Over the past two years, the tax treatment of trade-ins as applicable to finance leases has been under question by the Revenue authorities who were, and I believe still are, unsure how to apply the tax treatment to those trade-ins. Two years ago many accountants and tax advisers followed the vibes coming from the Revenue, but some did not. The result following the briefing published in December 1996 means that clients of those who did not are now liable to tax retrospectively. In the farming community most of the work is being done by agricultural contractors whose machinery normally needs replacing every four years. The result of this change in the treatment of trade-ins is that those agricultural contractors will find themselves with large tax bills for which they had not been prepared. This will affect their cash flow position enormously and many are likely to go out of business.
It will not only affect those who are purchasing but also those who are selling machinery. From discussions in recent weeks with many of those involved, I am aware that sales in January were down by at least 80 per cent, an enormous figure. Inevitably, this will mean job losses and that unsafe machinery will be on the roads and in fields.
In addition to agricultural contractors and other purchasers of farm machinery, hauliers carrying produce to the Continent have been hit by this measure. Continental countries do not allow tractor units of five years or more on their roads. This sector will be affected by the change in Revenue practice. Leasing as we have known it is finished if we follow what was published in December 1996.
A further tax briefing document is coming from the Revenue in February which will bring forward more amendments. That shows that the treatment of this matter is not definite in the minds of Revenue. We should revert to what has been the practice. Those leasing should be allowed to roll over the trade-in value and when at the final cessation of business the liability should be taxed. If that is not to be followed, the whole area of capital allowances should be looked at.
The idea of allowing a seven year write off period for farm machinery and tractor units for haulage companies is unrealistic. A more realistic write-off time should be allowed if we are to have safe machinery in the agriculture and haulage sectors. Otherwise people will not be able to afford safe machinery and equipment capable of doing the necessary work.
The Minister should ensure that this area will be finally decided upon. Up to April 1997 the system that has been in operation should be accepted by the Revenue Commissioners and by that date an agreed system of dealing with trade-ins should have been decided. I understand discussions are going on between all the interested bodies and an agreed procedure should have been arrived at by that stage. However until then, the system that has been in operation should be accepted by Revenue. I request the Minister of State to contact the Minister for Finance to have this matter clarified by the Revenue Commissioners immediately.
