Income averaging

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Originally published: 19/08/1991

Query

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?.

Decision

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.

Income Tax

Section 657, Taxes Consolidation Act, 1997

Origin: RLS Division

File ref:IT913024

 

Originally published: 11/06/1992

Query

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?.

Decision

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."

Income Tax

Section 657, Taxes Consolidation Act, 1997

Origin: RLS Division

File ref:IT923027

 

Originally published: 18/06/1992

Query

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?.

Decision

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.

Income Tax

Section 657, Taxes Consolidation Act, 1997

Origin: RLS Division

File ref:IT923036

 

Originally published: 08/07/1992

Query

Will a surviving spouse be entitled to continue on income averaging where the deceased spouse had formerly been on such income averaging?.

Decision

Where, on the death of a spouse, who was on income averaging, the farming trade passes in its entirety to the persons surviving spouse, that spouse will be regarded as continuing on income averaging.

Income Tax

Section 657, Taxes Consolidation Act, 1997

Origin: RLS Division

File ref:IT923034

 

Originally published: 04/06/1996

Query

A farmers 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?.

Decision

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 individuals trading profits. An individual cannot be regarded as being charged to tax in respect of profits if no trading profits arise.

Income Tax

Section 657, Taxes Consolidation Act, 1997

Origin: RLS Division

File ref:IT963009

 

Originally published: 23/09/1997

Query

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?.

Decision

Section 657 Taxes Consolidation Act 1997 does not provide for the reversal of an election. There is no non-statutory practise whereby this election may be regarded as not having been made.

Income Tax

Section 657, Taxes Consolidation Act, 1997

Origin: RLS Division

File ref:IT973014