TAX TREATMENT OF ANIMAL LEASING

A dairy farmer( lessor)with surplus cattle may lease them to another dairy farmer (lessee) who wishes to increase production without the need to invest in the ownership of extra animals.

Where the lessor continues to carry on the business of farming:

• Income from leasing of cattle will be considered income from farming
• stock relief can be claimed and lease payments will not be treated as payments on account provided there is no agreement to sell the animals at any price other than their open market value

The lessee farmer

• May claim a deduction for the cost of leasing in calculating his or her farm income
• May not claim stock relief on the leased animals
• May sell some of the leased cattle provided they are replaced with cattle of a similar value. (Profits from sale would be part of normal farming and the cost of replacement would be an allowable expense.

Vat Treatment of Animal Leasing

Animal leasing is liable to VAT at the standard rate, currently 23%. The leasing of cattle is not regarded as an agricultural production activity for Vat purposes. Where the lessor’s income from animal leasing activities exceeds the threshold €37,500 in a continuous period of 12 months then the lessor is obliged to register and account for Vat on all income including income from agricultural production activities.