The Agri-taxation Review Teagasc Farm Business Conference 26 November Seán Bell, FCCA

Transcription

1 The Agri-taxation Review Teagasc Farm Business Conference 26 November 2015 Seán Bell, FCCA

2 The agri-food and fisheries sector is Ireland s largest indigenous industry... It is entirely appropriate that the sector has been the recipient of significant tax relief and incentives over the years, but these have grown over time and there is now a significant information gap about their cost and effectiveness. Therefore, I am announcing, in conjunction with my colleague, the Minister for Agriculture, Food and the Marine, that an independent cost benefit analysis will be undertaken in this area. The objective of the review is to identify what works and what doesn t, and redirect the existing level of tax expenditure towards activities of maximum benefit to this sector of the economy.

3 Background to taxation policy & implementation Minister for Agriculture, Food and the Marine, Simon Coveney TD - Taxation policy is primarily the responsibility of the Minister for Finance. However I have on-going contact with Minister Noonan to ensure that taxation policy reflects the Government s commitment to agriculture, as evidenced by our cooperation on the Agri-taxation Review and its implementation over the last two Budgets. The Office of the Revenue Commissioners is responsible for the implementation of the taxation system.

4 History Agri-taxation was an issue from the very foundation of the State. In February 1924 the Minister for Agriculture Patrick Hogan presented the Executive Council with two memoranda detailing the burden that agricultural rates place on farmers, at a time when bad weather meant that agriculture was in crisis, suggesting, as an emergency measure, that the grant in relief of agricultural rates should be doubled. The government agreed and the concession was continued in subsequent years.

5 Agri-food is a key sector in the Irish Economy Supporting around 170,000 jobs, or 8.5% of employment. Accounts for 7.2% of GDP and almost 13% of merchandise exports. Exports 80% of the food produced, 10.5 billion, to some 175 countries. Estimated that 74% of total expenditure in the sector is on wages, raw materials and services sourced in Ireland, compared to 37% of total expenditure for all other sectors. There are 140,000 farms in Ireland, with an average farm size of 33 hectares.

6 The Agri-taxation Review The Review was overseen by a working group made up of the Department of Finance, the Department Agriculture, Food and the Marine and the Revenue Commissioners. The working group set out terms of reference for the Review to include three main elements: A public consultation A cost benefit analysis An international benchmarking exercise.

7 Public Consultation Launched by both Ministers in February written submissions were received with over 300 detailed suggestions across a range of tax-heads. Consultative meetings with 21 key stakeholders.

8 Cost benefit analysis and international benchmarking Indecon Economic Consultants appointed. Their CBA found a positive net economic benefit to the Irish economy from Agri-taxation. It found that in general, there are more sector specific agri-taxation reliefs in Ireland than apply in some of the other countries. Concluded that measures support a critical sector of the Irish economy.

9 The Agri-taxation Working Group Met on a regular basis during 2014 and considered the written submissions to the Review, the consultative meetings held with key stakeholders and the independent Indecon Report. Considered: Food Harvest 2020, the new Common Agricultural Policy and the Programme for Government; particularly the Government commitments to assist further expansion of the agrifood sector and to promote greater land mobility and involvement of young farmers.

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11 Report Conclusion The Working Group concluded that it is justified to continue support for the primary sector in agriculture through taxation measures, with some additions and amendments. The Working Group stated that the newly defined agri-taxation policy objectives and the resulting range of recommendations fulfilled its brief and will contribute to maximising the potential of the primary agriculture sector.

12 Recommendations & Key policy objectives The Working Group set out 25 recommendations, grouped as per the key policy objectives: 1. Increase the mobility and the productive use of land. 2. Assist succession.

13 Recommendations & Key policy objectives 3. Complement wider agriculture policies and schemes, such as supporting: Investment to enhance competiveness, including assisting new entrant, young trained farmers. Environmental sustainability, including the improvement of farm efficiency. Alternative farming models such as farm partnerships. Responses to increasing income volatility.

