With this tax reform, the Austrian Federal Government is taking a major step for agriculture and forestry. 'The measures will reduce the tax bill for around 160,000 agricultural holdings and 400,000 people working on farms by a total of 120 million euros,' says Minister of Agriculture Elisabeth Köstinger. That is one of the most formidable relief packages ever in the history of Austria's agriculture and forestry sectors.
Initial tax relief measures for the nation's agricultural holdings were introduced as early as 2018 and included a lowering of insurance tax, an increase in the allowance paid on insurance premiums and the withholding tax model for pipeline compensation. With the tax reform, the Federal Government now has further measures to implement.
Introduction of a fiscal risk equalisation measure to improve farmer protection against price and yield fluctuations (Income Tax Act)
Agricultural holdings are becoming increasingly subject to weather conditions and risks. Drought, hot spells, damage caused by inclement weather, etc., can lead to serious crop and production losses.
'This risk equalisation measure permits us to reduce the risk farmers face in connection with price, crop or yield fluctuations. That is an important step towards ensuring greater fairness because farmers have no control over thunderstorms or crop failures,' stresses Austria's Agriculture Minister Elisabeth Köstinger.
That being the case, taxes on a farmer's income will no longer be assessed on an annual basis but for a cumulative period of several years (income smoothing over 3 years). This will offset the tax impact of years with low yield and production levels. Income tax payable by holdings that have opted for partial flat-rate tax assessment, by holdings using the cash method of accounting and/or by holdings obliged to keep accounts will be assessed cumulatively for a period of several years. As a result, all the holdings subject to a partial flat-rate tax assessment regime, the holdings using the cash method of accounting or the holdings obliged to keep accounts will be better able to level out the tax effect of price variations and weather-induced fluctuations in harvests. The risk equalisation measure will reduce the tax bill of agricultural holdings by 5-10 million euros.
Repeal of the petty sparkling wine tax
The sparkling wine tax was reintroduced in 2014. This petty tax has fallen far short of expectations, while incurring excessive administrative overheads. Abolishing the sparkling wine tax without replacing it will cut the tax bill for Austrian winegrowers by 23 million euros, doing away with a key competitive constraint for Austrian sparkling wine producers.
1% reduction in health insurance contribution rate
Social insurance contributions have been reduced for all health-insured holdings, offering relief to around 130,500 agricultural and forestry holdings. For a farm with a unit value of EUR 10,000, this lowering in contributions will bring down health insurance contributions by EUR 248.40, for a farm with a unit value of EUR 40,000 health insurance contributions will be decreased by EUR 544.40 and for a farm in the highest contribution bracket the reduction will amount to EUR 722.20.
'This move will cut contributions by several hundred euros for around 130,500 agricultural holdings, providing a noticeable relief. In taking this step, the government is honouring one of its key promises: we want to reduce the burden on people instead of adding to it by imposing new taxes,' said Agriculture Minister Elisabeth Köstinger.
Increase in pension contribution basis for full-time employed children up to the age of 27
This measure will increase the pension contribution basis for children up to the age of 27 who are fully employed from 1/3 to 1/2. Given the age structure in agriculture, children are not taking over agricultural holdings until after they have turned 30 in many cases. Up until then, the next generation expected to take over the reins one day continue to work on their parent's farm. Owing to the roll-out of the pension account, these young people - who work on the farm and will one day take over the holding - pay only modest contributions during their years of employment and will thus receive only a small pension. The purpose of paying out part of the contribution is to create an incentive for them to continue working on the farm. For those concerned, this reduces the contribution burden by EUR 2.5 million.
Allocation percentage markdown for notional ANNUITY from 13 to 10 percent
When an agricultural or forestry holding is transferred, sold, leased out or ceded for management in any other way, not only the income actually earned (life annuity in retirement), selling price, lease, etc.) is taken into account when calculating the compensatory allowance but also a lump-sum, which is known as notional annuity. This notional annuity no longer reflects reality. Children live apart from their parents or, as the case may be, no longer take over their parent's farm. The notional annuity pares down the pension benefits received by the beneficiaries of compensatory allowance, i.e. retirees in the lowest pension bracket. Adjusting the allocation percentage provides a noticeable improvement, particularly for retirees in agriculture receiving low pension benefits. This measure reduces the burden on affected retirees by 10.5 million euros.
In the case of beneficiaries receiving compensatory allowance, the notional annuity decreases the monthly pension benefit by up to EUR 121.30 (individual reference rate) and up to 181.87 euros (spousal reference rate), respectively. Lowering the allocation percentage has the effect of increasing the monthly pension benefit by up to 28 euros (standard reference rate) and by up to 42 euros (spousal reference rate).
