There will be pain for our farmer and agri -clients, and an understanding of what is coming will help us as advisors understand what is needed and to plan accordingly.

Its hugely important when preparing projections and plans to be on the conservative side as there will be pressure on farm incomes in the years to come.

This article gives an outline of the tax issues and the background to what is happening. I look forward to presenting on the more technical points of the article at the upcoming CPA Tax Conference on 9th March.

Livestock farmers, in particular dairy farmers, are being blamed for their contribution to agriculture being over 37% of the national greenhouse gas (GHG) emissions. They are also being blamed for the deterioration in quality of our pristine waters i.e. rivers, lakes and coastal waters. Finally, all farmers are under the microscope when it comes to biodiversity i.e. protection of our habitats, flora and fauna.

Sustainability has become a buzz word and it is a term we will hear a lot more of in relation to Irish agriculture into the future. Sustainability focuses on meeting the needs of the present, whilst also ensuring to meet the needs of future generations.

Sustainability as a concept encompasses three key elements:

• Economy
• Environment
• Society

An example of a sustainable agricultural system would be a profitable system with little or no impact on the environment and one which has a social licence.

This social licence refers to the publics’ perception and approval of practices in agriculture such as animal welfare, food traceability and environmental standards. The social licence for agriculture is the trigger for funding from the European Union (EU) through the Common Agricultural Policy (CAP). Currently the EU CAP is firmly focused on the sector’s effects on the environment namely soil, air, water and biodiversity.

The European Union launched the Green Deal at the end of 2019. Its goal is to make Europe carbon neutral by 2050 and it outlines how various sectors, including agriculture, will achieve this. A medium term and more detailed strategy called “Farm to Fork” was announced in May of 2020 which outlines how the agricultural sector across Europe will achieve this goal by 2030.

The Farm to Fork strategy aims to

• reduce the usage of pesticides and antimicrobials by 50%
• reduce biodiversity loss
• improve animal welfare
• increase the land farmed organically to 25% of EU agricultural land area
• reduce fertiliser usage by 20%

In the recently published IFJ/KPMG report on the effects of emissions reductions, the roll out of existing technology on farms can reduce agricultural emissions by 13%-18% by 2030. Effectively this means the implementation on farms of the climate friendly practices set out on the Teagasc Marginal Abatement Cost Curve (MACC Curve).

There are up to 40 actions a farmer can carry out to reduce emissions on individual farms highlighted on the Teagasc MACC Curve. The main ones are:

• breeding more efficient dairy and sucker cows
• finishing cattle earlier at 24 months v 27 months
• better grassland, fertiliser and slurry management
• feed additives
• reducing crude protein in animal diets
• draining wet mineral soils
• straw incorporation
• using bioenergy on farm

Most progressive farmers are already at various stages of implementing these processes, some early adaptors have already reduced their carbon footprint by up to 15% but others have yet to begin.

The new EU CAP 2023-2027 is the catalyst to drive these measures using a ‘carrot and stick’ approach. The ‘stick’ being the new ECO Scheme measures attached to drawing down BISS (Basic Income Support for Sustainability Scheme) entitlements and the ‘carrot’ being the attraction of the new agri-environment scheme called ACRES (Agri Climate Rural Environmental Scheme). Over 46,000 farmers applied recently in the first tranche of the ACRES scheme, when only 30,000 were expected. This is a great indicator of the willingness of farmers to meet their climate and environmental obligations.

However, if the uptake of existing technology on-farm will only bring agriculture to a 13%-18% reduction in emissions, how are we going to get to 25% by 2030?

This raises the politically hot topic of a reduction in livestock numbers or what has become known as the ‘National Herd’. It is a wonderfully blunt instrument and an easy equation to show that livestock reduction equates to carbon emissions. The Irish Farmers Journal /KPMG report calculates that to achieve a 30% reduction in agricultural emissions by 2030 beef cattle numbers would have to fall by 22% and dairy numbers by 18%. It goes on to suggest that a 50% cut in emissions would require almost a 50% reduction in livestock numbers.

