Seeing the wood from the trees regarding Capital Gains Tax
The Capital Gains Tax (CGT) on forestry has remained unchanged. Commercial woodlands in the hands of an individual are exempt from CGT on the growing timber, though any gain attributable to the underlying land is not.
However, this rarely gives rise to a chargeable gain because it can often be shown that afforestation devalues the land due to the permanent change of use. The CGT exemption does not apply to companies which occupy woodlands.
Nevertheless, timber is a crop. The convention has always been that in the event of a sale of woodland, the standing crop of trees was deemed to be a capital transaction, whereas when harvested it falls under the heading of income.
I admit I have always had some difficulty in getting my head around this particular conundrum.
In May 2010 the result of a tax appeal was made public. The facts of the case involved a company that sold semi-mature woodlands and the Revenue Commissioners held that the company was liable to CGT on the entire proceeds of sale.
The company appealed the assessment, holding that the value of the underlying land had fallen since it was purchased several years previously, and that the proceeds attributable to the growing crop were income and therefore exempt from corporation tax (the sale having taken place prior to the change in the law when there was no income restriction in place).
The case was quite specific in that the company had always intended from the outset to trade in forestry property.
In other words, it always planned to sell properties at a profit as and when the opportunities arose and to re-invest the proceeds in more forestry.