Highlights of Budget 2013
At 2:30p.m today Minister Noonan outlined the tax measures in the Budget to the Dáil, followed by Minister Howlin who presented details of the changes in public expenditure. Commenting on the measures Institute President, Martin Phelan said:
“The new 10 Point Tax Reform Plan is important for small Irish businesses who we know from this week’s Exchequer Returns are in difficulty. Cashflow and ‘ability to pay’ are real issues on a day to day basis and some of the measures should assist in that regard.”
The Institute President outlined on RTE’s 6:01 News how the self-employed and PAYE workers will be impacted by the change to PRSI on earned and non-earned income.
The President will be giving his views on tax and Budget 2013 in tomorrow morning's Irish Times. Morning Ireland will also be broadcasting live from our Budget Breakfast Briefing in Dublin tomorrow morning.
Institute Chief Executive Mark Redmond outlined the impact of the Budget on taxpayers on the 6:01 News last night and also previewed the Budget with Sean O’ Rourke on today’s News at One.
The Budget speech and related documents are available on our website here. For the first time, there are useful slide presentations prepared by the Department of Finance on certain key areas released as part of the Budget documentation.
The Minister announced an SME 10 Point Tax Reform Plan aimed at helping small businesses and boosting employment in the domestic sector. The Minister noted that the proposals in the plan “will make a real difference to SME’s by assisting their cash position and supporting the creation of jobs”
Details of the 10 tax measures are as follows:
1. Reform of the start-up exemption for corporation tax
The scheme to provide relief from corporation tax for start-up companies has been extended to allow unused relief arising in the first 3 years of trading (due to insufficiency of profits), to be carried forward. The maximum relief in any one year is capped at eligible employer’s PRSI.
2. Increase in the de minimis limit for close company surcharge
Under current legislation a close company surcharge does not apply where the undistributed investment and rental income of a close company ≤ €635. The Minister is increasing this threshold to €2,000. This threshold will also apply in calculating the surcharge on undistributed trading or professional income (Section 441 TCA 1997). It is not specified when this provision will take effect.
3. Increase in R&D relief
Finance Act 2012 provided that the first €100,000 of R&D expenditure would qualify for a tax credit, without reference to the base year of 2003. This figure is being doubled to €200,000.
4. Increase in the threshold for VAT cash receipts basis
The annual VAT cash receipts basis threshold is being increased from €1million to €1.25 million from 1 May 2013.
5. Extension of the FED
The Foreign Earnings Deduction for work-related travel to the BRICS will be extended to 8 African countries. These include the Democratic Republic of the Congo, Egypt, Nigeria and Algeria.
6. Extension of the EII (Employment and Investment Incentive) Scheme
The Minister proposes to extend the termination date of the EII scheme from 2014 to 2020, subject to EU State Aid approval.
7. Extension of the stock relief for farmers
The current 25% general rate of stock relief and the 100% rate for young trained farmers (subject to EU State Aid approval), are to be extended until 2015.
The definition of registered farm partnerships is to be widened to include other registered partnerships, such as beef production partnerships. This is to enable them to avail of 50% stock relief. This change also requires EU approval.
8. Capital gains tax relief for farm restructuring
A form of CGT rollover relief will be available where the proceeds on disposal of farmland are reinvested in farmland and the sale and purchase occur within 24 months of each other. The initial sale or purchase must occur between 1 January 2013 and 31 December 2015 to qualify for relief. Land swaps certified by Teagasc will also qualify for relief. EU approval is required prior to introduction of this relief.
9. Review of the “carried interest” provision in the tax code
Section 541C TCA 1997 provides for a favourable rate of CGT to apply to certain venture fund managers on “carried interest” (profit shares) on their investment. The Minister proposes to review the carried interest provisions.
10. A public consultation on the taxation of micro enterprises.
A public consultation is to take place on the taxation of micro enterprises with a view to reducing compliance costs. The Institute will be engaging in this process and the consultation paper has been published here.
