There are a number of provisions in the tax code to deal with offsetting losses incurred by farmers in a tax year.
Section 381 of the Taxes Consolidation Act 1997 permits a person chargeable to income tax who suffers a loss in a trade or profession, including farming, to set off the amount of the loss against income from all sources for the relevant tax year. Relief may only be claimed under this section in respect of a tax loss sustained in the tax year for which the claim is made. This set off against income from all sources has the effect of reducing the taxpayer's total taxable income for the year a claim for relief is made under this section. To the extent that the recalculation shows an over payment of tax, the taxpayer is entitled to a repayment. A claim to loss relief under this provision may be either created or augmented by claiming capital allowances to increase the quantum of the loss. Loss relief under this section can be claimed not only against the income of the lossmaker, but also against the income of that person's spouse, in the year of loss, provided the couple is not treated separately for tax purposes.
Notwithstanding the option of setting losses against other income in the year in which a loss is incurred, a taxpayer, including a farmer, may decide instead to carry losses forward, under section 382 of the Taxes Consolidation Act 1997, for relief in a later tax year. In that event, the loss may only be set against subsequent taxable profits from the same trade or profession. There is no time limit on how far forward losses can be brought, provided the same trade continues in existence. Relief under section 382 is only available to the extent that the loss has not been offset against other income under section 381. The relief is given from the profits of the first subsequent year of assessment, with any balance being carried forward and set against the profits of the next subsequent year of assessment and so on.
Section 385 of the Taxes Consolidation Act 1997 provides that where a trade or profession, including farming, is permanently discontinued and a loss is suffered immediately before the time of the discontinuance, then the amount of that loss may be set against other income from that same trade or profession for the three years prior to the year of cessation, with later years being relieved before earlier years.
The general rules outlined above apply equally to farming, subject to certain restrictions for persons not farming on a commercial basis.
There are no proposals to amend the current tax treatment of losses arising from farming as the legislation covering such treatment of losses makes adequate provision for farmers. In addition, there is a generous package of reliefs and specific arrangements that continue to be available exclusively to the farming sector. These include income averaging; stock relief; accelerated capital allowances for expenditure incurred on farm buildings; accelerated capital allowances for expenditure incurred on certain pollution control measures; capital allowances for expenditure incurred on the purchase of milk quota; an exemption from income tax for certain income from certain leased farmland; and special tax treatment in respect of profits accruing as a result of the disposal of stock under statutory disease eradication measures. Furthermore, certain young trained farmers can also qualify for full relief from stamp duty on the transfer of land and can also avail of enhanced stock relief of 100%.