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9 1996

FINANCE ACT, 1996

Chapter II

Income Tax and Corporation Tax

Farming: Provisions Relating to Relief in respect of Increase in Stock Values

Interpretation.

133. —In this Chapter—

accounting period”, in relation to a person, means—

(a) where the person is a company, an accounting period determined in accordance with the provisions of section 9 of the Corporation Tax Act, 1976 , or

(b) where the person is not a company, a period of one year ending on the date to which the accounts of the person are usually made up:

Provided that where accounts have not been made up or where accounts have been made up for a greater or lesser period than one year, the accounting period shall be such period not exceeding one year as the Revenue Commissioners may determine;

chargeable period” has the same meaning as in paragraph 1 of the First Schedule to the Corporation Tax Act, 1976 ;

company” has the same meaning as in section 1 (5) of the Corporation Tax Act, 1976 ;

farming” has the same meaning as in Chapter II of Part I of the Finance Act, 1974 ;

period of account”, in relation to a person, means a period for which the accounts of the person have been made up;

person” means a person who is resident in the State and not resident elsewhere and, unless the contrary intention appears, includes a company;

specified return date for the chargeable period” has the same meaning as in section 9 of the Finance Act, 1988 ;

tax” means income tax or corporation tax, as appropriate;

trading income”, in relation to the trade of farming, means—

(a) where the person is a company, the income from the trade computed in accordance with the rules applicable to Case I of Schedule D, or

(b) in the case of any other person, the profits or gains of the trade computed in accordance with the rules applicable to Case I of Schedule D;

trading stock”, in relation to the trade of farming, has the same meaning as in section 62 of the Income Tax Act, 1967 , and in determining the value of a person's trading stock at any time for the purposes of a deduction under section 134 to the extent that, at or before that time, any payments on account have been received by the person in respect of any trading stock, the value of that stock shall be reduced accordingly.

Deduction for increase in stock values.

134. —(1) Subject to the provisions of this Chapter, if—

(a) a person carries on, in an accounting period, the trade of farming in respect of which the person is within the charge to tax under Case I of Schedule D, and

(b) the value of the person's trading stock of that trade at the end of the accounting period (in this Chapter referred to as its “closing stock value”) exceeds the value of its trading stock of that trade at the beginning of the accounting period (in this Chapter referred to as its “opening stock value”),

the person shall, in the computation for the purposes of tax of its trading income, be entitled to a deduction under this section equal to 25 per cent. of the amount of that excess as if the deduction were a trading expense incurred in the accounting period, and the amount of that excess is referred to in this Chapter as the person's “increase in stock value”:

Provided that, where the person is a company, the amount of the deduction in an accounting period shall not exceed the amount of the company's trading income for that period after all reductions of income for that period by virtue of sections 16 and 18 of the Corporation Tax Act, 1976 , and after all deductions and additions for that period by virtue of section 14 of that Act and before any deduction allowed by virtue of this section:

Provided also that, where the person is a company, where a deduction allowed by virtue of this section in computing the company's income from the trade of farming for an accounting period has effect for an accounting period (in this subsection referred to as “the relevant period”), the company shall not be entitled to—

(a) a deduction under section 14 of the Corporation Tax Act, 1976 , for any accounting period later than the relevant period in respect of any allowance treated as a trading loss of the trade before the commencement of the relevant period, or

(b) a set-off of a loss under section 16 of the Corporation Tax Act, 1976 , for any accounting period later than the relevant period in respect of a loss sustained in the trade before the commencement of the relevant period, or

(c) a set-off of a loss under section 18 of the Corporation Tax Act, 1976 , for any accounting period earlier than the relevant period in respect of a loss sustained in the trade.

(2) In the case of a person other than a company, where a deduction allowed by virtue of this section in computing the person's trading profits of the trade of farming for an accounting period has effect for a year of assessment (in this subsection referred to as “the relevant year”)—

(a) the person shall not be entitled to relief—

(i) under section 309 of the Income Tax Act, 1967 , for any year of assessment later than the relevant year in respect of a loss sustained in the trade before the commencement of the relevant year, or

(ii) under section 311 of the Income Tax Act, 1967 , for any year of assessment earlier than the relevant year in respect of a loss sustained in the trade,

(b) the provisions of section 241 (3) of the Income Tax Act, 1967 , or of that section as applied by any other provision of the Income Tax Acts, shall not apply as respects a capital allowance or part of a capital allowance which is, or is deemed to be, all or part of a capital allowance for the relevant year and to which full effect has not been given in that year owing to there being no profits or gains chargeable for that year or an insufficiency of profits or gains chargeable for that year,

(c) the provisions of section 318 of the Income Tax Act, 1967 , shall not apply to the capital allowances or any part thereof for the relevant year, and

(d) the amount of any deduction given under this section shall not exceed the amount of the person's trading income from the trade of farming for the relevant year before any deduction allowed by virtue of this section.

(3) (a) A deduction shall not be allowed under the provisions of this section in computing a company's trading income for any accounting period which ends on or after the 6th day of April, 1997.

