Tractor upgrade

Grecco

Hi folks, I'm looking to buy a tractor over 100Hp to run my own silage rig out. I wont be going out on hire but I do 6-700 bales per year for myself.
My question is if I was to spend say 25K on one can I depreciate the value of the tractor by X amount every year for 5 or 6 years and used this to offset my tax bill. Can the same be done for the machinery .
I'm not buying new but all second hand.

CCM

Yes you can it's capital depreciation. I depreciate my machinery over 5 years as advised by sister in law who is an accountant

vanderbadger

Grecco wrote: »

Hi folks, I'm looking to buy a tractor over 100Hp to run my own silage rig out. I wont be going out on hire but I do 6-700 bales per year for myself.
My question is if I was to spend say 25K on one can I depreciate the value of the tractor by X amount every year for 5 or 6 years and used this to offset my tax bill. Can the same be done for the machinery .
I'm not buying new but all second hand.

i think so although i must admit accounts are a mystery to me, be careful though because if your accounts are showing depreciation by x amount for lets say 5 years and at the end of it you trade it in and get alot more that the value your accounts show after depreciation then it might case an issue, i could be wrong about that but i think my own accountant was ona bout it

Grecco

Is it the full amount can be written off against tax for example
after expences etc I have a tax liability of 10k
i bought a tractor at the start of the tax year for 25k
each year i now depreciate by 4k
My tax bill is now 10k - 4k = 6k
???
And to verify,Im not VAT registered nor do I intend to so the original 25k on the tractor included VAT

CCM

I'm fairly sure you're right on all counts Vanderbadger according to the sister in law

CCM

That's my understanding and what I do, approved by the sister in law. only thing is a tractor at 25k over 5 years is 5K per year. won't be a problem unless as Vanderbadger said you're trading in in a few years time. You could end up liable to pay back some of the depreciation you allowed

pakalasa

Some info here;
http://www.ifac.ie/ifac_taxation3.htm

Is 'Capital Allowance' the same as Depreciation'?

lakill Farm

LAds, depreciation is not tax allowed. Is shown on your Profit and Loss but on your income tax computation is added back

However you can claim capital allowance normally at 12.5% per year. (or the value of the asset over 8 years) so circa 3k per year on the tractor of 25k and a portion of the equipment

Grecco

I think lakill Farm is right, thats why i was asking could the depreciation be written off against Tax. Basically it boils down to the same thing, but I`ll only be allowed to depreciate the tractor by 12.5% each year thats 3k per year for 8 years which is fine. Im not worried about resale value as I don't think that will happen.

Good link pakalasa, I just had a quick look through it and FFk sake you can even do this with a car!!!

lakill Farm

Thanks Grecco.

Im only a part time farmer and full time accountant

PM me if any of ye we need any advice anytime

pakalasa

Remember too that it all depends on what level of income tax you are paying, 20% or 41%. If you're into the 41% band then you're laughing.
The Capital Allowance, say it's 4,000 Euro per year. Then you save 41% of this every year = 1640 Euro. (Assuming you're 4k in income over the 41% threshold)
That's 13,120euro you save over 8 yrs, on the 32,000euro you paid.

If you're not in the 41% band then you only save half this amount.

Say you're a part time farmer then it makes sense to invest in a new, or secondhand tractor 8 years before you plan to retire from the day job. The tractor will see you well into retirement!!

Stand to be corrected on this - but that's how the figures look to me!!

Red Sheds

Grecco wrote: »

Is it the full amount can be written off against tax for example
after expences etc I have a tax liability of 10k
i bought a tractor at the start of the tax year for 25k
each year i now depreciate by 4k
My tax bill is now 10k - 4k = 6k
???
And to verify,Im not VAT registered nor do I intend to so the original 25k on the tractor included VAT

Your capital allowances are subtracted from your taxable profit, not your tax liability, so in this cae if you are paying tax at 41%, then your allowance is (4,000 * 41% = 1,640) leaving your tax bill at 8,360 i.e. (10,000- 1,640). To get an the tractor and machinery written off quicker, consider leasing it from a bank or finance company over say 3 years and then i think you can write the cost against your profits over 3 years rather than the 8 which capital allowances give you.

Grecco

Red Sheds wrote: »

To get an the tractor and machinery written off quicker, consider leasing it from a bank or finance company over say 3 years and then i think you can write the cost against your profits over 3 years rather than the 8 which capital allowances give you.