Other measures announced today include:
Local Property Tax (LPT)
Scope and rate of tax
Details of the long awaited property tax have been announced. The tax will apply at a rate of 0.18% on the market value of the property up to €1 million. A rate of 0.25% applies to the value in excess of €1 million. The property tax will take effect from 1 July 2013, so that a half year charge will apply next year. A limited number of exemptions from the tax are to apply. In addition, owner-occupiers whose gross income does not exceed €15,000 (single) or €25,000 (married) can defer payment of the tax. Deferral will also be available in instances where a person’s gross income (less 80% of mortgage interest payments) is less than these thresholds. Some marginal relieving provisions have been included but the downside to deferral is that interest will be charged at 4%.
The Minister has confirmed that the Household Charge will cease with effect from 1 January 2013. The Non-Principal Private Residence (NPPR) Charge will cease to apply from 1 January 2014. Unpaid arrears of these taxes together with interest and penalties will be converted into LPT and collected through the LPT system. Revenue will pursue this additional liability when the LPT system is fully operational.
How tax will be computed
Taxpayers will self-assess the value of their property for the purposes of calculating the tax. The amount paid will depend on the market value of the property on 1 May 2013. This value will be valid until 31 December 2016. Property values will be divided into value bands (width €50,000) up to €1 million. For properties valued below €1million the tax will be calculated by applying the tax rate to the mid-point of the band. Revenue has published a table of valuation bands, mid-points and amount of LPT to be paid in Appendix 1 of their FAQs on LPT
Collection and administration
Revenue will administer and collect the tax. In March 2013, residential property owners will receive the LPT return form, information on calculating the tax due and an estimate of their liability. The completed return must be submitted to Revenue by 7 May 2013, for paper filers. Where a return is filed electronically an extended deadline of 28 May applies. Multiple property owners and anyone already in mandatory efiling will have to file online.
Taxpayers can use a wide range of payment methods for paying the tax. Payment can be made in one single payment or in instalments. Where payment is made by instalment you can opt to have the tax deducted at source from salary, pension or social welfare payments.
Revenue can employ a number of measures to ensure collection of the tax where the taxpayer refuses to pay. These include deduction at source, sheriff, court action or attachment orders. For self-employed individuals, Revenue will not issue a tax clearance certificate if the LPT is not paid. Consideration is also being given to linking the timely submission of property tax returns and income tax returns from the self-employed.
Revenue guidance on the property tax is now available. The Finance (Local Property Tax) Bill 2012 is expected to be published in the coming days.
Income tax / USC / PRSI
There were no changes to the basic income tax rates or bands in today’s Budget. Similarly, there were no changes to the basic income tax credits.
From 1 July 2013, Maternity Benefit will be treated as taxable income. It will continue to be exempt from the USC. This measure will mean that women on maternity benefit will be taxed on the same basis as they were when they were working.
Top Slicing Relief will no longer be available from 1 January 2013 on ex-gratia lump sums in respect of termination and severance payments where the non-statutory payment is €200,000 or over.
The standard rates of USC will apply to those aged 70 years of age and over and medical card holders (PAYE/self-employed income earners) earning €60,000 and above with effect from 1 January 2013. Example 6 in the Department of Finance’s worked examples confirms that the 7% USC rate will apply to all income over €16,016 for these individuals (as it currently applies to other taxpayers).
The Minister referred to the need to broaden the income base for PRSI and there were a number of changes made to the PRSI system:
The weekly PRSI allowance for employees will be abolished for both full rate and modified rate PRSI contributors
The minimum level of annual contribution from the self-employed will increase from €253 to €500
Where modified PRSI rate payers (such as hospital consultants) have income from a trade or profession, such income and any unearned income they have will be subject to PRSI with effect from the 1 January 2013
Unearned income (such as rental income, investment income, dividends and interest on deposits and savings) for all other income earners will become subject to PRSI in 2014.
DIRT and Exit Taxes
The rate of Deposit Interest Retention Tax (DIRT) is to increase by 3%. Exit taxes on life assurance policies and investment funds will also increase by 3%. This means that a rate of 33% will apply to payments made annually, such as deposit interest and a rate of 36% for payments made less frequently. The new rates are to apply from 1 January 2013
Tax relief for pension contributions will continue to be available at the marginal rate. However, from 2014 tax relief will not be available for pension schemes providing over €60,000 in annual income. Consultation on the changes required to achieve this cap on relief will take place in 2013. This is likely to include a reduction in the standard fund threshold, which currently stands at €2.3 million.
