Capital expenditure relief is available to farmers in various forms, from allowances on plant and machinery, milk quotas and farm pollution control measures to farm buildings.
Farm Buildings Allowances
Farmers may claim a farm buildings allowance for capital expenditure incurred on the construction of farm buildings.
The farm buildings allowance is calculated on a straight line basis at a rate of 15pc for six years and 10pc in year seven.
Bear in mind that the relief available is calculated net of any grants received.
Farm buildings allowances are available in respect of farm buildings, fences and other works such as roadways, holding yards, drains and land reclamation.
Plant and Machinery
In order that a farmer may claim capital allowances on plant and machinery, the plant and machinery must be used for the purposes of the farming business.
Capital allowances are granted at a rate of 12.5pc on a straight-line basis per year for eight years only.
Balancing allowances or charges may arise for the farmer where assets are disposed of which have previously qualified for capital allowances.
Balancing charges do not arise where the proceeds on the disposal of an individual asset are less than €2,000, although this will not apply to disposals between connected persons.
Capital allowances are available to farmers in respect of expenditure incurred on or after April 6, 2000, on the purchase of any qualifying milk quota.
The amount of expenditure which qualifies for relief is subject to maximum price restrictions which have been set by the Minister for Agriculture, Fisheries and Food.
Capital allowances are not available to farmers who lease out their quota.
The allowances are granted on a straight-line basis over a seven-year period.
Where the milk quota is subsequently sold, a balancing charge or a balancing allowance will arise, which is calculated by reference to the proceeds and the tax written-down value of the quota at the date of sale.
Farm pollution control accelerated allowances are available to a farmer who has a farm nutrient management plan in place.
It grants capital allowances over the shortened time period of three years.
The relief applies to expenditure incurred on or after April 6, 1997 and before last January 1.
The Minister for Finance has not renewed the scheme for farmers who incur capital expenditure with effect from January 1, 2011.
The consequence of this is that such investments post 2010 in farm pollution control will have to be written off over seven years compared to three years under the accelerated allowance scheme.
Loss Relief for Farmers
Loss relief is available for farmers in that the losses can be carried forward and offset against future profits from the same enterprise.
Relief is also available for offsetting against other income, such as salaries and investment income, subject to certain conditions.
This could possibly result in a refund of PAYE tax or a reduction of the tax on investment income. However, the catch is that the farm enterprise must be "carried on, on a commercial basis and with a view to the realisation of profits".
Furthermore, relief cannot be claimed if a loss was incurred in each of the three previous years of assessment.
Relief is not restricted where the loss has been created by using capital allowances.
Similarly, for the "three-year" loss test, losses created by capital allowances are disregarded. There may be exceptional circumstances in which losses for four years are necessary in order to build up an efficient farm.
In such circumstances, loss relief against other income may be claimed for a fourth year if the farmer can show:
Where a farmer carrying on a farming trade sustains a loss and all of the loss relief is not used against other income, there is no restriction on carrying those remaining losses forward against subsequent profits from the same farming trade.
Mark Doyle is a tax director at Grant Thornton