668 Compulsory disposals of livestock

Summary

This section provides for special tax treatment for farmers in respect of profits accruing as a result of the disposal of stock under statutory disease eradication measures. This special treatment can be availed of by both individuals and companies. Profits arising from such disposals are excluded in computing income for tax purposes for the accounting period in which the disposal takes place and are deemed to arise in equal instalments in each of the next 4 accounting periods (or, if the farmer wishes, in the period in which the profits arise and the following 3 periods). Furthermore, in place of the normal 25 per cent stock relief, a farmer is entitled to elect for stock relief of 100 per cent in the 4 year deferral period. In all cases, however, the option to defer does not apply where a permanent discontinuance of the farming trade occurs. The section also provides that a farmer is deemed to be entitled to stock relief for an accounting period equal to the instalment of profit from the disposal which is treated as arising in that period. In these circumstances the farmer must fully re-invest or intend to fully re-invest the compensation which was received, in replacement stock, by the end of the 4 year period. However, if the compensation is not fully re-invested by the end of this period, the aggregate stock relief for the 4 years will be reduced to an amount that bears the same proportion to the aggregate stock relief as the expenditure actually incurred in the 4 year period bears to the compensation received. This reduction is to take place, as far as possible, in the later years of the 4 year period.

Finally, the section also clarifies the interaction of the relief under this section with the introduction of the calendar tax year.

Details

Definitions

(1) “excess” is, in effect, the profit arising on the compulsory disposal; it is the difference between the “relevant amount” and the book value of the stock at the start of the accounting period in which the disposal takes place.

“relevant amount” is the income received by the farmer on foot of the compulsory disposal.

“stock to which this section applies” means—

1. Cattle forming part of the trading stock of the farming trade where such animals are compulsorily disposed of under statutory disease eradication measures. Such disposals occurring since 6 April, 1993 are covered.
2. Animals and poultry of a kind specified in Parts I and II of the first Schedule to the Diseases of Animals Act, 1966 which form part of the trading stock of the trade of farming. Relief is available where a farmer disposes of all animals or poultry of the particular kind on or after 6 December 2000 in circumstances where compensation is paid by the Minister for Agriculture, Fisheries and Food.

Deferral of tax charge on profits from compulsory disposals

(2) A farmer, who has been obliged to dispose of livestock under any statutory disease eradication measure, may elect to have his/her profit resulting from the disposal dealt with under the subsequent provisions of the section. Such an election must be made in such form and contain such information as the Revenue Commissioners require to ensure that the measure can be implemented in a satisfactory manner (for example, valuation of the farmer’s stock, details of stock disposed of, etc.).

(3) Where a farmer has so elected but subject to subsection (3A), the profit arising from the disposal is ignored in the accounting period in which it arises. Instead, that profit is treated as arising in equal instalments in each of the 4 accounting periods immediately after the period in which it arises. This has the effect of deferring the tax charge on the profit arising from the disposal. Again, subject to subsection (3A), the farmer can further elect to have the profit in question treated as arising in 4 equal tranches, in the accounting period in which it arises and in the 3 immediately succeeding periods. (This is to facilitate farmers who might wish to start replacing their stock in the disposal period rather than wait until the following 4 periods).

Permanent discontinuance of the trade

(3A) Where a permanent discontinuance of a farming trade arises, then an assessment under Case IV of Schedule D is made in relation to any profits which but for the discontinuance, would have been treated by subsection (3) as arising in an accounting period or periods ending after the discontinuance. This assessment is to be made in the chargeable period in which the permanent discontinuance arises.

Reinvestment of proceeds of compulsory disposals

(4) Subject to subsection (4A) a person is deemed to be entitled to a stock relief deduction under section 666 for each of the 4 accounting periods over which the excess profit is treated as arising under subsection (3), provided the person incurs or intends to incur expenditure on replacement stock, in an amount not less than the relevant compensation amount, before the end of the 4 year period. This deduction is in substitution for a stock relief deduction which the person might otherwise be entitled as a result of re-investing an amount of expenditure, equal to the relevant compensation amount, in replacement stock.

The amount of the deduction for each accounting period is an amount equal to the amount of the excess profit which is treated as arising in that period under subsection (3)(a) or (3)(b). Provision is made that section 666 applies with any necessary modifications in order to give effect to the subsection.

(4A) Where it subsequently transpires that the expenditure on replacement stock which was actually incurred, by the end of the 4 year period over which the excess profit is treated as arising under subsection (3), was less than the relevant compensation amount, then:

• the aggregate stock relief deduction, to which the person is deemed by subsection (4) to be entitled under section 666, in respect of the 4 accounting periods involved is to be reduced to an amount that bears the same proportion to that aggregate deduction as the expenditure actually incurred in those 4 accounting periods bears to the relevant compensation amount, and
• the reduction shall be made, as far as possible, in a later accounting period in priority to an earlier accounting period.

Time limit for elections

(5) An election under the section must be made in writing on or before the person’s return filing date for the chargeable period (accounting period of a company or year of assessment of an individual) in which the compulsory disposal takes place.

Interaction with the calendar tax year

(6) Where an instalment of excess profits is treated as arising in an accounting period of one year ending in the period from 1 January 2002 to 5 April 2002 and, by virtue of section 65, the profits or gains of both the year of assessment 2001 and the year of assessment 2002 are computed on the basis of that accounting period, then notwithstanding any other provision of the Tax Acts:

• an amount equal to 74 per cent of that instalment shall be taken to be part of the profits or gains of the trade of farming for the year of assessment 2001, and
• an amount equal to 26 per cent of that instalment shall be taken to be part of the profits or gains of the trade of farming for the year of assessment 2002.

(7) Where, by virtue of subsection (4), a person is deemed to be entitled to a stock relief deduction under section 666 in respect of the accounting period referred to in subsection (6), then:

• 74 per cent of such deduction shall be granted for the year of assessment 2001, and
• 26 per cent of such deduction shall be granted for the year of assessment 2002.

Relevant Date: Finance Act 2021