Ah lad you've thrown a spanner in the works now with this leasing business

Can i lease purchase a tractor, if so can the lease payments be written off against tax?
Will I own the tractor at the end of the lease agreement or will I have to buy it out?

Which works out best???

Red Sheds

Can i lease purchase a tractor, if so can the lease payments be written off against tax?

Yes you can lease purchase, and 100% of the lease payments can be written off against tax as far as I know.

Will I own the tractor at the end of the lease agreement or will I have to buy it out?

Most lease agreements have a clause that you purchase the tractor at the end of the lease for a nominal sum, somewhere between €1 and €100, so just make sure that this clause is in the lease.

Which works out best???
1. It all depends on your circumstances, for example to lease a machine over 3 years costing you €25,000 plus the lease interest payments totaling say €4,500 over the 3 years, will cost you €819 per month, so first question is can you afford that. However, Leasing company will probably want at least 25% deposit up front though meaning almost 10,000 and then a lower repayment of €541 per month

2. Second you dont legally own the machine until the end of the lease agreement and until the buy out clause is exercised, normally this makes no difference if repayments are kept up.
3. Third if you have the cash to buy outright you save the €4,500 interest payments on the lease, so may make better sense to use that if you dont need it for anything else

4. If you will have to borrow one way or the other, to me a lease makes more sense to get the faster tax write off, rather than a loan where you can only write off over 8 years. But remember if you go to sell the equipment in say 4 years, its fully written off and you will be taxed on the total amount you sell it or trade it in for. Then again, you will probably be buying something else so will be getting new tax allowances anyway.

To sum up, in my view, if you are paying tax at the high rate, lease it and get faster tax write off. hold on to your cash if you have any and use as much borrowed money as possible, because if you use your cash, then its gone, nothing left for the rainy day, and banks dont lend for rainy days anymore, but will for machinery for a business, if you can demonstrate you can repay it.

Tora Bora

Red Sheds wrote: »

Can i lease purchase a tractor, if so can the lease payments be written off against tax?

Yes you can lease purchase, and 100% of the lease payments can be written off against tax as far as I know.

Will I own the tractor at the end of the lease agreement or will I have to buy it out?

Most lease agreements have a clause that you purchase the tractor at the end of the lease for a nominal sum, somewhere between €1 and €100, so just make sure that this clause is in the lease.

Which works out best???
1. It all depends on your circumstances, for example to lease a machine over 3 years costing you €25,000 plus the lease interest payments totaling say €4,500 over the 3 years, will cost you €819 per month, so first question is can you afford that. However, Leasing company will probably want at least 25% deposit up front though meaning almost 10,000 and then a lower repayment of €541 per month

2. Second you dont legally own the machine until the end of the lease agreement and until the buy out clause is exercised, normally this makes no difference if repayments are kept up.
3. Third if you have the cash to buy outright you save the €4,500 interest payments on the lease, so may make better sense to use that if you dont need it for anything else

4. If you will have to borrow one way or the other, to me a lease makes more sense to get the faster tax write off, rather than a loan where you can only write off over 8 years. But remember if you go to sell the equipment in say 4 years, its fully written off and you will be taxed on the total amount you sell it or trade it in for. Then again, you will probably be buying something else so will be getting new tax allowances anyway.

To sum up, in my view, if you are paying tax at the high rate, lease it and get faster tax write off. hold on to your cash if you have any and use as much borrowed money as possible, because if you use your cash, then its gone, nothing left for the rainy day, and banks dont lend for rainy days anymore, but will for machinery for a business, if you can demonstrate you can repay it.

Remembering all the time, that the sum of all other capital allowances you have from other machines you have bought in previous years plus whatever proportion of car depreciation you put towards farm accounts, plus any depreciation from building work, drainage work, fencing, etc, has not already eaten up the taxable profit.
If that is the case, it pays to postpone machine purchase / lease till other assets are written off for tax purposes.

Aisling.A.Ding

More to the point, How's your mother for turf?

moy83

Aisling.A.Ding wrote: »

More to the point, How's your mother for turf?

Tora Bora

Aisling.A.Ding wrote: »

More to the point, How's your mother for turf?

Turf is not an allowable deduction against tax under the relevant legislation as currently defined.
Now on the other hand, turf received by your mother, from you is classed as a benefit in kind for her tax purposees.
For further info call 1800 TURF. :cool:

Bactidiaryl

thats turf:pac: