Department of Finance published the “Report
on Tax Expenditures”, which contains new guidelines setting out
the criteria for the evaluation of proposed new and existing tax
expenditures.
A working group was established comprising officials from the
Department of Finance, the Department of Agriculture, Food and
the Marine, and the Revenue Commissioners, with the objective
of answering the following questions:
›› What was the policy rationale for the introduction of specific
agri-taxation measures?
›› Are those measures having the intended effect?
›› How much are the agri-taxation measures costing?
Public Consultation
In the first phase a public consultation was published on the
Department of Finance’s website. The Department of Agriculture,
Food and the Marine has ongoing engagements with a range of
stakeholders in the sector, and the Department of Finance meets
with certain bodies in advance of the annual Budget, but the
working group wanted to hear from individual farmers, as well as
the large representative bodies.
The following specific questions were asked:
›› Question 1: What current agri-taxation measures are working
effectively and why?
›› Question 2: What current agri-taxation measures are not
working effectively and why?
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Ireland’s First Agri-Tax Review
›› Question 3: How could the tax system better influence
activity in any of the key policy areas of:
››
encouraging and attracting young farmers and new
entrants to farming,
››
land mobility – transfers via the market, whether by
sale or long-term leasing,
››
succession – earlier lifetime transfers within families
(and non-family transfers also, where no apparent successor is available),
››
›› introducing measures to deal with income volatility,
›› providing shorter-term incentives for the forestry sector,
›› introducing a phased transfer partnership – an idea for a new
tax incentive – and
›› introducing a farm deposit scheme – an idea for a new tax
incentive.
The working group, along with the independent consultants
Indecon, who were appointed following a competitive tendering
process, selected and subsequently met with 22 representative
alternative farming models – collaborative farming
groups and individuals over three days. At these meetings, the
such as farm partnerships, share farming, contract
issues raised in the submissions were discussed in detail, and
rearing or cow leasing, as well as farm business struc-
groups had a chance to make a presentation to the working group.
ture, i.e. sole trader or incorporation,
This was an opportunity for the working group to talk to people
››
environmental sustainability and
››
smart farming – encouraging innovation, improving skill
levels and maximising the adoption of best practice?
›› Question 4: Are there any other priority areas or future challenges that the tax system should seek to address?
›› Question 5: Is there a high awareness of agri-taxation measures among (a) farmers and (b) professionals dealing with
farmers, and how can awareness of agri-taxation reliefs be
raised?
who are working in the agriculture sector and who are dealing with
the issues every day. It was also an opportunity for some of the
smaller organisations and individuals to make themselves heard.
As part of the public consultation process, respondents were
asked to highlight any existing tax measures that may not be
working effectively to achieve their stated policy aim. However,
very few respondents addressed this issue, with most instead
stating that all existing measures were working well and
suggesting new measures in addition to those that are currently
in place.
responses from individuals, representative bodies and profes-
Cost–Benefit Analysis and Comparison with
Other Jurisdictions
sional practitioners. There were over 300 detailed suggestions
The working group appointed Indecon to conduct an independent
across a range of policy areas, but some of the main themes that
review and cost–benefit analysis of all agri-taxation reliefs,
emerged were as follows:
including a comparison with agri-taxation measures in other
The consultation was open for six weeks and received 46 written
›› making it easier for younger farmers to get started in the
sector,
jurisdictions.
Indecon conducted a wide-ranging study, including:
›› addressing the increasing age profile of the sector,
›› identifying all relevant tax measures,
›› eliminating any differences in the tax treatment of incorpo-
›› performing their own analysis of the responses to the public
rated farmers versus sole traders,
›› encouraging longer-term leasing of land and discouraging
use of conacre,
›› enhancing capital taxes reliefs,
›› enhancing stock reliefs,
consultation exercise,
›› meeting with a broad spectrum of respondents to the consultation and other stakeholders,
›› conducting wide-ranging surveys of specialist agri-tax
professionals,
2014 Number 4
›› maintaining regular interaction with the working group to
report on progress or identify possible bottlenecks and
›› reviewing agri-tax measures in other jurisdictions.
The Indecon report and cost–benefit analysis is published in
Ireland’s First Agri-Tax Review
71
›› Of this cost, €192m relates to capital allowances, which arguably could be considered a normal business expense for any
industry. Note that this does not include the cost of capital
allowances for milk quotas, due to insufficient data being
available.
full in the report of the working group and contains a total of 30
recommendations for future tax policy consideration. In its report,
The Cost–Benefit Analysis
the working group expressed its appreciation to Indecon for their
›› Overall, Indecon estimated an output of €1.9m for every €1m
valuable contribution to informing the review findings.
Findings of the Review
The work done by Indecon and the working group has resulted
in a review that contains a vast quantity of information about the
structure and make-up of Irish agriculture, the taxation of the
sector and the benefits accruing to the economy at large. There is
also a summary overview of agri-tax measures in selected other
countries.
The following is a highlight of some of the key facts emerging from
the review:
›› There are approximately 140,000 farms in Ireland, 99% of
which are classified as family farms.
›› The sector pays around €475m per annum in income tax and
PRSI.
›› Capital gains tax from the sector averaged €50m per annum
over the last three years.
›› Gross new investment in farming totalled €726m in 2013, an
increase of 12% on 2012 levels.
›› Average family farm income levels increased from 2009 to
2013 overall but dropped in 2012 due to adverse weather
conditions.
›› Irish farmers benefit from more specific tax reliefs than
farmers in other countries reviewed, although other countries tend to have wider-ranging tax reliefs for SMEs, which
farmers can also benefit from.
claimed in capital allowances: a positive cost–benefit result.
