Buying machinery and taxation

20silkcut

Can machinery/tractor purchases be taken out of your income in the year of purchase.
Say you earn 50 grand a year and buy a tractor for 15 grand does that mean you are taxed on 35 grand??
I know depreciation is taken into account every year.
But is machinery purchase viewed as an allowable expense or added on to your net worth as a taxable asset.
Apologies if this is a basic question but it was never made clear to me.
I do accounts every year but I don't fully understand how assets etc are assessed for tax.

Milked out

Afaik it is written off over 7 years for machinery and 8 for buildings not all in the one year lakill may correct me on that

lakill Farm

capital allowance is 12.5% a year (over 8 years) .

on some of the slatted sheds there is accelerated capital allowances

There is now a relief called S 392 (Unused capital allowances)

This is in addition to S 381 - Using trade losses against other income

Timmaay

Milked out wrote: »

Afaik it is written off over 7 years for machinery and 8 for buildings not all in the one year lakill may correct me on that

I think this is correct so it's 15/7 which is 2100 or so, so you are taxed on say 32900 instead of 35k.

lakill Farm

Also

depreciation may be deducted in your accounts, however you have to add back 100% of depreciation each year along with other items such as portion of motor expenses, L& H , Telephone etc., deduct stock relief and leases etc to get taxable profit/loss


you can depreciate by 20% if you want or more

but capital allowance is 12.5% - Straight line (ie same amount each year)

20silkcut

Just a quick browse on the net tells me that capital allowance of 12.5% of purchase price is allowed per year for 7 years. The full value of the machine is never allowed in one tax year.
To me this is a load of horse manure.
The money is still spent. It's gone from your income. Yet you still have to pay tax on 87.5% of the purchase price. Buying machinery really does tear your cash flow asunder and can leave you up the swanny. I remember the year I bought my tractor being the longest year ever not having a penny. Load of balls depressing stuff why would ya bother buy anything?
I can't get loans or hp or anything because of credit rating so any purchases are up front.

Vandy West

Think you can also deduct any interest from a machinery loan from your income.

What happens if you buy a tractor for say 20k, depreciate it over 7/8 years and the sell it for say 10k. Do you have to pay income tax on the 10k?

lakill Farm

Vandy West wrote: »

Think you can also deduct any interest from a machinery loan from your income.

What happens if you buy a tractor for say 20k, depreciate it over 7/8 years and the sell it for say 10k. Do you have to pay income tax on the 10k?

depends if you 100% claimed capital allowance on the item. or if you had calculated with a residual value

but yes most times the 10k is taxable and know as a balancing charge.

it also operates in the reverse also. ie not enough claimed

lakill Farm

20silkcut wrote: »

Just a quick browse on the net tells me that capital allowance of 12.5% of purchase price is allowed per year for 7 years. The full value of the machine is never allowed in one tax year.
To me this is a load of horse manure.
The money is still spent. It's gone from your income. Yet you still have to pay tax on 87.5% of the purchase price. Buying machinery really does tear your cash flow asunder and can leave you up the swanny. I remember the year I bought my tractor being the longest year ever not having a penny. Load of balls depressing stuff why would ya bother buy anything?
I can't get loans or hp or anything because of credit rating so any purchases are up front.

was to stop people going out the 31 dec or 30 March and buying a new tractor just to save tax.

years ago remember lads buying cars and tractors nov and dec and no reg plate on them till the new year.

even the department of agriculture did it with a JCB loader in the college in Multyfarnham. Bought it in Sept 1999 and it had 00 plates

20silkcut

lakill Farm wrote: »

was to stop people going out the 31 dec or 30 March and buying a new tractor just to save tax.

years ago remember lads buying cars and tractors nov and dec and no reg plate on them till the new year.

even the department of agriculture did it with a JCB loader in the college in Multyfarnham. Bought it in Sept 1999 and it had 00 plates

But surely going out and buying a new tractor is a desirable thing in an economy regardless of when it was bought.
I mean its a lot better than putting it in off shore accounts.
I would much rather get the full write off in the year of purchase and no depreciation thereafter.
Depreciation is going to be very variable anyway and is almost entirely down to the way individuals look after machines. You can't put a blanket figure like 12.5% per year that is incredibly flimsy.
How did the farming lobby groups stand over this? In my opinion it is a penal system and retards economic activity, which is the opposite of what taxation should achieve.

lakill Farm

Depreciation could be 100% in a year if you want , but capital allowance is 12.5%.

At the end of the day you can write the tractor off in 1 year if you want. Its you signing the accounts and tax return and if you get hit with audit its you who pays back 3 times the saving minimum.

Id suggest trying to get credit lines opened up again

20silkcut wrote: »

But surely going out and buying a new tractor is a desirable thing in an economy regardless of when it was bought.
I mean its a lot better than putting it in off shore accounts.
I would much rather get the full write off in the year of purchase and no depreciation thereafter.
Depreciation is going to be very variable anyway and is almost entirely down to the way individuals look after machines. You can't put a blanket figure like 12.5% per year that is incredibly flimsy.
How did the farming lobby groups stand over this? In my opinion it is a penal system and retards economic activity, which is the opposite of what taxation should achieve.

onyerbikepat

20silkcut wrote: »

But surely going out and buying a new tractor is a desirable thing in an economy regardless of when it was bought.
I mean its a lot better than putting it in off shore accounts.
I would much rather get the full write off in the year of purchase and no depreciation thereafter.
Depreciation is going to be very variable anyway and is almost entirely down to the way individuals look after machines. You can't put a blanket figure like 12.5% per year that is incredibly flimsy.
How did the farming lobby groups stand over this? In my opinion it is a penal system and retards economic activity, which is the opposite of what taxation should achieve.

