The Unlucky 13 Highlights of Finance Bill 2013

February 13, 2013

The 2013 Finance Bill has just been unveiled. It gives effect to the changes announced in Minister Noonan’s Budget last December, along with a raft of technical and other measures.

Here are 13 of the key new measures outlined in the Bill:

Finance Act 2013

  1. Adoptive Benefit and Health and Safety Benefit payments will become taxable with effect from 1 July 2013. This is in line with the similar measure for maternity benefit payments, which was announced in the Budget.
    Adoptive Benefit is paid to an adopting mother or a single male who adopts a child, for the first 24 weeks following the placement of the adopted child.
    Health and Safety Benefit is paid to pregnant or breastfeeding employees who are granted leave on health & safety grounds.
  2. The Budget announced a maximum lifetime limit of €200,000 for tax-free employment termination or ex-gratia payments. This new limit will also apply to ex-gratia compensation payments made on account of death or disability.   However, this won’t impact on the tax-free status of statutory termination or compensation awards.
  3. The existing Foreign Service Relief is being abolished entirely for ex-gratia payments made on retirement or removal from office. This is apparently “to ensure that Ireland does not become a retirement tax haven”.
  4. Changes are to be made to benefits-in-kind tax legislation to ensure that public sector workers pay BIK on the same basis as their private sector counterparts.
  5. The legislation on Employee Benefit Trusts is being tightened to prevent employees from receiving tax-free loans from a trust provided or funded by their employer.
  6. The thresholds for tax relief on third-level fees are being increased along with the rises in the Student Contribution.
  7. There is good and bad news in relation to tax relief on donations of heritage properties.  The tax relief scheme is being extended to include donations of buildings, outbuildings, yards or land alongside a heritage property, and lands required for provision of access to,  and visitor parking facilities at, a heritage property.   On the other hand, the tax credit for heritage property donations is being slashed from 80% to 50% of market value.
  8. The Revenue Job Assist scheme is being abolished and will be replaced, at a later stage, by a new measure to encourage employers to hire long-term unemployed workers.
  9. Losses on foreign rentals can no longer be offset against other Case III income, eg government bond interest. However foreign rental losses will continue to be offset against foreign rental profits.
  10. There are a number of technical adjustments to the CGT relief on farm & business asset disposals by individuals aged 66 or over. This relief applies to up to €3m in qualifying assets, from 1 January 2014 onwards. The €3m limit is now a lifetime limit for all disposals from 2014 onwards.
  11. The Bill empowers Revenue to inspect a property to determine its value for CGT purposes.  This will apply to shares, antiques and other types of property.
  12. The “young trained farmers” Stamp Duty relief on agricultural land transfers will apply for a further three years to 31 December 2015.
  13. A number of additional conditions are being added to the  special 100% rate of stock relief for young trained farmers.

The Finance Bill itself, its Explanatory Memorandum, and List of Items are all now online.


What’s in Wednesday’s Finance Bill 2013?

February 11, 2013

The 2013 Finance Bill is due for publication on this Wednesday, 13 February.

Finance Bill 2013

The Bill will include legislation for the various measures included in last December’s Budget, with the notable exception of the Local Property Tax, which came into being before Christmas with the passing of the Finance (Local Property Tax) Bill 2012.

It’s also quite likely, based on past experience, that the Finance Bill will contain a number of additional measures that didn’t form part of the Budget. I wonder will this year’s Bill contain any major surprises?

Once published, the Finance Bill will pass through various stages in the Oireachtas, before it is finally enacted as Finance Act 2013 in early April.


Budget 2013 – Some initial thoughts

December 5, 2012

Some of my initial thoughts on (a rather unimaginative) Budget 2013:

Local Property Tax

I predict that the new Local Property Tax will create much difficulty for the Government within the coming year.

While Revenue will provide “valuation guidance”, this is likely to be tailored more to their own objectives (ie, raise as much tax as possible) than those of the property owner (the opposite) and will not be a particularly appetising option. The alternative option to hire “a competent valuer” to value one’s property will rankle with many people, especially as auctioneers and valuers:

  1. will, (quite properly), charge a fee for their services.
  2. as a group, have a long record of overvaluing properties (one of the main contributors to the Tiger-era bubble)
  3. have a vested interest in renewed property price inflation.

