tax & tax planning presentation – 24 june 2011 clonakilty agricultural college kieran...

Tax & Tax Planning

Presentation – 24 June 2011Clonakilty Agricultural College

Kieran Coughlan, Coughlan Accounting & Taxation Services Limited, 086-8678296

Background


Introduction

• Kieran Coughlan– Attended Darrara in 1999/00 – completed Certificate in

Agriculture– First Class Honours degree in Accounting in UCC 2001 –

2004– Completed Professional Accounting exams in 2007 and

Professional Tax Exams in 2008 – national prizewinner– Registered Tax Consultant – operating all over Cork,

specialising in Farming Tax– Weekly articles in Farming section of the Irish Examiner

(every Thursday)– ICMSA Tax CommitteeKieran Coughlan, Coughlan Accounting &

Taxation Services Limited, 086-8678296

What’s is all about




TAX

Key message

“Work smarter, not harder"


Questionaire

• Please complete your questionaire!


How Tax Works!

• Sales milk €120,000• Sales cows €20,000• Total Sales €140,000

• Expenditure -Fertiliser (€20,000)-Feed (€25,000)- Personal expenses (€20,000)- Purchase Tractor (€40,000)

Total expenditure (€105,000)Cash position +€35,000


How Tax Works!

Cash position does not equal tax position!

Farm sales €140,000Farm day to day purchases (€45,000)Accounting Profits €95,000Less 1/8th allowance for machinery (€5,000)Taxable profits €90,000


How Tax Works!


2 heads are better than one even if its cabbage!


Tax savings by splitting income!


Tax saving = €9,219

Involving family members in farm

• Tax efficient method of splitting income amongst family– Benefit from tax band and exemption limits for

PRSI, USC and Income Tax– Particularly useful at retirement or starting off


Saving Tax• Short term tax planning:

– Income averaging– Stock relief for young trained farmers and others– Reclaiming VAT for unregistered farmers – HP, Leasing and Capital Allowance options– Renting and leasing of land– Involving family members in the business

• Long Term Tax Planning:

– Retirement planning– Passing farms on to the next generation (stamp duty, capital gains

tax, inheritance tax)


Income Averaging

• Example – farmer with income as follows:

Year 2005 2006 2007 2008 2009 2010Income 30,000 30,000 30,000 40,000 50,000 60,000

Total tax payable 6,052 5,870 5,740 9,136 15,359 20,526

Under income averaging the farmers position would have been as follows:Year 2005 2006 2007 2008 2009 2010Income 30,000 30,000 30,000 33,333 37,778 43,704

Total tax payable 6,052 5,870 5,740 6,917 8,659 11,504

Difference - - - 2,219 6,700 9,022 Kieran Coughlan, Coughlan Accounting & Taxation Services Limited, 086-8678296

Stock Relief

• Opportunity for farmer to build up stock in his herd tax free.– Example 50 calves bought for €100 each, sold

following for €400 each – Profit €15,000


Stock Relief

• Opportunity for farmer to build up stock in his herd tax free.– Option 1: Example 50 calves bought Feb 2010 for

€100 each, assumed no costs, sold in December 2010 for €400 each – Profit €15,000 – fully taxable

– Option 2: Calves held instead until Jan 2011 – Accounting profit of €15,000 in accounts at December as stock values have increased. This is fully tax free. For 2011, opening stock valued at €20,000, sales €20,000 – no taxable profits in either year!


Reclaiming VAT

• Say you are considering buying new Bulk Tank or a second hand one from a farmer

• New tank contains VAT at 21% (or 13.5% in some cases)

• This makes second-hand tank less financially attractive!

• Note another option would be to buy second-hand tank off a dealer


Hire Purchase versus Leasing

• Say New Tractor – cost €60,000• Different tax treatment

• HP generally more efficient if VAT registered• Ability to manipulate profits with lease

agreement

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018-2024 Overall Hire Purchase SavingCapital Allowances 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 - Tax Saving 3,975 3,975 3,975 3,975 3,975 3,975 3,975 3,975 - 31,800

LeasingLease Deduction 20,000 20,000 20,000 - - - 10,000- 1,250 Capital Allowances - - - - - - - 8,750 Tax Saving 10,600 10,600 10,600 - - - 5,300- 663 4,638 31,800


Land Leasing

• Exemption from income tax for recipient if:– Over 40 and lease is:

> 5 years €12,000>7 years €15,000>10 years €20,000

• Can make con-acre much cheaper and make expansion plans more definitive


Retirement Planning

• Consider Pension Options– PRSA– Self Directed

• Investment in alternative assets – rental properties, land etc

• Continuation of income post transfer• Potential PRSI savings • Exemption limits for over 65’s• Beneficial for providing for siblings through parents


Succession Planning

• Capital Gains Tax exemption on disposal:– Over 55– Farming more than 10 years– Owned the land for more than 10 years

• Capital Acquisitions Tax (Gift/Inheritance)– Limit €332,084, excess 25% – Reduction of 90% in value of land being received for tax

purposes if pass the farmer test• Stamp Duty– Exemption if under 35, and continue farming for 6 years


Future Tax Outlook

• Reduction in reliefs• Increase in taxes (per FG/Labour policies)• Planning essential for maximising your tax

efficiency


Questions

?Kieran Coughlan, Coughlan Accounting & Taxation Services Limited, 086-8678296


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tax & tax planning presentation – 24 june 2011 clonakilty agricultural college kieran...

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