Top slicing relief on pension lump sums is to be abolished from 1 January 2013, where the non-statutory tax free element of the payment is €200,000 or over.
Provision is to be made in the Finance Bill to allow individuals withdraw up to the value of 30% of AVCs in their fund. This amount withdrawn will be subject to tax at the marginal rate. This option will be available for 3 years from the passing of the Finance Act.
The Pension Levy will not be renewed after 2014.
The film tax relief scheme (section 481) will be extended to 2020 and it will move to a tax credit model in 2016. The Minister stated that these changes will eliminate the need for high income investors to provide the funding for the scheme and enhance the scheme so as to make Ireland even more attractive for foreign film and TV productions.
The Department of Finance also published today:
Charitable donations / philanthropy
Following the consultation process conducted earlier this year, the following changes are to be made to the scheme of tax relief for charitable donations:
1. Donations from all individual donors under the scheme will be treated in the same
manner, with the tax relief in all cases being repaid to the charity. Self-assessed
taxpayers will no longer be able to claim a deduction for donations.
2. A blended rate of relief of 31% will apply to all donations regardless of the
marginal tax rate of the donor. All donations will be grossed up as is currently done
for donations from individuals within the PAYE collection system.
3. The charitable donations scheme will be removed from the scope of the high
4. An annual donation limit of €1 million per individual, which can be tax relieved under
the scheme, will be introduced.
These changes will take effect in respect of all donations made by individuals on or after 1 January 2013. An analysis of the submissions received in response to the consultation was also published by the Department of Finance.
A number of welcome measures intended to simplify the administration of the scheme will also be implemented. Full details of the changes to the charitable donations scheme are available here.
The Minister reiterated the Government’s position on the 12.5% corporation tax rate noting “The government remains 100% committed to maintaining the 12.5% corporation tax rate.”
An accelerated capital allowance scheme, over seven years, in relation to construction of certain aviation-specific facilities, will operate for a period of 5 years from commencement of the scheme. Certain restrictions will apply, including restrictions on the sideways setting of unused capital allowances against other income.
The rates of CGT and CAT have increased from 30% to 33%. The new rate will apply for disposals/gifts or inheritances made after 5 December 2012.
The current CAT group thresholds are also to be decreased by 10% in respect of gifts and inheritances taken from 5 December 2012.
The Minister noted that, to date, regeneration schemes have failed to encourage private sector investment in certain areas and he therefore intends to examine proposals for a targeted incentive in some regeneration areas.
A regime for property investment through a Real Estate Investment Trust (REITs) is to be introduced. REITs are listed companies which allow for individuals to invest in a diversified property portfolio. Further details are available here.
The Minister stated that a number of the overall Budget measures should assist the farming sector. Aside from the measures noted above, the farmers’ flat-rate addition will be reduced from 5.2% to 4.8% with effect from 1 January 2013.
The Minister also confirmed that the second reduced rate of VAT of 9% applicable to the tourism sector will continue at 9% in 2013.
It was also confirmed that Ireland has concluded an Intergovernmental Agreement on FATCA (Foreign Account Tax Compliance Act) with the United States. The accompanying legislation will be published with Finance Bill 2013. See the Institute’s briefing on FATCA published earlier this week.
VRT / Motor tax
The rates of both VRT and motor tax across all categories will increase with effect from 1 January 2013. Revised structures for both VRT and Motor Tax for vehicles taxed on the basis of CO2 emissions are also being implemented. Broadly, Band A has been split into 4 sub-bands, and Band B has been split into 2 sub-bands.
A dual registration period will also be implemented from 2013. Therefore in 2013 vehicles registered from 1 January will carry a year tag of 131 and vehicles registered in the second half of the year will carry a tag of 132.
The carbon tax will be extended to solid fuels on a phased basis. A rate of €10 per tonne will be applied with effect from 1 May 2013 and at a rate of €20 per tonne will apply from 1 May 2014.