NPPR €200 Property Charge

Given the mess that the local councils have made of collecting the Household Charge (HC) and NPPR, it is quite correct that the new tax will be collected by the Revenue Commissioners. However, as with the HC & NPPR, I think it is a serious error to make the owner, not the occupier, liable. Quite simply, I believe that people should be encouraged, within reason, to own their own homes and the property market is likely to remain in the doldrums if individuals and families are incentivised to rent rather than own their homes.

The €50,000 ‘bands’ for the property tax are too narrow and in my view are a temptation to evasion. A wider band, of €100,000 or €150,000 would have generated the same tax revenue with a lot less scope for undervaluation.

It seems that  a minimum rate of €90 will apply to properties valued under €100,000. This may be okay for someone living in a €100,000 property (which may be more numerous than the Minister expects, given the quoted prices on local and online property listing), but a €90 charge is scarcely justifiable in the case of a person living (or more precisely existing) in poverty in a semi-derelict, low value property.

Among the Property Tax payment options is the facility to pay in cash. This is rather  ironic in the light of Revenue’s stated determination to stamp out the cash economy and the government’s wider policy to move towards a cashless society.

The facility for voluntary deferral of the Property Tax entails an interest charge of 4% p.a.  This is not the highest interest charge on the planet, but given the fact that people who opt for deferral will only be doing so on the basis that they are already in straitened circumstances, the fact that they are facing an additional interest charge will only add to their woes.

It is good that the Household Charge is being abolished  from 1 January 2013, but it is an absolute, and gratuitous, disgrace that the NPPR Charge on non-owner occupiers will be charged for 2013 in addition to the Property Tax. Another example of double taxation.

Business

I predict that the much touted “10 Point Tax Reform Plan” for SME’s will make little or no difference to almost all firms.

Budget 2012 Business Reliefs

The 3 Year Corporation Tax Relief for Start Up Companies has already been significantly diluted in earlier Budgets, and I honestly see little point in continuing with it, except perhaps for political window-dressing purposes.

The €250,000 increase in the VAT cash receipts basis threshold  (from €1 million to €1.25 million) is indeed a welcome measure, as is the doubling of the “initial spend” eligible for the R&D tax credit (from €100,000 to €200,000).

However the extensions to the Foreign Earnings Deduction for work related travel will need to be dramatic if they are to be of any use to Irish businesses. The Budget 2012 measure which allowed for this Deduction to apply only for travel to Brazil, Russia, India and China was laughably restrictive.

News of a long-awaited diesel rebate for hauliers, to apply from 1 July 2013, is very welcome, but the devil will be in the detail.

I fear that the new “PlusOne initiative” to employ long-term unemployed workers will be more window dressing.  The Irish economy needs small businesses and sole traders to hire more workers. If every one of our 270,000 sole traders (as per 2010 figures) and many more small companies, employed one extra person next year, our unemployment problem would be well on the way to being resolved. However this is unlikely to happen and I fail to see the logic in telling a young graduate (or even a not-so-young non-graduate) that they must rot on the dole for 6 months before an employer can be incentivised to hire them.

Farming

The extension of the farmers’ 25% & 100% Stock Relief incentives is a perennial feature of almost every Budget.  Sadly this Budget contains little else for the agricultural sector. The Stock Relief concession for beef production farm partnerships, and the  new farmland Capital Gains Tax relief for farm restructuring purposes are welcome but will have limited impact.

Film Industry & Tourism

The Budget promises an extended Film Tax Relief Scheme until 2020, with a new “tax credit model” in 2016 which will replace the current ‘‘high earner’ investor-driven incentive. Again the devil will be in the detail.

The 9% VAT rate for the tourism industry will continue  in 2013, but will this survive post-The Gathering into 2014?

Property

The Property Tax exemptions for “new or previously unoccupied homes” by 2016, and for 2013 first-time buyers, underline what I see as the key structural problems of the Property Tax, ie discouraging first time buyers and others from buying or trading up. The exemption for residences in “unfinished estates” may prove controversial if this is applied in practice in a fashion as arbitrary as the corresponding Household Charge exemption. Some people living in luxury estates found themselves unexpectedly exempt from the HC on the basis that their estates included a couple of vacant sites or unsold homes, while their neighbours in less salubrious neighbourhoods had to stump up the €100 charge.

