Revenue Precedents

Qualification for income averaging – (i) losses incurred (ii) commencement of farming in partnership. (i) the fact that a farmer incurs a loss while on income averaging does not affect his entitlement to be on income averaging (ii) Where a farmer trading as a sole trader on income averaging starts trading as a partner, Revenue would be prepared to allow income averaging to continue for existing farming activities; once the partnership trade had been in existence for sufficiently long to be assessed for two years in accordance with section 65(1) TCA 1997, the farmer could opt for averaging in respect of this trade. 892000

A father and son farm in partnership. If the father decides to retire and the son continues to farm as a sole trader, is the son entitled to continue on income averaging? What review procedure applies in these circumstances? The cessation of a partnership trade and the commencement of a sole trade will not affect an individual's entitlement to income averaging. Section 657(6)(a) Taxes Consolidation Act 1997 provides that once an individual elects for income averaging he is charged to tax for each year of assessment in respect of profits based on a 3 year average. He will continue to be charged in this manner until either of the following applies: (a) he is an individual to whom subsection (1) applies, in which case he is deemed to elect to opt out of averaging (b) he is not chargeable to tax on farming profits (c) he elects to opt out of averaging (d) he is deemed to elect to opt out of averaging. This only applies in the case of (a). A review, for the purposes of section 657(8)(b), will therefore not be required in these circumstances as the individual has not elected or deemed to have elected out of averaging. A review will however be necessary under section 67 Taxes Consolidation Act 1997 of both the father's and son's assessments. IT973010

Where there is a farming loss but a balancing charge arises the taxpayer is not charged to tax in respect of profits or gains from farming for that year for the purposes of section 657(4)(b). GD97084

The taxable amount of “Mulder compensation”, as computed in accordance with Article 1.3 of Tax Briefing No. 14, can be averaged in the normal way. IT963507

What is the position regarding averaging in situations where a farmer is a sole trader and also farming in partnership? Where a taxpayer has farming income as a sole trader and also income from a farming partnership, on an ongoing basis, the income averaging rules should be applied to both businesses in view of the fact that under section 655 all farming carried on by any person whether solely or in partnership is treated as the carrying on of a single trade. IT943512

A farmer, by notice in writing, elected to be charged to tax for a year of assessment in accordance with the provisions of section 657 Taxes Consolidation Act 1997. Is there any concession by which he may be regarded as not having made the election? Section 657 Taxes Consolidation Act 1997 does not provide for the reversal of an election. There is no non-statutory practice whereby this election may be regarded as not having been made. IT973014

Where a farmer, who is on income averaging in respect of a sole trade of farming, commences to carrying on farming in partnership, will he be entitled to elect for averaging in respect of the partnership trade? An individual who, in addition to carrying on a sole trade of farming, the profits of which are charged to tax by virtue of section 657 Taxes Consolidation Act 1997, commences to carry on farming in partnership – so that part of his profits from the single trade of farming are charged to tax under income averaging and part are charged in accordance with the provisions of section 66(1), Taxes Consolidation Act 1997 – might not, strictly speaking, be entitled to a elect for income averaging. In practice, however, each part of the overall trade would be looked at separately, so that the income averaging could continue to be allowed in respect of the sole trade, and income averaging could be claimed as soon as the partnership had been assessed in accordance with section 65(1), Income Tax Act 1967, for the requisite two preceding years.” IT923027

A farmer elects for income averaging for a year of assessment. The following year he commences to carry on another trade. A review is therefore required under section 657(8)(b) Taxes Consolidation Act 1997. Given that averaging was only in operation for one year would the revision apply to the averaged year only? Section 657(8)(b) Taxes Consolidation Act 1997 provides that where an individual is deemed to have elected out of income averaging, the amount of profits or gains from farming upon which he is charged for each of the two years of assessment immediately preceding the year preceding the year of assessment in which he is deemed to have elected out will be reviewed. The Act makes no provision for a lesser review period where the person was not charged to tax by virtue of the provisions of section 657 for three or more years. IT923036

A farmer availed of income averaging for a number of years and then ceased to trade. On the discontinuance of the trade a review of the penultimate year is required. Is the revision based on a comparison of the actual profits and the current year profits or with the “averaged” profits? Subsection (10) of section 657 Taxes Consolidation Act 1997 ensures that the provisions of section 67 Taxes Consolidation Act 1997 will operate, even where an election has been made for income averaging. If the actual profits of the penultimate year exceed the “averaged” profit on which the person has been charged, the person will instead be charged on the actual profits or gains of that year. IT913024

Will a surviving spouse be entitled to continue on income averaging where the deceased spouse had formerly been on such income averaging? Where, on the death of a spouse, who was on income averaging, the farming trade passes in its entirety to the person's surviving spouse, that spouse will be regarded as continuing on income averaging. IT923034

A farmer's trading profits for a year of assessment are nil due to stock relief. Profits arose in the two years prior to that year. Is the farmer entitled to claim income averaging for the year subsequent to the year in which the stock relief was claimed? An individual is not entitled to elect to be charged to tax, for a year of assessment, in respect of farming profits, under section 657 Taxes Consolidation Act 1997, where the individual was not charged to tax in either of the two immediately preceding years in respect of profits from farming on the current year basis (i.e. in accordance with section 65(1) TCA 1997.) Stock relief is given as a deduction in computing an individual's trading profits. An individual cannot be regarded as being charged to tax in respect of profits if no trading profits arise. IT963009