›› They found that stock relief tended to increase output and
improve productivity.
›› A trained farmer has on average 12% higher levels of output
compared with an untrained farmer.
›› Farmers over 65 typically have output that is 4–7% lower
than farmers who are under 65.
›› One interesting finding from a policy perspective was the
cost of certain measures that tend to generate a lot of administrative work: for example, the stock relief for young trained
farmers (YTF) is estimated to cost approximately €0.9m per
annum. This is a very small amount compared to the time
spent on administration of the relief, the State Aid application process and the net benefit to the YTF.
›› The total economic costs for the sector were estimated at
€680m per annum, which includes a direct tax cost of
€339.70m.
›› The benefits were estimated at €789m per annum for the
economy at large.
›› This gave an estimated benefit-to-cost ratio of 1.16.
The challenge for the sector, and policymakers, will be to increase
the overall benefit-to-cost ratio. The review concluded that one of
the ways this can be achieved is by better targeting tax reliefs in
the future.
Budget 2015 and Future Policy Priorities
›› Existing tax measures do not always align with Food Harvest
The review represents a roadmap for the future policy direction
2020 priorities – for example, in the category of green
of the agricultural sector, subject of course to changing
growth.
circumstances.
›› The annual tax cost to the Exchequer of agri-tax measures
was estimated at €340m.
The Indecon report lists 30 separate recommendations, and the
working group report lists 25. Some of the recommendations
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Ireland’s First Agri-Tax Review
overlap; some are different. Budget 2015 contained 12 tax
measures in respect of the agri-sector, which reflected key
›› Removal of stamp duty on agricultural leases in excess of five
years.
elements of the recommendations in the
review, as follows:
These measures in particular
›› A 50% increase in the amounts of
were selected as the ones
income exempted from long-term
leasing.
›› The introduction of a fourth threshold
most likely to help younger
and qualified farmers,
These measures in particular were selected
as the ones most likely to help younger and
qualified farmers, improve land usage and
give farmers greater flexibility to allow them
to smooth out their tax exposures arising
from variability in farm incomes.
for lease periods of 15 or more years,
improve land usage and give
One of the recommendations of the review
with income of up to €40,000 being
farmers greater flexibility
was that the working group remain in place
exempted.
to allow them to smooth out
to examine some of the issues that arose
›› Allowing the leasing relief to be claimed
where the lessee is a company.
›› Removing the threshold of 40 years of
age for leasing relief.
as part of the public consultation process
their tax exposures arising
and some of Indecon’s recommendations
from variability in farm
that require further policy consideration. It
incomes.
that all of the recommendations will be
implemented.
›› Allowing income averaging where there is on-farm
diversification.
›› Increasing income averaging from three to five years.
›› In the CGT farm restructuring relief, the deadline for the completion of the first farm restructuring transaction to claim
CGT relief is being extended by a further year to 31 December
2016. In addition, Teagasc certification guidelines are being
amended to enable whole farm replacement to be eligible for
the relief subject to meeting the restructuring conditions laid
down in the guidelines.
Any future recommendations made to the Minister for Finance and
the Minister for Agriculture, Food and the Marine will take account
of the following key policy objectives:
›› increase the mobility and the productive use of land,
›› assist succession,
›› complement wider agriculture policies and schemes, such as
supporting:
››
››
››
still be eligible for CGT retirement relief.
›› CGT retirement relief is also being amended to allow a
window for individuals to finish with conacre arrangements
and ultimately avail of the relief for disposals outside of the
family.
›› Extending stamp duty relief for non-residential land transfers
environmental sustainability, including the improvement of farm efficiency,
›› Broadening CGT retirement relief so that individuals can now
lease out their land for up to 25 years prior to disposal and
investment to enhance competiveness, including
assisting new-entrant, young trained farmers,
›› Targeting of CAT relief for agricultural property to ensure that
it is used by active farmers.
is important to state that it is not envisaged
alternative farming models such as farm partnerships
and
››
responses to increasing income volatility.
In addition, any future measures will of course have to be
considered in the context of EU State Aid approval.
Conclusion
between certain close relatives, with some new restrictions
Since the Budget, the results of the agri-taxation review have been
to target the relief for active farmers.
broadly welcomed by all stakeholders. We now have a lot more
detailed information than we had before, and we have a clearer
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Ireland’s First Agri-Tax Review
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picture of where Ireland’s agri-tax offering stands in relation to
offshore petroleum exploration and production, as a revised
our EU neighbours.
taxation regime for this area has already been determined. My
Following on from this successful project, the Minister for Finance
announced in his Budget speech that he would like a similar
review of the marine sector to be conducted in 2015. The Minister
said on Budget Day:
“Having experienced the positive outcome of the Agri-taxation
review, I am now proposing a similar exercise for the Marine
sector. The Government has prioritised the marine as a key area
for further growth under the Harnessing Our Ocean Wealth
Strategy, with a target of doubling the value of Ireland’s blue
economy by 2030. I am keen to ensure there is a supportive
Department will work closely with the Marine Co-ordination
Group to examine strategic measures that could be introduced
to help Ireland as an island nation to fulfil its potential in the
marine area.”
There will be more details on this review in the New Year.
Further details on the agri-tax review, including the full report
of the working group and the Indecon cost–benefit analysis, are
available on the websites of both the Department of Finance and
the Department of Agriculture, Food and the Marine.
financial environment underpinning this target and so I intend
to review the financial and taxation supports and opportunities
available to the marine sector. This exercise will not cover
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