Farm Ireland

Saturday 24 March 2018

Consider your options on tax of CPO monies

Gary O'Mahony

A recent spate of audits by the Revenue was targeted at farmers who received CPO monies in the east and southeast. It threw up worrying results, with 86pc of those audited found to be liable for significant settlements with the Revenue.

So what should you do if you think you are in a similar situation? You have three options:

• The classic: Stick your head in the sand and hope it will go away. Needless to say, this is not recommended.

• The Revenue's favourite: Go in with your hands up and confess all tax sins. This would obviously be the Revenue's favourite option, particularly if you have a chequebook. However, it may not be the best option as you may pay too much if not properly prepared.

• Be prepared: Admittedly, these aren't great options. But there is help at hand and it doesn't have to cost you. Check out the terms of your farm insurance policy to see if a claim can be made for professional fees to deal with a Revenue audit.

The first thing that you need to be clear about is how the compensation figure was arrived at. Many factors are taken into account in agreeing the amount, which covers not just the land itself but also compensation for disturbance, severance and injurious affection. It is not always clear how the various elements of the total figure have been computed, so there can be scope to allocate as best suits the taxpayer.


Most of the compensation is usually subject to CGT rules, with the new CGT rate of 30pc applying to any gain. But just because a compensation payment amounts to, say, €1m doesn't mean that there should be a €300,000 CGT bill. Here's some examples of the reliefs and exemptions that could apply:

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• The cost -- actual or deemed -- of the land can be offset against the gain, as can other costs such as professional fees.

• If any of the compensation relates to your home, it may be exempt from CGT.

• If you meet the conditions for CGT retirement relief, that exemption could also apply.

• If farm buildings had to be destroyed and then replaced, there may be no CGT on that element of the compensation.

• The date of disposal under tax law is also relevant as the rate of CGT could be anything between 20-22pc, even if the compensation is received when the rate was 25pc.

• Income tax rules may also apply. If interest is due on the payment from the acquiring authority, 20pc tax is withheld and you can claim credit for that. This may even lead to a refund from the Revenue. Also, if any of the compensation relates to loss of profits, this may suit your facts.

So what to do next? If after examining all the options you find that you are exposed, you should probably make a settlement with the Revenue before being selected for audit. Why? For a start, the penalties are lower. Also, if all the compensation has been spent, it may be possible to negotiate an instalment arrangement with the Revenue to settle the tax liability over some time.

Gary O'Mahony is the head of tax with Kieran Ryan & Co

Indo Farming