But what if your income is very low for that year? Surely it is better to spread it over the 8 years and get the full tax relief.

20silkcut

onyerbikepat wrote: »

But what if your income is very low for that year? Surely it is better to spread it over the 8 years and get the full tax relief.

Lets say for example you earn 23000 in a year.
Lets say you spend 15000 on a tractor.
That leaves you with 8000 or 153 euro a week to live on. Lets assume you spend all that over the course of the year so it's gone.
The capital allowance on the tractor is 1875 euro. You still have to pay tax on 13125 euro that's money that no longer exists because its spent on the tractor.
Now you have to come up with €2625 out of nothing, funds that don't exist and the revenue know they don't exist cause you spent it on the tractor but they still want it and preferably in a lump sum prompt payment. It is a penal system in my opinion.

mf240

You dont get to just buy something and subtract the purchase price from your income tax for that year.

The reason you can write it off over 8 years is that it will decrease in value so its losing money on paper.

You can write off repairs to machinery or parts fully in the year there incured allright.

Username John

20silkcut wrote: »

Lets say for example you earn 23000 in a year.
Lets say you spend 15000 on a tractor.
That leaves you with 8000 or 153 euro a week to live on. Lets assume you spend all that over the course of the year so it's gone.
The capital allowance on the tractor is 1875 euro. You still have to pay tax on 13125 euro that's money that no longer exists because its spent on the tractor.
Now you have to come up with €2625 out of nothing, funds that don't exist and the revenue know they don't exist cause you spent it on the tractor but they still want it and preferably in a lump sum prompt payment. It is a penal system in my opinion.

I am not sure the excuse of "but I've already spent the money" works for the revenue

I think if you go the limited company route, what you are suggesting might be possible? But you'd have to confirm that.

20silkcut

mf240 wrote: »

You dont get to just buy something and subtract the purchase price from your income tax for that year.

.

But ya do with some things.
If you buy cattle is the full sum not subtracted from your income in that year?
If you buy fertiliser, feed, co-op items etc are they not all taken out if your income in full in the year you buy them?

Surely a tractor or machinery or buildingsshould be treated the same.
Even more so because they are items which are not for re-sale.

mf240

20silkcut wrote: »

But ya do with some things.
If you buy cattle is the full sum not subtracted from your income in that year?
If you buy fertiliser, feed, co-op items etc are they not all taken out if your income in full in the year you buy them?

Surely a tractor or machinery or buildingsshould be treated the same.
Even more so because they are items which are not for re-sale.

You can resell a tractor


Fertilizer and feed are used the year there bought.

If you buy land it cant be claimed against tax as it doesent depreciate.

Thats the way it is no point in arguing the point with me i dont make the rules.

Would hiring a tractor be an option for you?

20silkcut

mf240 wrote: »

You can resell a tractor


Fertilizer and feed are used the year there bought.

If you buy land it cant be claimed against tax as it doesent depreciate.

Thats the way it is no point in arguing the point with me i dont make the rules.

Would hiring a tractor be an option for you?

No as I touched on earlier I think my credit rating is probably on the floor had a Celtic tiger era credit card which got out of control and came to a head two years ago. Hiring, leasing, loans are off the table for the foreseeable future.

lakill Farm

20silkcut wrote: »

No as I touched on earlier I think my credit rating is probably on the floor had a Celtic tiger era credit card which got out of control and came to a head two years ago. Hiring, leasing, loans are off the table for the foreseeable future.

ICB only hold onto the records for 5 years.
ICB - Irish Credit Bureau
go onto www. icb.ie and pay the €6 and get a credit report . it takes 3/5 days to get it in the post


http://www.icb.ie/cr_options.php

BTW: lots of banks may still issue credit towards you.

Injuryprone

20silkcut wrote: »

But ya do with some things.
If you buy cattle is the full sum not subtracted from your income in that year?
not unless you qualify for 100% stock relief
If you buy fertiliser, feed, co-op items etc are they not all taken out if your income in full in the year you buy them?
not unless you use them up
Surely a tractor or machinery or buildingsshould be treated the same.
Even more so because they are items which are not for re-sale.

.

20silkcut

20silkcut wrote: »

But ya do with some things.
If you buy cattle is the full sum not subtracted from your income in that year?
If you buy fertiliser, feed, co-op items etc are they not all taken out if your income in full in the year you buy them?

Surely a tractor or machinery or buildingsshould be treated the same.
Even more so because they are items which are not for re-sale.

The economic reason usually is that you don't throw away the tractor at the end of the year and buy a new one the next year - you continue to get benefit from it for years to come and that you should spread the cost over the years that you benefit from it.

As was said above it could be used to massage the tax bill at the end of the year.

The government would prefer that you pay your taxes and that you go out and buy the new machine.