14 Budget 2015 The Agri-taxation Review was published by the Minister for Finance as part of Budget It is two parts: Part A: Working Group Report Part B: Indecon Report Budget 2015 incorporated 12 new agritaxation measures and represented what was described as the most substantial package of this kind ever introduced in a single budget.

15 Increase the mobility and the productive use of land One of the main challenges facing farmers who want to increase their productivity. Less than 0.5% of the total land area of the country sold per annum. Some 40% of farms rent or lease land from other land owners. The majority of these cases are for short-term conacre lettings; at the time of the Review this was estimated at six times the amount of long-term leasing.

16 Incentivise long-term leasing why? Allows progressive farmers to enlarge their farm holdings and increase productivity. Allows young farmers and new entrants to the sector gain access to land by providing a cheaper means of long term access to land, as opposed to the relatively high cost of ownership. Provides security of tenure and the certainty required to encourage lessees to maintain and make an investment in improving land.

17 Incentivise long-term leasing why? Is especially important in accessing bank credit. Financial institutions generally match loan terms to lease duration and longer duration means more manageable repayments. Provides a route to retirement for older farmers, assisting in generation renewal.

18 Incentivise long-term leasing how? Retain the existing relief & introduce 5 new measures: Increased the income thresholds for relief from leasing income by 50%. Introduced a fourth threshold for lease periods of 15 or more years. Removed the lower age threshold of 40 years of age for eligibility. Allowed non-connected limited companies as an eligible lessee. Relieved stamp duty on long-term leases (5 years or more) for agricultural land (subject to commencement order).

19 Who benefits? Young farmers. Farmers seeking to increase production. Older farmers seeking an income in retirement or semi-retirement. An increase in productivity benefits the rural economy generally and the agri-food sector benefits from increase in production of raw materials.

20 Assist succession The age profile of Irish farmers is increasing - many social and economic reasons why succession management is a challenge for farmers. The number of farmers aged under 35 fell by more than 50% between 2000 and 2010 to just 6.2% of all holders. More than half (51.4%) of all farm holders in 2010 are aged 55 years or older, while more than a quarter (26.3%) of all farm holders are aged over 65 years. An estimated 50% of farmers aged over 50 years do not have an identified farming successor.

21 Assist succession how? Retain Agricultural Relief from Capital Acquisitions Tax, Retirement Relief from Capital Gains Tax and the current stamp duty exemptions on transfers of land. 4 new measures: A targeting of Agricultural Relief from Capital Acquisitions Tax to qualified or full-time farmers or to those who lease land out on a long-term basis.

22 Assist succession how? For transfers under Retirement Relief, extension of the eligible letting period of a qualifying asset to 25 years. For transfers other than to a child under Retirement Relief, as a once-off measure until the end of 2016, allowing conacre lettings as eligible. The extension of Stamp Duty Consanguinity Relief, i.e. relief to related persons, on non-residential transfers to the end of 2017.

23 Who benefits? Young farmers in succession situations. Older farmers seeking exit options. An increase in productivity benefits the rural economy generally and the agri-food sector benefits from increase in production of raw materials.

24 To complement wider agriculture policies and schemes 3 new measures Capital Gains Tax relief for farm restructuring now includes whole-farm replacement as eligible and the measure has been extended to the end of In response to increasing income volatility, the income averaging measure has been enhanced by increasing the averaging period from 3 to 5 years. The income averaging measure will also now allowing averaging to be availed of where a farmer and/or their spouse receive income from an on-farm diversification trade or profession.

25 Important measures retained To support investment to enhance competiveness, including assisting new entrant, young trained farmers, the current Capital Allowances and current Stock Reliefs available to the sector were retained. To assist environmental sustainability, profits or gains from the commercial occupation of woodlands remain tax exempt. To support alternative farming models such as farm partnerships, current measures were retained.

