A key element of this year’s Budget was a “Tax Package Building Business & Creating Jobs”. The tax elements of this Package include:
- Capital Gains Tax (CGT) relief for reinvestment: This relief will apply where an individual makes an investment in assets for use in a new productive trading activity in the period 1 January 2014 to 31 December 2018 and subsequently disposes of this investment no earlier than three years after the date of investment. The commencement of this measure is subject to EU State Aid approval.
The CGT payable on the disposal of this new investment will be reduced by the lower of:
- the CGT paid by the individual on a previous disposal of assets in the period from 1 January 2010, and
- 50% of the CGT due on the disposal of the new investment.
- Start Your Own Business (SYOB): An exemption from income tax, up to a maximum of €40,000 income per annum, will be provided for a period of two years to individuals who set up a qualifying unincorporated business, having been unemployed for a period of at least 15 months prior to establishing the business.
- Employment and Investment Incentive and High Earners’ Restriction: The initial 30% relief available for investments under the Employment and Investment Incentive, which has until now been subject to the High Earners’ Restriction, is being removed from the High Earners’ Restriction for investments made on or after 16 October 2013 and on or before 31 December 2016.
- Stamp duty: Transfers of shares of companies listed on the Enterprise Securities Market (ESM) of the Irish Stock Exchange will be exempted from stamp duty (currently 1%). This is subject to a commencement order.
- R&D tax credit: Various amendments to the R&D tax credit were announced:
- The limit on the amount of expenditure on R&D outsourced to third parties which can qualify for the R&D tax credit is being increased from 10% to 15%.
- It was announced that it is intended that ultimately the base year will be phased out entirely over time.
- The amount of expenditure eligible for the R&D tax credit on a full volume basis (without reference to the 2003 base year) is being increased from €200,000 to €300,000.
- Some minor changes will be made to the “key employee” relief element of the R&D tax credit to remove some barriers to take-up.
- The Department of Finance review of the R&D tax credit has been published here, together with a report prepared by Crowe Horwath on R&D Active Companies.
- VAT cash receipts basis: The annual VAT cash receipts basis threshold is being increased from €1.25m to €2m with effect from 1 May 2014.
Shadow Economy Issues
- VAT measures: A number of VAT “anti-fraud” measures have been announced:
- Business which have not paid for supplies (in full or part) within a six month period will be required to repay the VAT claimed on those supplies.
- A “quick reaction mechanism” will be introduced to allow Revenue to apply an emergency and temporary reverse-charge measure to certain goods or services to address “sudden and massive VAT fraud”.
- Provision will be made to allow Revenue issue a notice requiring businesses to procure specific information in circumstances where it has reasonable grounds for believing that the records specified might assist in identifying VAT fraud.
Tourism and Hospitality Sector
- VAT 9% rate: The reduced rate of 9% VAT for tourism-related goods and services is being retained.
- Air Travel Tax: The rate of the Air Travel Tax will be reduced to 0% from 1 April 2014.
Construction and Building Sector
- Living City Initiative: The “Living City” urban regeneration initiative is being extended to include residential properties constructed up to and including 1914 and certain areas of the cities of Cork, Galway, Kilkenny and Dublin. This measure is subject to EU State Aid approval. An Indecon Cost-Benefit Analysis of the Living City Initiative was also published with the Budget.
- Home Renovation Incentive: A new Home Renovation Incentive scheme is being introduced. Homeowners who carry out renovation and improvement work on their principal private residence in 2014 and 2015 will be able to avail of an income tax credit of 13.5% on qualifying expenditure. Relief will be available on qualifying expenditure over €5,000 up to a maximum of €30,000. Work qualifying for relief includes building extensions, window fitting, plumbing, tiling and plastering carried on by tax compliant builders. The credit will be split over the two years following the year in which the work is carried out.
Revenue guidance published this evening states that the home owner must be LPT compliant to avail of the credit.
- CGT Relief on property investment: The incentive relief from CGT (in respect of the first 7 years of ownership) for properties purchased between 7 December 2011 and 31 December 2013 (introduced in Budget and Finance Act 2012) is being extended to include properties bought up to 31 December 2014.
Farming, Agriculture and Food Sector
- VAT flat-rate addition: The farmers’ flat-rate addition is being increased from 4.8% to 5% with effect from 1 January 2014.
- CGT retirement relief: CGT retirement relief is being extended to disposals of leased farmland in circumstances where, among other conditions, the land is leased under a minimum lease of 5 years, and the subsequent disposal of the farmland is to a person other than a child of the individual disposing of the land.
- Young Trained Farmers: The eligibility for Young Trained Farmers relief is being extended by adding three more qualifying courses to the list of relevant qualifications required for the 100% rate of stock relief and for the Stamp Duty relief for the purchase of agricultural properties.
- Review of farmer taxation: The Department of Finance and the Department of Agriculture, Forestry and the Marine will conduct an independent review of the agri-food and fishery sector in 2014 “to ensure that tax reliefs are focused on those areas where they are needed most”.