Pensions

The continuation of tax relief on pension contributions at the 41% marginal rate of tax is welcome and a small, if significant, victory over the reactionary voices calling for the effective destruction of pension cover for private-sector workers. The measure to curb the relief on on pension pots projecting income of over €60,000 per annum is a sensible one, as are the scrapping of the 2012 private pension levy after 2014 and the ending of the reduced USC charge for high-earning over-70s.

I remain unconvinced of the wisdom behind allowing individuals to withdraw up to 30% of their AVCs. Withdrawals will be charged income tax at marginal rates and I fear that many people will erode their long-term financial security in a desperate attempt to pander to unreasonable demands from their banks or other lenders.

Budget 2013

PRSI

The increase from €253 to €500 in the minimum annual self-employed annual PRSI contribution is a reasonable move, as such contributions are invariably good value for self-employed people, yielding a contributory old age pension amongst other benefits. However the increased cost will by its nature exclusively hit low-income self-employed people many of whom will have to cope with property tax and other financial pressures.

The abolition of the weekly €100 PRSI-exempt allowance for employees makes sense from a crude mathematical viewpoint,  but again will impact, disproportionately but not exclusively, on low earners.

From 2014, PRSI will apply to employees’ rental income, investment income, dividends and deposit interest. In my view this is long overdue, as it has already applied to the self-employed for many years.

Income Tax 

The only Income Tax measure mentioned in the Budget Speech relates to Maternity Benefit, which will be treated as taxable income from 1 July 2013. The question remains as to why Maternity Benefit remains exempt from the USC.

Excise Duties

There is a most welcome absence of the threatened increases on excise duty on diesel and petrol.

The excise duty hikes on beer, cider and wine will do nothing for our struggling hospitality sector in the year of The Gathering, and makes something of a mockery of the special 9% VAT rate on tourist enterprises.

Capital Taxes

The rises in the Capital Gains Tax (CGT) & Capital Acquisitions Tax (CAT) rates from 30% to 33%, and the cut in the CAT threshold, each make sense at first glance but ignore the fact that they both discourage property owners sell or gift properties. As Minister for Finance, Charlie McCreevy, sharply increased the revenue from both tax headings by cutting the rates to 20%. This experiment is worth repeating and might yield surprising results.


Budget 2013: The Key Points

December 5, 2012

The main points of Minister Noonan’s Budget 2013 Speech, announced this afternoon:

Noonan Dec 2012

Business

The Minister announced a new 10 Point Tax Reform Plan which “includes measures that will make a real difference to SMEs”.

These include:

  • Reforms to the 3 Year Corporation Tax Relief for Start Up Companies
  • Increasing the cash receipts basis threshold for VAT from €1 million to €1.25 million and changes to the Close Company Surcharge.
  • A doubling of the initial spend eligible for the R&D tax credit  from €100,000 to €200,000
  • Extensions to the Foreign Earnings Deduction for work related travel.

In addition, a diesel rebate is to apply for hauliers from 1 July 2013.

A new “PlusOne initiative” will encourage employers to hire long-term unemployed individuals. This will replace the existing Revenue Job Assist and Employer PRSI Incentive schemes.

Farming

The 25% & 100% Stock Relief incentives will continue until 31 December 2015.

A wider range of registered farm partnerships (eg beef production) can now avail of an enhanced 50% rate of Stock Relief.

A new Capital Gains Tax relief will apply on disposals of farm land for farm restructuring purposes. This once-off relief  will apply from  January 2013 to December 2015,  and is subject to EU approval.

Film Industry & Tourism

The Film Tax Relief Scheme is extended to 2020, and the scheme will move to a tax credit model in 2016. These changes are aimed to ensure that production companies and not ‘high earner’ investors, will now benefit from the tax relief.

The 9% VAT rate for the tourism industry will continue  in 2013.

Property

A three-year Local Property Tax exemption will apply to:

  • All new or previously unoccupied homes bought before the end of 2016.
  • Purchases of any homes in 2013 by first time buyers.
  • Residences in unfinished estates.

In addition, the Budget 2012 Capital Gains Tax incentive for properties bought before 31 December 2013 means that they will be exempt from Capital Gains Tax if held for at least seven years.

