Farmers and foresters have several profit determination options available. One such is the determination of profit by average rates. We explain the requirements and how the profit is calculated afterwards.
1st suffrage of farmers and foresters
Taxpayers who earn income from agriculture and forestry have several ways to determine their profit. Profit determination methods are the business assets comparison (§ 4 (1) EStG), the profit calculation (§ 4 (3) EStG) and the profit determination according to average rates. The profit determination according to average rates is regulated in § 13a paragraph 3-7 EStG.
Farmers and foresters may be subject to accounting in accordance with § 141 (1) AO. If they are not, they can choose according to § 13a paragraph 2 EStG how to determine their profit. This requires a written request, which is bound in time according to § 13a (2) sentence 3 EStG. It binds the taxable person for four marketing years. If the taxable person does not submit the application, he must calculate his profit on the basis of average rates.
The determination of profit by average rates can be advantageous for the taxpayer, since the profit can be in part significantly lower than the actual profit. It is intended to simplify the determination of profits in the agricultural and forestry sectors and thus lead to a profit recording ratio that is appropriate for typical agricultural and forestry holdings. In contrast, the determination of profit based on the actual operating results is regularly advantageous if the taxpayer wishes to take into account increased deductions or losses.
If the taxpayer does not fulfil his obligation to keep records or his obligation to keep records under § 4 (1) or § 4 (3) EStG, the profit shall be estimated in accordance with the principles of § 4 (1) or § 4 (3) EStG. In the estimation, the tax office can orient itself on the upper limits of the estimation framework, because the taxpayer wants to conceal possible income.
2nd determination of profit by average rates
2.1 Prerequisite for determining profit by average rates
According to § 13a (1) EStG is cumulatively required,
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.