- Eligible individuals: The definition of “eligible individual” (i.e. an individual employed on the production of a qualifying film) is being extended to include non-EU individuals, in conjunction with the introduction of a withholding tax. This measure is subject to EU State Aid approval and a commencement order. The start date of the new Film Relief scheme (announced in Budget 2013) is being brought forward from 2016 to 2015.
Other Budget Measures
No changes were announced in the rates or bands for income tax, Universal Social Charge or Employee PRSI.
Tax credit changes
The One-Parent Family tax credit is to be replaced with a new Single Person Child Carer Tax Credit from 1 January 2014. The amount of the credit will not change but the new credit will only be available to the principal carer of the child. The current credit is available where the child resides with the parent during the whole or part of the tax year.
From 16 October 2013, the amount of medical insurance premiums which can qualify for relief at 20% will be capped at €1,000 per adult insured and €500 for a child. No tax relief will be available on any excess over these amounts.
No changes to the other basic income tax credits were announced.
Top slicing relief abolished
Top slicing relief on ex-gratia payments of €200,000 or more was abolished in Budget 2013. The Minister now proposes to abolish the relief entirely for all ex-gratia lump sum payments from 1 January 2014.
Application of the High Earners’ Restriction
Capital allowances and losses on plant and machinery used in manufacturing trades claimed by passive investors will be included as a specified relief for the purposes of the Higher Earners’ Restriction.
The Minister commented on Revenue’s report on their analysis of the application of the High Earners Restriction in 2011. The report has shown that the effective tax rate for different categories of high earners is around 30% to 40% following the application of the restriction. This confirms that the restriction is working to improve the balance between tax equity in relation to those on high incomes whilst maintaining the incentive effect of the various tax reliefs introduced to achieve a particular public good.
The EIIS changes and the High Earners’ Restriction are dealt with above.
DIRT and Exit taxes – rate increase to 41%
The DIRT rate will increase from 33% to 41% from 1 January 2014. The exit tax rate that applies to life assurance policies and investment funds will also increase to 41%. This same rate will apply whether the payment is made annually or more frequently.
Relief on loans to invest in a partnership being phased out
Tax relief for interest on loans used to acquire an interest in a partnership (section 253 TCA 1997) is to be phased out over 4 years. There will be no relief for new loans taken out from today 15 October 2013. Those claiming relief currently will be able to claim relief until 1 January 2017. However, relief will be only available on a reducing basis, i.e. 75% in 2014, 50% in 2015, 25% in 2016. This restriction will not apply to certain farm partnerships.
Tax relief will continue to be available at the marginal rate for pension contributions.
The Minister announced in last year’s Budget that from 2014 tax relief will not be available for pension schemes providing over €60,000 in annual income. To achieve this, the Standard Fund Threshold (SFT) is being reduced from €2.3 million to €2 million from 1 January 2014. Individuals with pension rights in excess of this new lower limit on 1 January will be able to claim a Personal Fund Threshold (PFT) subject to a maximum of €2.3 million.
To improve the equity of the regime between Defined Benefit (DB) and Defined Contribution (DC) pension arrangements following this change the Minister is replacing the current single valuation factor of 20, used to place a capital value on Defined benefit pension entitlements with a range of higher factors. These factors will vary depending on the age on when the pension is drawn down.
Foreign Direct Investment
Minister Noonan emphasised again Ireland’s commitment to the 12.5% corporate tax rate. “We are 100% committed to the 12.5% corporation tax rate. This will not change.”
He also announced today the publication of an “International Tax Strategy Statement”
Reform of the Appeals Process
The Minister has announced that a reform of the Appeal Commissioners is to be introduced in 2014. This has been a key representations issue for the Institute for some time and we welcome this reform.
There will be no increases in the VAT rates in 2014. A number of VAT anti-fraud measures have been introduced. These are outlined under Shadow Economy Issues above.
Banking levy introduced
A levy on the banking sector is being introduced to apply for the period 2014 to 2016. The Minister said that the contribution from each institution will be broadly based on the amount of tax paid on deposit interest in 2011. Full details on how the levy operates will be detailed in the Finance Bill.
In tandem with the above the Minister is removing the restriction on the use of deferred tax assets for NAMA losses.
The current 0.6% levy on pension fund assets, introduced to fund the 2011 Jobs Initiative, is to increase to 0.75% in 2014. This levy will be abolished from 31 December 2014 but an additional levy of 0.15% on pension funds will be introduced in its place. This additional levy is intended to further fund the Jobs Initiative and to make provision for potential liabilities arising from pension fund difficulties.
- Excise duties on tobacco and alcohol will increase from midnight Budget night. There will be no increase in the excise duty on petrol, diesel or home heating oil and gas.
- Revenue powers in relation to the shadow economy in the mineral oil and alcohol product sectors are being enhanced.
- Lump sum payments to those individuals who worked in the Magdalene laundries will be tax exempt.