New “Real Estate Investment Trusts” will allow commercial property investors “to finance property investment in a risk diversified manner”.

Pensions

  • Tax relief on pension contributions will only apply to schemes delivering a pension income of up to €60,000 per annum. This will apply from 1 January 2014.
  • Tax relief on pension contributions will continue at the marginal rate of tax.
  • The 2012 Pension Levy will cease after 2014.
  • the reduced rate of USC for over-70s earning over €60,000 will cease from 1 January 2013.
  • Top Slicing relief will no longer be available on ex-gratia lump sum termination /severance payments, where the non-statutory payment is over €200,000.
  • Individuals with AVCs may in 2013 withdraw up to 30 per cent of their value. Withdrawals will be subject to marginal rate income tax. This will apply for 3 years after Finance Act 2013 is passed.

PRSI

The minimum annual self-employed annual contribution will rise from €253 to €500.

The weekly €100 PRSI-exempt allowance for employees is being abolished.

“Unearned” trade or profession income will be subject to PRSI in 2013

From 2014, PRSI will apply to rental income, investment income, dividends and deposit interest.

Local Property Tax

The Local Property Tax will commence from 1 July 2013. Its main features are as follows:

  • It will be collected by the Revenue Commissioners
  • Owners of residential properties, including rental properties, will be liable for payment.
  • The tax will be payable on the basis of the self-assessed market value of the property. The Revenue Commissioners “will provide valuation guidance”.  Alternatively, “a competent valuer” can be used.
  • The tax will be 0.18% of the market value up to €1m, and 0.25% on values over €1m.
  • Properties valued between €100,000 – €1m will be charged “at the mid-point of valuation band of €50,000 width” eg where the value is between €150,001 and €200,000, the tax will be calculated at 0.18 per cent of €175,000.
  • Properties below €100,000 will be charged at 0.18% of €50,000.
  • Properties valued over €1 million will be liable at 0.18% on the first €1m and at 0.25% on the balance.
  • Payment options  will include direct debit; credit & debit cards, cash (!!)  or “deduction at source” from salary,pension or “certain State payments”.
  • Exemptions largely correspond to exemptions from the Household Charge.
  • A “system of voluntary deferral arrangements” will apply to
    • individuals earning up to €15,000, & couples earning up to €25,000.
    •  individuals earning whose “gross income less 80 per cent of mortgage interest” is below €15,000, (€25,000 for a couple).  Marginal relief will apply where the income is up to €10,000 over the income limit
  • Interest will be charged on deferred amounts at 4% per annum. Deferred property taxes and interest will have to be discharged on the sale/transfer of the property.

The Household Charge is abolished  from 1 January 2013 and the NPPR Charge will end on 1 January 2014.

The Revenue Commissioners will “strictly enforce”  the Local Property Tax and collect any unpaid Household Charge for 2012.  Unpaid arrears will rise to €200 per property from 1 July 2013.

Income Tax 

The only Income Tax measure mentioned in the Budget Speech relates to Maternity Benefit, which will be treated as taxable income from 1 July 2013. Maternity Benefit will remain exempt from the USC.

Excise Duties

There is no increase on excise duty on diesel and petrol

Immediate rises from midnight tonight:

  • 10 cent on a pint of beer or cider & on a standard measure of spirits
  • €1 0n a  standard 75cl bottle of wine
  • 10 cent on a pack of 20 cigarettes
  • 50 cent on a 25g pack of “roll your own” tobacco

VRT and motor tax will rise from 1 January 2013.

Carbon tax will apply to solid fuels at a rate of €10 per tonne from 1 May 2013, and €20 per tonne from 1 May 2014.

Capital Taxes

DIRT on deposit interest rises from 30% to 33%

Capital Gains Tax (CGT) & Capital Acquisitions Tax (CAT) rates similarly go from 30% to 33%

Capital Acquisitions Tax (CAT) thresholds are cut by 10% from midnight tonight.

Corporation Tax

The Minister remains fully committed the Corporation Tax tax rate of 12.5%

The Minister has confirmed that Ireland has agreed a new Inter-Governmental Agreement with the United States in relation to the US Foreign Account Tax Compliance Act, commonly, (if unfortunately), known as FATCA.