Seanad debates
Thursday, 26 February 2015
Commencement Matters
Tax Reliefs Application
10:30 am
Kathryn Reilly (Sinn Fein)
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I welcome the Minister of State. I raised this issue during the course of the debate on the Finance Bill 2014 and want to delve into it a little further with the Minister of State. When I raised it initially with him in the context of recommendations tabled on Committee Stage, he said the relief was designed to encourage active farmers to productively use lands inherited and that, as such, the Revenue Commissioners would apply the legislation flexibly to ensure genuine cases could qualify for the relief in circumstances in which they might not satisfy the strict letter of the law. He said, "flexibility is there."
The purpose of the recommendation we tabled at the time was to deal with concerns that an individual who inherited agricultural property while living abroad but who wanted to actively farm the property would not qualify for the capital acquisitions tax agricultural relief because he or she might not be able to return home for some time in order to do so. At the time the Minister of State advised that the Department could not legislate for the multiplicity of situations that might arise and that that was where flexibility on the part of the Revenue Commissioners would come into play. I am using the opportunity provided by this Commencement debate to try to determine how the legislation will be applied flexibly and how the Revenue Commissioners will determine genuine and bona fide cases in applying the relief. What criteria and processes will be involved in ensuring enforced delay will not prohibit the making of an application for relief?
We support the principle of encouraging active farmers and active farming. However, the provisions of the section could mean that we might see situations where, on the demise of parents and where the farm holding was gifted, the inheritor would have to be in a position to continue actively farming the holding for a period of six years or to lease it for a period of not less than six years. As I mentioned during the aforementioned debate, this could have a very negative effect on members of the Diaspora. This issue has come up in my constituency on numerous occasions because it is made up of small to medium-sized holdings. It is a real concern for intended inheritors who plan to take over a farming enterprise at some stage but who are, often because of economic circumstances, currently living in the United States of America, Australia, New Zealand and elsewhere. Many of them had to emigrate because of a lack of employment at home.
The requirement is that 50% of a farmer's time should be spent in actively working on the farm, but the option of seeking off-farm work to meet the other 50% is not available because the people concerned are living abroad and not able to engage in active farming immediately. In many cases, it has always been their intention to return to Ireland after a number of years, but there is no interchangeability between the leasing requirement and the requirement to actively participate in farming. These individuals are part of the Diaspora because of economic difficulties in Ireland and some believe they have not been given due consideration in the legislation.
Essentially, as I understand it, the Minister of State and I are on the same page. The Department is intent on ensuring agricultural and productive land is in the hands of young, active farmers and I would not deny the importance of this. However, we must take into account those with smaller holdings in rural Ireland where family members have been displaced through emigration because there are no other employment opportunities available to them. I previously recommended that a grace period be allowed for persons in the circumstances I have described, but I am happy to work with the Minister of State on this issue. I ask him to clarify how the concept of flexibility will be applied. It is one thing to say there is flexibility but ensuring it is applied in practice is another entirely, I know of a lot of people who are worried.
Simon Harris (Wicklow, Fine Gael)
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I thank the Senator for raising this matter. I apologise on behalf of the Minister for Finance who regrets that he is unable to be present owing to other business.
The matter raised relates to recent changes made to capital acquisitions tax, CAT, agricultural relief which applies to gifts or inheritances of agricultural property. In his 2014 Budget Statement the Minister announced that an agri-taxation review would be undertaken. The review was carried out last year and the report on the review was published in October in the context of budget preparations. A key objective of the review was to encourage improved productivity in farming. In this context, concerns arose that the definition of "farmer" for the purposes of CAT agricultural relief was not sufficiently robust to ensure the relief was only being availed of by active, productive farmers. There were also suggestions it was being used as a tax efficient inter-generational wealth transfer mechanism for non-family farms. To address these concerns and encourage improved productivity in farming, changes to CAT agricultural relief were provided for in the Finance Bill 2014, as published. However, issues were raised with the Minister by various interests about the changes to the definition of "farmer" contained in the Bill which were intended to target the relief at active farmers. Amendments were made to the definition on Committee Stage of the Bill with a view to addressing these concerns.
Following the passing of Finance Act 2014, in addition to the existing conditions, including the requirement that a farmer's agricultural property must comprise 80% by value of his or her total property at the valuation date, the following conditions also apply to gifts or inheritances of agricultural property taken on or after 1 January 2015 where the valuation date also falls on or after 1 January 2015.The beneficiary must farm the agricultural property for a period of not less than six years commencing on the valuation date or lease the agricultural property for a period of not less than six years commencing on the valuation date. In addition, the beneficiary, or the lessee where relevant, must have an agricultural qualification, that is, a qualification of the kind listed in Schedule 2, 2A or 2B of the Stamp Duties Consolidation Act 1999, or achieve an agricultural qualification, as I have defined above, within a period of four years commencing on the date of the gift or inheritance, or farm the agricultural property for not less than 50% of his or her normal working time. The agricultural property must also be farmed on a commercial basis and with a view to the realisation of profits - thus confining the relief to genuine farmers.
Given the varied nature of farming and the multiplicity of different circumstances, as discussed during the debate on the Finance Bill, that can arise, the Revenue Commissioners have published a comprehensive Guide to Farm Tax Measures in Finance Act 2014 which addresses the practical application of all of the farm tax measures introduced in this year's budget and Finance Act 2014. The Revenue guide is available on the Revenue Commissioners' website.
One particular issue of concern regarding the revised requirements for CAT agricultural relief relates to the requirement on farmers without farming qualifications to farm agricultural property for not less than 50% of their normal working time. In accordance with the guide, the Revenue Commissioners will accept for the purposes of this relief that "normal working time" approximates to 40 hours per week. This will enable farmers with off-farm employment to qualify for the relief provided they spend a minimum of 20 hours working per week, averaged over a year, on the farm. If a farmer can show that his or her "normal working time" is somewhat less than 40 hours a week, then the 50% requirement will be applied to the actual hours worked - subject to being able to show that the farm is farmed on a commercial basis and with a view to the realisation of profits.
The issue raised by Senator Reilly in regard to the diaspora and how Revenue will treat the case of an individual living and working abroad who has been left a farm and wants to farm it but cannot return immediately to do so is an important one. I am informed that this scenario is dealt with in the guide issued by the Revenue Commissioners in section 3.7, which states that, "where a beneficiary inherits agricultural property and intends to farm it but is genuinely unable to do so immediately from the valuation date of the inheritance because of work or other personal circumstances the relief will not be refused where the beneficiary otherwise fulfils the requirements of relief on taking up the farming". I hope that is the flexibility the Senator is looking for and which we discussed during the debate on the Finance Bill in this House.
The Minister for Finance indicated in the course of the various Stages of Finance Bill 2014 through the Oireachtas that the Revenue Commissioners would apply the legislation around CAT agricultural relief in a flexible manner. The guide published by Revenue, to which I have referred, has been widely welcomed by interested parties in the farming sector and represents a sensible, practical and flexible approach to the changes made to CAT agricultural relief in Finance Act 2014.
Kathryn Reilly (Sinn Fein)
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I thank the Minister of State for his response. He has cleared up much of the confusion and it will be heartily welcomed by my constituents.