what is farming for tax purposes

viztopia

I am an accountant in practice and I have dealt with a good few farmers over the years and I was born and raised on a farm so i have decent bit of knowledge about them. One query that I have however and one which I have never been able to get a definintive answer to is what is considered as a farm that the Revenue commissioners would accept? I have dealt with small farms in the past and I have managed to get these deregistered with the revenue for income tax purposes given the age of the farmer, size of the farm and the fact that the farmer was in full time employment elsewhere and wasnt making any money on the farm. The other side of this is if some wants to start up and declare their income or loss what would the Revenue consider as a commercial enterprise? One of the main reasons why i am asking is if some one is making a loss and offsetting this against their paye income then the Revenue may say that this is not a commercial enterprise and dissallow it. I have an ongoing case like this with Revenue and I am unsure how to proceed. I did not post this in the Accountancy section as I dont think its relevant to them. Has anyone any experience of this here?

bob charles

I would say its a case by case basis, and I would assume if for instance your client income was 20k off farm and they were writing a good bit of this tax against a farm with a turnover of say 40K that would be okay. If your client salary is 150K and the farm still has a turnover of 40k and trying to offset a major amount of tax the revenue wont be happy bunnies. Back to your point whats a working farm .... whats the revenue's definition

lakill Farm

Normally they will only allow 4 years in a row of losses to be offset against other allowable income.

I think the biggest factor is "whats an allowable farm enterprise" is the farm been commercially run. Ie has the farmer 100 acres and only keeps 2 goats and gets it receeded every year

or has the farmer 25 acres with 20 yearlings and re investing money back into it

thats my understanding as an accountant

MfMan

Someone with a herd number and / or in receipt of SFP, headage, REPS, AEOS etc.?

PatQfarmer

lakill Farm wrote: »

Normally they will only allow 4 years in a row of losses to be offset against other allowable income.

I think the biggest factor is "whats an allowable farm enterprise" is the farm been commercially run. Ie has the farmer 100 acres and only keeps 2 goats and gets it receeded every year

or has the farmer 25 acres with 20 yearlings and re investing money back into it

thats my understanding as an accountant

In the "good old days of the boom", when we were earning money in business (cue tears for down-trodden Estate Agents), I invested a good bit on the farm and showed a loss regularly. My acctnt said that 3 yrs losses in a row "highlighted" you to Revenue and they may declare your farming a hobby rather than a business.
We posted 3 out of 5 yrs losses. No issues raised.
He did say that it is not a clear rule, more so looked at on a case-by-case basis.

viztopia

thanks for the replies. all of these make sense.

cloudroost

I don't want to hijack this thread, but I do have a few related questions.....
(my limited land probably classifies me as a hobby farmer, but my intent is to farm it as commercially as possible)
How do you get classified as a 'Hobby' farmer - Is it just a case of submitting losses for a number of years and then the revenue will classify you as such ?
If you are a 'hobby' farmer, what do you need to do in relation to submitting returns to the revenue ?
Are there benefits to being classified as a 'hobby' farmer ? - I know some of the disadvantages (can't claim back vat, can't offset losses agsainst other income...)

Tipp Man

To be fair if somebody is making continous losses over a period of many years then the revenue are probably right to clamp down on it.

3-5 years losses seems to be amount that you can get away with

As Pat says if you can throw in a year of profit every now and again it reduces their chances of objections

Of course the losses from the farm will not be lost and can be carried forward to offset against future farm profits

PatQfarmer

Tipp Man wrote: »

To be fair if somebody is making continous losses over a period of many years then the revenue are probably right to clamp down on it.

3-5 years losses seems to be amount that you can get away with

As Pat says if you can throw in a year of profit every now and again it reduces their chances of objections

Of course the losses from the farm will not be lost and can be carried forward to offset against future farm profits

And now of course, the aim is to make a PROFIT:D

Figerty

The aim to make a profit and keep as much of it as possible~!!!

Farmer Pudsey

It is down to it being a commercial enterprise if there is a genuine reason why there is a loss if you have build sheds or bought land however if you are going out buying bullocks in the spring at 1400 euro and selling in the autaum for 1450 they may not allow you to offset fertlizer ration etc, after that it is a matter of scale if you are on 20 acres and revenue can never see the likely hood of you making a profit they will not allow you to continue after 4 years and after 3 they will look at the accounts to see if there is a reason why there are losses ie depreciation etc.

However even after 4 years even though you cannot allow losses against PAYE income you can still carry forward losses and allow them against farm profits down the line