Introduction

A review of current and potential taxation measures for the agricultural sector is appropriate for the purposes of evaluating the impact of the government multi-departmental review of agri-taxation in 2014 and for the purposes of considering how best the agricultural sector can be supported in the context of Brexit.

The agri-food and drink sector accounts for 10.7% of Ireland’s exports and 8.4% of total employment. The UK is the main destination for Irish agri-food and drink exports which represented 37% of exports in 20161.

Brexit is a serious risk to the economic outlook of Ireland. The OECD predicts that the negative economic impact of Brexit may be much larger for Ireland than for any other EU country with the most severe contraction of 20% forecasted in exports of Irish agricultural and food products2.

While the agricultural sector has overcome adversity in the past, Brexit is truly unprecedented in terms of the level of potential damage which could be inflicted if this sector loses 20% of its market. Tax policy alone will not be enough to overcome the challenges facing the agricultural sector but it could nonetheless be useful if it forms part of a cohesive package of well thought out measures implemented in advance of a crisis arising.

1. Specific questions posed in the current consultation

The current consultation on the implementation of the Agri-taxation Review 2014 focuses on four topics which we will consider as follows:

• 3.1 The implementation of the Agri-taxation Review 2014.

The 2014 Agri-taxation Review developed twenty five taxation measures. The majority of these measures have been introduced over Finance Act 2015, 2016 and 2017.

It would be helpful to the agricultural sector if a national campaign is launched to publicise the tax supports introduced. A dedicated section to agri-taxation should feature on the landing page of the Revenue’s website to assist in promoting important reliefs such as tax relief for leasing land and the Succession Farm Partnership Scheme etc.

• 3.2 How the tax system might further address income stability in the primary agriculture sector.

Allow farmers/spouse with additional non-farming trading/professional income access to income averaging

Under 657 Taxes Consolidation Act 1997 TCA, income averaging treatment is only available to individual, full-time farmers, farming solely or in partnership. Farmers or spouses who carry on another trade or profession cannot elect for income averaging unless that trade or profession is in relation to on-farm diversification and is conducted on the farmland.

In 2016, 64% of farms had either a farmer or spouse receiving an off-farm income3. Such income is necessary to subsidise the farming household income at particular times of the year or during times of hardship such fodder shortages experienced this winter arising from extreme weather conditions. Off-farm employment income is not a restricting factor for income averaging eligibility. Therefore setting a restriction on farmers/spouse with off-farm trading income would appear to be unfair. A second trading income source does not necessarily mean that the farm is not the primary commercial venture of the household. The current restrictions on eligibility to income averaging should be amended to reflect the economic reality of many farming households who need a second income to see them through times of difficulty due to factors (the weather is the classic example) which are often completely beyond their control.

Tax deposit schemes

A farm deposit scheme should be considered as a support to counteract income volatility. Similar schemes operate in Australia and New Zealand, whereby farmers lodge money tax free in years of surplus, and pay tax on withdrawal in years of deficit4.

Such a scheme was considered in the report of the Agri-Taxation Working group in 2014 but concerns were raised that the scheme would not pass State-aid rules of the European Union. However France operates a risk deposit scheme which provides a tax break for funds deposited in a bank account for the purposes of assisting the farmer when specified events occur such as fodder shortages and contributions for insurance against damaged goods or loss of business. A similar targeted scheme could be beneficial to Irish farmers and should be reconsidered by Government.

• 3.3 How developments such as Brexit, climate change, the abolition of milk quotas etc. affect the context in which the recommendations of the 2014 Agri-tax Review were made?

The 2014 Agri-tax Review focused on three policy objectives:

1. Increase the mobility and the productive use of land.
2. Assist succession.
3. Complement wider agriculture policies and schemes, such as supporting:
1. Investment to enhance competiveness, including assisting new entrant, young trained farmers.
2. Environmental sustainability, including the improvement of farm efficiency.
3. Alternative farming models such as farm partnerships.
4. Responses to increasing income volatility.

Brexit, climate change and the abolition of milk quotas bring substantial economic challenges to the agricultural sector which threaten the continued existence of many farming trades. The context of Agri-tax policy is vastly different now to the economic environment of 2014. For many farmers income sustainability is a major concern. For 2016, the average family farm income decreased by 9% to €24,060, while the average dairy farm income fell by 17% in 2016 mainly due to a fall in milk prices5. Income volatility is an issue which will be further exacerbated by Brexit entering into force in some shape or form in 2019. On that basis, all efforts and resources should be re-directed to introduce measures which will assist with income volatility for a set period of time, possibly five years until the agri-food sector adjusts to customs tariffs and procedures on its trade with the UK and establish other trading markets.

• 3.4 Given the ambition to grow the sector and the urgent need to reduce emissions, the question arises, what is the role of agri-taxation in the achievement of this target in the context of Food Wise 2025 and the increased global demand for food?

Accelerated capital allowances on investment in energy efficient plant and equipment is a successful feature of the corporation tax system. An example of this is section 285A TCA 1997, which provides for the acceleration of capital allowances for energy-efficient plant and machinery based on a Sustainable Energy Ireland list of qualifying equipment. A similar scheme could be introduced to encourage investment in targeted agricultural energy efficient equipment which would also support the ambitious production targets for Irish agriculture set under Food Wise 2025.

Source: Chartered Accountants Ireland. www.charteredaccountants.ie

1 Factsheet on the Irish Agriculture and Food & Drink Sector, Bord Bia.

2 OECD Economic Surveys Ireland, March 2018

3 Annual Review and Outlook for Department of Agriculture, Food and the Marine 2016–2017

4 See for example the New Zealand Inland Revenue Standard practice statement SPS 17/01, accessed at http://www.ird.govt.nz/resources/b/1/b1bcff3e-bf23-42e5-a551-c187903131ac/sps-17-01.pdf

5 Annual Review and Outlook for Agriculture, Food and the Marine 2016–2017