Taxes Consolidation Act 1997 section 657

Averaging of farm profits

Section 657 allows individual farmers to elect for income averaging, whereby farming profits are taxed on the basis of the average of the aggregate profits and losses over a five-year period rather than on the profits of the current year alone.

• Since 1 January 2019, income averaging is available to all individual farmers; previously, farmers (or their spouses/civil partners) who carried on another trade or profession, or who controlled more than 25% of a trading company, were excluded.
• The farmer is taxed on one-fifth of the aggregate farming profits and losses over five years (three years prior to 2015); once elected, averaging continues unless the farmer opts out or ceases farming.
• From 2016 onwards, a farmer may temporarily step out of averaging for a single year once every five years, with the resulting deferred tax payable in four equal annual instalments; an additional step-out was permitted for 2020 as a Covid-19 measure.
• On permanent opt-out, the four years preceding the final year of averaging are reviewed and, if necessary, assessments are increased to ensure profits charged in those years are not less than the averaged profits of the final year; any outstanding deferred tax becomes immediately payable.