1.) Harmonisation of farmers' health insurance with a view to merging Social insurance institution for commerce and industry with Social insurance institution for entrepreneur
The minimum health insurance contribution basis for the lump-sum system will be lowered from a unit value of EUR 4,100 to a unit value of EUR 2,200 (bringing down the contribution basis from EUR 824.51 to EUR 446.81). This amounts to a reduction in the limit for compulsory insurance according to the General Social Insurance Act (ASVG) and in the minimum contribution basis under the Social Insurance Act for Trade and Industry (GSVG). Some 19,200 holdings are affected by this and their burden will be cut by around 7 million euros. Lowering the minimum contribution basis for health insurance will save the affected holdings up to EUR 346.80 per year.
2.) Alignment of minimum health insurance contribution basis in the social insurance option based on the lump-sum system and cancellation of the 3-percent contribution markup for holdings using the income-tax option
In the past, holdings that generated no income and used the income-tax option were obliged to pay a higher minimum social insurance contribution. Now, an alignment has been introduced, reducing the minimum contribution basis from EUR 1,549.35 to EUR 446.81 a month. Such a reduction may only be granted on the basis of agriculture and forestry income set out in an income tax assessment notice, otherwise the insurance value derived from the lump-sum system (pauschales System) continues to be applicable. Some 4,200 holdings are affected by this change and benefit from the cut in contributions worth 4 million euros.
On the one hand, aligning the health insurance contribution basis lessens the burden on small-scale agricultural and forestry holdings by reducing the minimum contribution basis and noticeably easing the burden on holdings using the income-tax option. On the other hand, this measure is a first step in the harmonisation push for the benefit of insured farmers.
Simplifying administrative procedures
Agriculture and forestry are facing lots of difficulties and challenges that nature has in store for this sector, especially on account of climate change. Simplifying administrative procedures helps farmers reduce the amount of time they spend attending to administrative tasks and additional responsibilities, particularly during high season.
- Allowing optional designation of assets as being for business purposes when determining taxable profit acc. to sec. 4 Income Tax Act (EStG)
Ever since land has also become subject to taxation when determining taxable profit in accordance with Section 4 (repeal of the final sentence of Section 4 EStG), a crucial distinction between taxpayers who calculate taxable profit in accordance with Section 4 and taxpayers who calculate taxable profit pursuant to Section 5 has been removed. For the sake of simplification, it would be expedient to permit the optional designation of assets as being for business purposes also when determining taxable profit in accordance with Section 4 (for instance, when parts of a holding are no longer needed and leased out on a permanent basis – it should still be possible to continue allocating assets to the holding for tax purposes). Consistent regulations for the optional designation of assets as being for business purposes will be introduced as of 2021.
- Repeal of the unit value limit and increase of the lower revenue limit as of which the obligation to keep accounts becomes applicable (Federal Fiscal Code [BAO])
The Delegated Budget Act of 2014 (BudBegG 2014) raises the lower revenue limit for agricultural and forestry holdings from EUR 400,000 to EUR 550,000. The unit value limit of EUR 150,000 continues to be applicable. On account of high unit values and/or the leasing of additional land, holdings end up breaching the unit value limit without coming close to the lower revenue limit. The limit is ill-considered and, given its nature, not applicable in any other sector of the economy and will thus be repealed. Along with this, the revenue-based limit as of which the obligation to keep accounts takes effect will also be raised to EUR 700,000 for agricultural and forestry holdings.
- Extension of the application deadline for the VAT option until December 31st of the following year (Value Added Tax Act [UStG])
Currently, the standard taxation option is available 'until expiration of the assessment period', i.e. generally until December 31st. The purpose of extending the deadline to exercise the standard taxation option is to give managers of agricultural and forestry holdings more time to consider whether they and their holding wish to opt for standard taxation. Once the option has been exercised, the managers of the holdings are bound by their decision for a period of at least five years. Hence, both the assessment year relevant for the option and assessment years going forward must be considered when deciding whether to exercise the option. The deadline extension is intended to allow this. Furthermore, this measure aims to cushion the impact of difficult times, for instance when a farmer has invested in the construction of a new stable for EUR 500,000 or the erection of a greenhouse for EUR 700,000 the previous year,
- The free transfer of agricultural and forestry holdings will continue to be non-taxable.
Pursuant to a decision issued by the Supreme Administrative Court (VwGH) in January 2019, the gratuitous transfer of a holding (and the sale of a holding as well) is not (no longer) subject to lump-sum value-added tax. As a consequence, the system needs to be revamped, otherwise holdings subject to lump-sum value-added taxation will be seriously impacted when transferring their holding.