The interpretation of the tax code is not always clear and some aspects may eventually be decided by a test case. Farmers should always seek independant advice on all aspects of taxation. Our opinions here, are just that, mere opinions.
The profits or gains arising from the occupation of woodlands in Ireland, managed on a commercial basis and with a view to the realisation of profits, shall not be taken into account for any purpose of the Income Tax Acts, Section 18, Finance Act 1969. Changes introduced in Section 17 of the 2006 Finance Act, and modified in 2007, and being further modified in the 2010 Finance Act, limit the amount of reliefs, including woodland exemptions, used by certain high earners. These are deemed to be those with income of €125,000 or more annually from all sources and also having specified reliefs (such as capital allowances) and exempted income, such as profits from woodlands, of €80,000 or more. This could give rise to additional tax in some circumstances. In all cases where the woodland profits for an individual exceed €125,000 in a year a tax charge could arise so even an average sized clearfell needs to be planned to minimise tax. Forest owners should keep accounts of income and expenditure for all years.
In effect this means that Forest Grants, Forest Premiums, sale of forest thinnings and sale of clearfell are all exempt from Income Tax. It is thought to include processing up to the stage of Firewood, basic planks and possibly chipping. Also includes Christmas trees. When clearfelling comes around, remember, it can take place over a number of years, also the cost of replanting is avalid expense.
- The sale of growing timber in commercial woodlands is exempt from Stamp Duty; The sale of the underlying land is not exempt.
Capital Acquisitions Tax (CAT)
- Gifts between husband and wife are exempt from CAT. A privately owned forest is liable to gift and inheritance tax when taken as a benefit under a gift or inheritance.
- Commercial forestry qualifies as agricultural property and is therefore eligible for agricultural relief.
Income Levy - Individuals
An Income Levy of 1% and 2% on income over €100,100 per annum, came into effect on 1 January, 2009. It will apply, if the individual's gross income exceeds €18,304 p.a. or €20,000 for an individual aged 65 or over, to income, including premium income, from the occupation of certain woodlands. Gross income is determined after the deduction of legitimate expenses directly associated with the performance of the business in accordance with, according to Revenue guidance, the normal principles of commercial accounting. Some exemptions apply. The onus is on the owner to make a payment of income levy along with preliminary tax.
Profits from the occupation of woodlands managed on a commercial basis with a view to profit are taken into account when estimating reckonable income for PRSI purposes.
VAT - May be reclaimed.
Forestry is similar to farming for VAT purposes. Claims by unregistered farmers for a VAT refund should be sent to: Revenue Commissioners, River House, 3rd Floor, Charlottes Quay, Limerick (Lo-Call 1890 252449).
For unregistered farmers, it is important to have a written contract, including pricing which excludes VAT. When selling timber, a farmer can add VAT at a flat rate of 5% to compensate for VAT paid on costs. VAT registered contractors may charge VAT at a rate of 13 1/2%.
For VAT registered farmers, all sales of timber are subject to a VAT rate of 23%. Registration for VAT is compulsory if a farmers non-farming sales exceed €37,500 annually.
Value Added Tax (VAT) may be reclaimable
Forestry, for VAT purposes, is similar to farming activities. Non registered farmers may, in some cases, be able to claim VAT on expenditure on ground preparation and fencing. Claims by Unregistered Farmers for Refund of Value Added Tax should be sent to:
Where the owner is not registered for VAT, it is important that you have a written contract with the purchaser, stating the conditions including the price per cubic metre, this price should not include vat. For standing or felled timber, an unregistered owner can add flat rate vat @ 5.2% to an invoice to compensate for vat inputs that were incurred but cannot be recovered. A registered harvesting contractor will charge vat at a rate of 13.5% to the farmer, the invoice must show the farmers name.
Where the owner is registered for VAT, all sales of timber are subject to vat at the rate of 23%. A normal farmer does not have to register for vat until or unless his income from non-agricultural activities exceed 37,500 per annum
Relevant Contracts Tax
Introduced in 2012, it obliges the “principal contractor” to inform revenue and possibly deduct up to 35% from payments to sub-contractors. Failure to do so may result in the tax inspector seeking this amount in the future plus interest and penalties. A farmer who engages a company to plant his land is not a principal contractor unless he himself is also involved in “forestry operations”, as a business.