Income from agriculture and forestry is privileged over other types of income – especially over income from business. It is therefore important to distinguish between the types of income. This results in some possible tax arrangements for farmers. We explain a few in this post.

1. Tax treatment of income of farmers

1.1. Either commercial or agricultural and forestry income

Agriculture and forestry in principle meets all the characteristics of a commercial enterprise within the meaning of § 15 (2) EStG. Nevertheless, there are special regulations on income from agriculture and forestry and a separate income type according to § 13 EStG. These regulations serve as a privilege for the corresponding income. Privilegation has its reason in primary production. This concerns the natural, i.e. non-constructive, industrial or speculative management of the soil and the exploitation of the products of a vegetable or animal nature thereby obtained. This soil management should be encouraged.

Therefore, the distinction between income from agriculture and forestry and commercial income is also of considerable importance for tax arrangements for farmers. How to draw the line, we explained in one of our other contributions.

1.2. Privileges for agricultural and forestry income

Privileges for income from agriculture and forestry are the determination of profits according to average rates (§ 13a EStG). Section 13(3) of the EStG also provides for an allowance of EUR 900/1 800. This allowance is applicable up to the sum of the income of EUR 30 700. § 13 paragraph 4, paragraph 5 EStG provide tax-free withdrawal profits for apartments/land. According to § 13 (6) EStG, the income tax on the realisation profit can be distributed for up to five years if individual assets of the agricultural and forestry business assets are transferred to an enterprise of animal husbandry cooperation in the legal form of an economic cooperative or an association against granting membership rights.

§ 3 no. 17 EStG provides tax-free subsidies for the contribution pursuant to § 32 of the Law on the old-age provision of farmers. § 3 no. 27 EStG exempts the basic amount of the production task pension to be taxed under § 13 paragraph 2 no. 3 EStG and the compensation under the Act for the Promotion of the Cessation of Agricultural Employment up to EUR 18 407. § 34b EStG grants tax reductions on income from extraordinary uses of wood.

The profit determined by the profit determination according to average rates is regularly lower than the actual profit. This reduces the tax burden for the farmer if he earns income from agriculture and forestry instead of income from business. The tax arrangements for farmers are therefore also based on this.

2nd division of farms as a tax scheme for farmers

The allowance according to § 13 paragraph 3 EStG and the tax reduction according to § 34e EStG can be claimed twice. This is possible by sharing the operation. A division is possible, for example, by partial transfer of agricultural and forestry land by way of anticipated inheritance or lease. Furthermore, it is also conceivable to divide agricultural and forestry livestock farming. This way, too, the obligation to keep accounts or the transition to business operations can be avoided.

Requirement for tax recognition of the division of operations is that after the division there are two legally and effectively separate companies. Companies must therefore, above all, be organisationally separate. It is therefore necessary to amend or justify employment contracts. In addition, separate accounting, separate purchase, machine use and separate animal husbandry are required. You must therefore pay particular attention to this design.

Tax design for farmers through cooperation?

3.1. Co-entrepreneurship as a tax scheme for farmers

There are agricultural and forestry holdings which conclude harvest-sharing contracts or management contracts among themselves. The aim of these contracts is to reduce the costs of the individual farm by improving the overall utilization of the existing machinery, to distribute the harvest risk or to achieve the cooperation of an experienced farmer. This leads to an agricultural and forestry co-entrepreneurship if jointly managed at common risk.

Areas under common management are special assets of the landowner. Therefore, they no longer serve as a basis for agricultural and forestry livestock farming for a possible individual agricultural and forestry holding. Consequently, these areas are not to be taken into account when determining the economic value of the individual holding.

3.2 Partial legal relationship as a tax structure for farmers?

But there is also no need for co-entrepreneurship. It is also conceivable to have a shareholder legal relationship with the sole authority to instruct a farmer. Then only he can be attributed the income from land management. The grain deliveries to his contractual partner are then to be treated as a fee for his activity. Its activity constitutes agriculture and forestry if it is limited to the use of labor and machinery and the turnover limit according to R 15.5. paragraph 9 EStR is not exceeded. However, if the contractor also provides typical commercial services within the framework of a single work contract, there is an overall commercial activity.

3.3.

A lease-like agreement is also considered. The income from management is to be attributed to the person actually carrying out the work in progress. The latter may deduct the supply of agricultural and forestry products to the landowner as operating expenses.

3.4. Quiet Society

In a silent society with close relatives, the contribution of the breastfeeding can also consist in the provision of his labor power. He then earns income from capital assets and can use the savings lump sum (§ 20 (4) EStG). Tax arrangements for farmers are therefore also conceivable in this direction.