What it means is that even the small forest owner with perhaps seven or eight hectares of clear-fell can potentially be catapulted into the realms of those now deemed to be the "super-rich" for income tax purposes -- even if it is only once every 35 to 40 years or so.
This might be inherently unjust, but it is now the law and in the current economic climate it appears doubtful there will be any return to the more benign ways of the past.
An important point to note here is that it is the forest owner's profit that is assessed for tax. Aside from being good business practice, since 2004 it has been a legal requirement both to maintain financial records of the forestry business and to include any profits from forestry in one's annual tax return.
Tax planning is part and parcel of running any business and forestry is no exception.
There are a number of measures that can be taken to minimise the liability, and while independent expert advice on tax matters should always be sought, I will mention a few points worth considering.
The annual exemption of €80,000 is available to an individual owner, so if the woodland is in joint names (for example, a spouse or another family member), each owner can avail of the exemption.
The annual expenditure incurred in running the business and in harvesting and selling timber can legitimately be deducted from the gross income received in order to arrive at the net profit. So too can the costs of replanting. And if this operation cannot be carried out in the same financial year as the sale is conducted, a binding contract for this work should be considered.
The important point here is that there are no replanting grants available to help with the establishment of the next crop so, if at all possible, these costs should be offset against the proceeds of the sale at hand, otherwise it will be many years before they can be availed of.
Consideration should also be given to spreading a large sale over two or more financial years, reducing the income in any one year and allowing the exemption to apply more than once to the same sale.
Alternatively, conversion of the woodland to continuous cover, rather than continuing with the more conventional clear-fell system, results in a more frequent and steadier income stream without the large, once-in-a-lifetime windfall. This does involve a fundamental change in silvicultural approach and I will return to this topic at a future date.
It should not be forgotten that all forestry income, including the forest premium, is reckonable for both PRSI and the Universal Social Charge (USC).
Finally, the tax exemption only ever applied to the proceeds from the sale of the raw material, the round timber. Once timber is converted in any way -- for example into firewood, fencing stakes or planking -- the conversion process is regarded as manufacturing and it no longer comes under the heading "commercial occupation of woodlands".
William Merivale is national secretary of PEFC Ireland and a forestry consultant based in Cork. Email: firstname.lastname@example.org