The farmer and only the farmer has the ability to create additional reductions in carbon emissions by planting trees and re-wetting bogs, a process known as ‘Additionality’. The scope of this is as of yet an untapped measure and is critical to the success of reaching climate change targets in Ireland.

Farmer psychology for generations has been to fell forests and reclaim bogs to create fertile agricultural land. These actions were incentivised by EU grants which led to success in achieving the stated goal of generating food for humanity and income for farm families. It also added value to their farms as fertile agricultural land has traditionally been of higher value than forestry land and bogs.

On the tax front a number of schemes and incentives are in place covering taxes on income and capital taxes.

A massive push is underway to increase our renewable power generation capacity and the first of the tax incentives is the accelerated tax allowance regime for renewables for all persons carrying on trade.

100% allowance i.e. a full write off in year 1 of the cost.

The type of items covered include:

• Photo voltaic systems
• Wind turbines for own power generation
• Ancillary equipment in association with the above
• Led Lighting
• Variable speed drive pumps which adjust to usage
• Motors and drives
• Electric vehicles

Some of these items are covered in Targeted Area Measures Schemes (grants) which will reduce the cost to the farmer. In addition, most of the measures, excluding motor vehicles, qualify for The Flat Rate Farmer Vat regime refund (online Vat 58).

From a capital tax incentive, where land is under solar panels and less than 50% of the total lands being transferred are used in this activity, the land meets this less than 50% rule and this land transfer will then be regarded as being eligible for both Agricultural and Capital Gains Tax reliefs.

Other measures that are beneficial to the sector include forestry tax incentives and the recent announcement of a plan to implement a plan for anaerobic digestion (AD) plants.

Firstly AD plants will provide an opportunity for farmers to use feedstock and farm waste to produce bio methane which will be exported to industry and the national gas grid. Whether it’s a runner for individual farmers to build and operate is questionable due to the costs, but it will provide massive opportunities for some to grow the feed needed for use in the plant, thus giving a sustainable income to the farm.

Forestry is a must and pressure is on to increase the amount of forestry being planted but that is in relation to the issues of felling licences and nothing to do with the tax.

From a tax perspective the following is a summary of the tax incentives:

• The income and gains for individuals are exempt from income tax when managed on a commercial basis.
• The income is liable to PRSI and USC
• The land and timber are available as an agricultural asset in the farmer test i.e. the 80% rule.
• The standing timber does not have to be held for the 6-year retention period.
• When land is bought with standing timber the value is apportioned between land and timber and the timber value part is exempt from stamp duty.
• Conditional gift or inheritance can apply to forestry thus being able to avail of agricultural relief and being taxed on only 10% of the Value.

The latest addition to incentives in the agri-farm sector was introduced in Budget 2023 and detailed in Finance Act 2022.

With increased closed periods where farmers cannot spread slurry coming in over the next few years and with the need to reduce artificial fertiliser usage, the need for increased storage on farms for slurry is a must.

S 658a TCA 97 brought into play an accelerated capital allowance regime for a detailed list of items covered in schedule 35a to the act.

In short, the allowance is available as follows:

• On qualifying expenditure in the relevant period.
• Qualifying expenditure is defined as capital expenditure on qualifying items.
• The qualifying items include floors and walls, mass concrete tanks, circular stores etc.
• The items are listed in full in Schedule 35a.
• This will be extended to Relevant period is to 30th June 2023 -As the new Agricultural Block Exemption Rules (ABER) were not passed at time of the Finance Act the Government was limited to this date.
• 31st December 2025.
• Allowance will be at 50% Per Annum over 2 years.
• Aggregate relief shall not exceed €500,000.

As one can see, the sustainability issue in farming is the most topical and urgent item on the agenda for farmers. Farmers are willing to work in harmony with the environment as they often regard themselves as custodians of the land.

With some foresight and informed engagement, the agricultural sector will no doubt meet the difficult targets set for sustainability.