(b) Any deduction allowed by virtue of this section in computing the profits or gains of the trade of farming for an accounting period of a person other than a company shall not have effect for any purpose of the Income Tax Acts for any year of assessment later than the year 1996-97.

(4) A person shall not be entitled to a deduction under this section for any chargeable period unless a written claim for such a deduction is made on or before the specified return date for the chargeable period.

(5) The provisions of this section shall apply to a trade of farming carried on by a partnership as they apply to a trade of farming carried on by a person.

Special provision for qualifying farmers.

135. —(1) In the case of a person other than a company who is a qualifying farmer—

(a) subsection (1) of section 134 shall apply and have effect as if “100 per cent.” were substituted for “25 per cent.”;

(b) paragraph (a) shall apply and have effect in computing a person's trading profits for an accounting period in the case of a person who becomes a qualifying farmer—

(i) on or after the 6th day of April, 1993, and before the 6th day of April, 1995, for the year of assessment 1995-96 and for each of the three immediately succeeding years of assessment, or

(ii) on or after the 6th day of April, 1995, and before the 6th day of April, 1997, for the year of assessment in which the person becomes a qualifying farmer and for each of the three immediately succeeding years of assessment.

(2) For the purposes of subsection (1), “qualifying farmer” means an individual who—

(a) in the year 1993-94 or any subsequent year of assessment, first qualifies for grant aid under the Scheme of Installation Aid for Young Farmers operated by the Department of Agriculture, Food and Forestry under Council Regulation (EEC) No. 797/85 of 12 March 1985* , or that Regulation as may be revised from time to time, or

(b) (i) first becomes chargeable to income tax under Case I of Schedule D in respect of profits or gains from the trade of farming for the said year 1993-94 or any subsequent year of assessment, and

(ii) has not attained the age of 35 years at the commencement of the year of assessment referred to in subparagraph (i), and

(iii) at any time in the year of assessment so referred to—

(I) is the holder of a qualification set out in the Sixth Schedule to the Finance Act, 1994 , and, in the case of a qualification set out in subparagraph (c), (d), (e), (f) or (g) of paragraph 3, or in paragraph 4, of the said Schedule, is also the holder of a certificate issued by Teagasc — The Agricultural and Food Development Authority (referred to subsequently in this paragraph as “Teagasc”) certifying that such person has satisfactorily attended a course of training in farm management, the aggregate duration of which exceeded 80 hours, or

(II) (A) has satisfactorily attended full-time a course at a third-level institution in any discipline for a period of not less than 2 years' duration, and

(B) is the holder of a certificate issued by Teagasc certifying satisfactory attendance at a course of training in either or both agriculture and horticulture, the aggregate duration of which exceeded 180 hours,

or

(III) if born before the 1st day of January, 1968, that such person is the holder of a certificate issued by Teagasc certifying that such person has satisfactorily attended a course of training in either or both agriculture and horticulture, the aggregate duration of which exceeded 180 hours:

Provided that where Teagasc certifies that any other qualification corresponds to a qualification which is set out in the said Sixth Schedule, that other qualification shall, for the purposes of this subsection, be treated as if it were the corresponding qualification so set out.

Compulsory disposals of livestock.

136. —(1) In this section—

excess” means the excess of the relevant amount over the value of the stock to which this section applies at the beginning of the accounting period in which the disposal takes place;

relevant amount” means the amount of any income received by a person as a result, or in consequence, of a disposal of stock to which this section applies;

stock to which this section applies” means all cattle forming part of the trading stock of the trade of farming where such cattle are compulsorily disposed of on or after the 6th day of April, 1993, under any statute relating to the eradication or control of diseases in livestock:

Provided that, for the purposes of this section, all cattle shall be regarded as compulsorily disposed of where, in the case of any disease eradication scheme relating to the eradication or control of brucellosis in livestock, all eligible cattle for the purposes of any such scheme, together with such other cattle as are required to be disposed of, are disposed of.

(2) Where stock to which this section applies is disposed of in an accounting period by a person carrying on the trade of farming, the person may elect to have the excess treated in accordance with the following provisions of this section and such election shall be made in such form and contain such information as the Revenue Commissioners may require.

(3) Notwithstanding any other provision of the Tax Acts, where a person elects in accordance with the provisions of subsection (2), the excess shall be disregarded as respects the accounting period in which it arises and shall instead be treated for the purposes of the said Acts as arising in equal instalments in each of the two immediately succeeding accounting periods:

Provided that, notwithstanding the foregoing provisions of this subsection, where the person further elects, the excess shall be treated as arising in such equal instalments in the accounting period in which it arises and in the immediately succeeding accounting period.

(4) Where, not later than the end of the succeeding accounting period or succeeding accounting periods, as appropriate, referred to in subsection (3), the person incurs expenditure on the replacement of cattle in an amount not less than the relevant amount, the person shall be deemed to be entitled to a deduction, in respect of the amount of the excess, under section 134 , that section being applied as if “100 per cent.” were substituted for “25 per cent.”:

Provided that, where the expenditure incurred on replacement as aforesaid is less than the relevant amount, the deduction in each of the two accounting periods referred to in subsection (3), or in the proviso thereto, under the said section 134 shall be reduced to an amount that bears the same proportion to the excess as the expenditure incurred in the said two accounting periods bears to the relevant amount.