26 Budget 2016 It was not possible to implement all of the recommendations in just one budget. The Agri-taxation Working Group met a number of times in advance of Budget Major additional measures were included in Budget 2016: A new initiative on Family Transfer Partnerships to assist succession; The removal of forestry income from the High Earners Restriction for active foresters and farmers. The introduction of these measures essentially completed the implementation of the Agri-taxation Review.

27 Family Transfer Partnerships Number of barriers to the life-time transfers of family farms: The requirement for two generations to derive an income stream from the farm. Financial security concerns for the older generation. The full transfer of the family farm is sometimes considered too abrupt a change. Family Transfer Partnership is a structure in which family members enter into a partnership, and appropriate profitsharing agreement, with the provision for the transfer of the family farm to the younger farmer at the end of a specified period (not exceeding ten years).

28 Family Transfer Partnerships To support transfers, a tax credit of up to a maximum of 5,000 per annum for five years, can be allocated to the partnership, thereby incentivising the transfer and mitigating some of the financial concerns. The partnership model enables a gradual transfer of control and also facilitates knowledge transfer from one generation to another. This measure is subject to State Aid approval by the EU Commission. Pending this, full details will be finalised in 2016.

29 The removal of forestry income from the High Earners Restriction Income from woodlands managed on a commercial basis and with a view to the realisation of profits is tax exempt, but has been subject to the High Earners Restriction limits. This has had a disproportionate effect on forest owners as the majority of income comes at a single point in time, i.e. clearfelling, and it is impacting long-term decision making and afforestation planting targets. This is significant measure in support of national forestry policy. Forestry is of major economic importance in rural Ireland, as well as providing social and recreation benefits. Forestry also plays a huge role environmentally in terms of carbon sequestration, the potential of biomass energy and the preservation of biodiversity and natural habitats.

30 Land Leasing Survey An online survey was conducted in order to get some indication of whether the tax changes introduced to incentivise longer-term leases were having a positive effect. Among the findings were: Of those leasing exclusively on one basis or another, a higher proportion of survey respondents are engaged in long-term leasing than conacre (11 month short-term) arrangements: 34% on a long-term basis versus 28% on a conacre basis. There has been a significant shift to long-term leasing in 2015: 27% of respondents commenced a new long-term lease in 2015 with almost two thirds indicating that it was the first time they had entered a long-term lease. Almost two-thirds indicated they would like to increase the duration of their leases.

31 Taxation barriers to greater female participation in agriculture Held that certain conditions in the taxation system act as a barrier to greater female participation in agriculture, specifically that conditions relating to Agricultural Relief and Retirement Relief prevent spouses from registering agricultural assets in joint names. There is no technical taxation barrier in Agricultural Relief to the joint ownership by spouses of agricultural assets, once the terms and conditions of the Relief continue to be met by the successor. There is an issue with Retirement Relief, specifically the usage requirement for eligibility, which may be more complex to resolve.

32 Measuring costs and benefits The final recommendation of the Report was that the Working Group should also work to ensure better data collection on costs and benefits. A major development in the regard is a profile of the farming sector from Revenue data, published in October 2015 on their website.

33 The future of Agri-taxation The Agri-taxation Review has been described as a once-in a-generation opportunity to examine and develop public policy in this area. As a result, agritaxation was a significant focus in Budgets 2015 and There is a coherent joined-up set of tax measures now in place and the ongoing evaluation of these will be the primary objective for policy makers in the coming years.

34 The future of Agri-taxation The Agri-taxation Review brings a clear policy focus, underpins current supports and provided innovative measures enthusiastically adopted by Government and as Minister Coveney said at the time of Budget 2015, I expect the impact of these measures to be felt for a generation to come. It may then be time for Agri-taxation Review II. In the meantime, there will always be scope to consider improvements and new innovations. Agritaxation is an important pillar in achieving policy goals in the sector Food Wise 2025.

35 #FOODWISE2025 Growth projections: Increase the value of exports by 85% to 19 billion. Deliver a further 23,000 jobs in the agri food sector. 35

36 Thanks.