John Perry (Sligo-Leitrim, Fine Gael)
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Question 177: To ask the Minister for Finance the reason a farmer who is in receipt of the farm retirement pension and has his farm leased to his son for 10 years for €3600 per annum is subject to a tax liability in view of the fact that if the said lands were leased to a non-family member for the same amount he would not be liable; if he will clarify same; and if he will make a statement on the matter. [38236/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Under Section 664 of the Taxes Consolidation Act, 1997, there is an exemption from income tax in respect of the first €12,000 of annual leasing income where the leasing is for a period of not less than 5 years and in respect of €15,000 where the leasing is for a period of not less than 7 years. The exemptions are available to lessors of agricultural land aged 40 years or over or to those who are permanently incapacitated by mental or physical infirmity from carrying on farming. In Budget 2006 I announced an increase in the annual exemption limits from €7,500 to €12,000 for leases between 5 and 7 years duration and from €10,000 to €15,000 for leases of 7 or more years duration. In addition, in order to provide for situations where land is leased along with entitlement to EU Single Farm Payments, I also announced that rental income arising from such entitlements would qualify for the relief with effect from 1 January 2005. These improvements were provided for in section 12 of the Finance Act 2006.

These tax exemptions apply only in respect of leases to qualifying lessees. In this context, "qualifying lessee" specifically excludes from the scope of the relief any leases made between closely connected relatives. A person is connected with an individual if that person is the individual's husband or wife, or is a relative, or the husband or wife of a relative of the individual or of the individual's husband or wife. A relative in this context is defined as meaning brother, sister, ancestor or lineal descendant.

This restriction covering leasing to closely connected relatives is a standard anti-avoidance measure and such measures are common throughout the tax code. It should also be noted that there are already very generous stamp duty and capital acquisitions tax reliefs available in the case of permanent transfers of land between family members, such as by gift or sale. For all these reasons, there are no proposals to provide an exemption from income tax for rental income from farm land leases entered into between related persons.