(5) An election under this section shall be made by notice in writing made on or before the specified return date for the chargeable period in which the stock to which this section applies is compulsorily disposed of.

Supplementary provisions.

137. —(1) (a) Where a person has acquired or disposed of trading stock otherwise than in the normal conduct of the trade of farming, the person shall be treated, for the purposes of this Chapter, as having, at the beginning or end of the relevant period of account, trading stock of such value as appears to the inspector (or, on appeal, to the Appeal Commissioners) to be reasonable and just having regard to all the circumstances of the case.

(b) Where the value of a person's trading stock at the beginning of a period of account is not calculated on the basis used for the calculation of the value of the trading stock at the end of that period, the value of the trading stock at the beginning of that period shall, for the purposes of this Chapter, be treated as being what it would have been if it had been calculated on that basis.

(2) (a) In any case where a person's accounting period does not coincide with a period of account or with two or more consecutive periods of account, the person's increase in stock value in the accounting period shall be determined for the purposes of section 134 not in accordance with subsection (1) of that section but by reference to a period (in this section referred to as “the reference period”) determined in accordance with this subsection.

(b) In any case where the beginning of a person's accounting period does not coincide with the beginning of a period of account, the reference period shall begin at the beginning of the period of account which is current at the beginning of the person's accounting period.

(c) In any case where the end of the person's accounting period does not coincide with the end of a period of account, the reference period shall end at the end of the period of account which is current at the end of the person's accounting period.

(d) In any case where paragraph (b) does not apply, the reference period shall begin at the beginning of the person's accounting period and, in any case where paragraph (c) does not apply, the reference period shall end at the end of the person's accounting period.

(3) (a) In any case where subsection (2) (a) applies, a person's increase in stock value in the accounting period shall be determined for the purposes of section 134 by the formula

A (C − O)

________

N

where—

A is the number of months in the person's accounting period;

C is the value of the person's trading stock at the end of the reference period;

O is the value of the person's trading stock at the beginning of the reference period; and

N is the number of months in the reference period.

(b) In any case where a person's increase in stock value in an accounting period falls to be determined in accordance with paragraph (a), then, in section 134 and in the following provisions of this section, any reference to the person's closing stock value shall be construed as a reference to the value of the person's trading stock at the end of the reference period.

(4) (a) A person shall not be entitled to a deduction under section 134 for an accounting period if that accounting period ends by virtue of the person—

(i) ceasing to carry on the trade of farming; or

(ii) ceasing to be resident in the State; or

(iii) ceasing to be within the charge to tax under Case I of Schedule D in respect of that trade.

(b) In any case where a person's increase in stock value in an accounting period falls to be determined in accordance with subsection (3) (a), paragraph (a) shall have effect as if the reference therein to the person's accounting period were a reference to any of the accounting periods comprised in the person's reference period.

(5) (a) Subject to the following provisions of this subsection, where a person claims a deduction under section 134 and, immediately before the beginning of an accounting period, the person was not carrying on the trade to which the claim relates, then, unless—

(i) the person acquired the initial trading stock of that trade on a sale or transfer from another person on that person's ceasing to carry on that trade, and

(ii) the stock so acquired is, or is included in, the person's trading stock as valued at the beginning of the accounting period,

the person shall be treated for the purposes of section 134 and the preceding provisions of this section as having at the beginning of the accounting period trading stock of such value as appears to the inspector to be reasonable and just.

(b) In determining, for the purposes specified in paragraph (a), the value of trading stock to be attributed to a person at the beginning of the accounting period, the inspector shall have regard to all the relevant circumstances of the case and, in particular—

(i) to movements during the person's accounting period in the costs of items of a kind comprised in the person's trading stock during that period; and

(ii) to changes during that period in the volume of the trade in question carried on by the person.

(c) The Appeal Commissioners dealing with an appeal from the decision of an inspector on a claim in a case where, in accordance with paragraph (a), the inspector has attributed to a person at the beginning of an accounting period trading stock of a particular value shall, in hearing and determining the appeal, in so far as it relates to the value of the trading stock to be so attributed, determine such value as appears to them to be reasonable and just, having regard to those factors to which the inspector is required to have regard by virtue of paragraph (b).

(d) In any case where subsection (2) (a) applies to a person's accounting period, for any reference in paragraphs (a) to (c) to that accounting period there shall be substituted a reference to the reference period.

(6) In any case where a person's accounting period or reference period consists of a number of complete months and a fraction of a month, any reference in the preceding provisions of this section to the number of months in the period shall be construed as including that fraction of a month (and in any case where any such period is less than one month any such reference shall be construed as a reference to that fraction of a month of which the period consists).

*O.J. No. L93 of 30.3.1985, p. 6.