Capital Depreciation

99nsr125

A never ending nice tractor post.

So we're in the market and have been for some time for a replacement tractor 110ish hp Mf 57xx or 47xx kinda deal.

Now I have an off farm job and lucky enough to pay at the higher rate. The farm doesn't make a whole lot.

Can I depricate a new tractor against the tax from the off farm job. I was sure I could but the BIL says no.

If someone could post an example that'd be awesome also, even if it's just round numbers like, ( well it won't be but)

80k purchase price depreciated over 8 years so 10k a year, reducing income by 10k creating an effective tax saving of 5k per year.

Mooooo

You can't I'd say. What you can put against your job is losses from the farm afaik. A chat with the accountant should clear it up

Grueller

Basically your Farm will make €10,000 less profit due to the depreciation. As you are on the high rate of tax in your off farm employment, every euro you earn on the farm is taxed at 52% iirc when USC, PRSI, PAYE etc are all taken.
What that means is that the net cost to you every year of your tractor being depreciated by €10,000 is actually €4,800.
Now if that extra €10,000 depreciatio pushes the farm into a loss making enterprise you may get a refund. Say the farm loses €5,000 and you earn €50,000 off farm. Now your total income is €45,000 but you have paid paye tax on €50,000. You are in the happy position that revenue owe you the tax on €5000 at 52% or roughly €2600 of a refund.
If you don't buy the tractor, your farm makes a €5000 profit and you pay 52% on that, or €2600 to revenue so the swing between what you don't pay them plus your refund is €5,200.
My figures may be slightly wrong but that is the gist of it.

You also need to consider your long term plans for the tractor as tractors depreciate a lot less than the capital allowances(tax term for depreciation) timeline which may cause tax payback down the line. This is often neglected in order to get the tax deduction as quick as possible.

If you buy your €80k now and sell in a few years it’s likely the tractor will be worth more than the tax written down value and you then have to book an effective tax profit on the sale (balancing charge) and pay tax on it.

Eg, 5 years time you trade up again and the dealer gives you €50k as a trade in, at this stage your tax written down value is €30k so you have to include a profit of €20k (less depreciation on new incoming tractor).

A worse scenario is you rent out / sell the farm so want rid of the tractor and get the €50k, you don’t have the shelter of the new tractor depreciation to offset the €20k profit. The buyer will want a receipt to get his tax deduction so declaring a lower sale price not an option. This scenario in particular would be a painful one as you are on the high rate of tax.

emaherx

Grueller wrote: »

Basically your Farm will make €10,000 less profit due to the depreciation. As you are on the high rate of tax in your off farm employment, every euro you earn on the farm is taxed at 52% iirc when USC, PRSI, PAYE etc are all taken.
What that means is that the net cost to you every year of your tractor being depreciated by €10,000 is actually €4,800.
Now if that extra €10,000 depreciatio pushes the farm into a loss making enterprise you may get a refund. Say the farm loses €5,000 and you earn €50,000 off farm. Now your total income is €45,000 but you have paid paye tax on €50,000. You are in the happy position that revenue owe you the tax on €5000 at 52% or roughly €2600 of a refund.
If you don't buy the tractor, your farm makes a €5000 profit and you pay 52% on that, or €2600 to revenue so the swing between what you don't pay them plus your refund is €5,200.
My figures may be slightly wrong but that is the gist of it.

The only issue I see there is you can't claim a refund on losses every year for the eight years you'd be depreciating the tractor, the farm would need to show profit every third year.

patsy_mccabe

Sorry to go off thread a little, but if you pay by cheque but don't get a receipt, will that suffice for revenue.
My accountant said it would.
This would be the case , say when buying off another farmer.

Grueller

emaherx wrote: »

The only issue I see there is you can't claim a refund on losses every year for the eight years you'd be depreciating the tractor, the farm would need to show profit every third year.

My accountant reckons every 4th year is often enough to be profitable.

893bet

Grueller wrote: »

My accountant reckons every 4th year is often enough to be profitable.

How can this work for a tractor purchase where the capital dep drives a loss?

Can you just choose not to claim the depreciation 1 year in 4? Or claim less to drive a small profit ?

Grueller

893bet wrote: »

How can this work for a tractor purchase where the capital dep drives a loss?

Can you just choose not to claim the depreciation 1 year in 4? Or claim less to drive a small profit ?

Carry forward 150 bales at €25 each in stock. 3 tonne of fert that wasn't spread. There is €5000 extra in profit at years end on the books.

lakill Farm

Depreciation isn't an allowable tax expense .


Capital allowance is 12.5% on a tractor. if you so wish you can claim the capital allowance against your PAYE even if you have loss. The rules changed in 2014


Best to contact your own tax adviser and let them explain it

99nsr125 wrote: »

A never ending nice tractor post.

So we're in the market and have been for some time for a replacement tractor 110ish hp Mf 57xx or 47xx kinda deal.

Now I have an off farm job and lucky enough to pay at the higher rate. The farm doesn't make a whole lot.

Can I depricate a new tractor against the tax from the off farm job. I was sure I could but the BIL says no.

If someone could post an example that'd be awesome also, even if it's just round numbers like, ( well it won't be but)

80k purchase price depreciated over 8 years so 10k a year, reducing income by 10k creating an effective tax saving of 5k per year.

Cavanjack

Grueller wrote: »

My accountant reckons every 4th year is often enough to be profitable.

What do you live on the other 3 years?

Cavanjack

99nsr125 wrote: »

A never ending nice tractor post.

So we're in the market and have been for some time for a replacement tractor 110ish hp Mf 57xx or 47xx kinda deal.

Now I have an off farm job and lucky enough to pay at the higher rate. The farm doesn't make a whole lot.

Can I depricate a new tractor against the tax from the off farm job. I was sure I could but the BIL says no.

If someone could post an example that'd be awesome also, even if it's just round numbers like, ( well it won't be but)

80k purchase price depreciated over 8 years so 10k a year, reducing income by 10k creating an effective tax saving of 5k per year.

Is there nothing else you need other than a tractor? If I wanted to spend 80k to keep my tax bill down I’d spend it on something other than a tractor first. Ok you need a tractor but I’d rather spend it on proper handling facilities maybe a dry shed/workshop, fencing etc. They’ll all do the same job for tax or better as you can also claim vat back off them.

Grueller

Cavanjack wrote: »

What do you live on the other 3 years?

I freeload off the wife.

Dozer1

Grueller wrote: »

I freeload off the wife.

Good idea...has she many sisters?

Grueller

Dozer1 wrote: »

Good idea...has she many sisters?

One, but she freeloads off her husband (and my wife too at times)

Dozer1

A sh*te I better keep the current model I have sweet so