Finance Bill 2012: Blaas, Bagels, Cricket & Tax Scams

Finance Minister Michael Noonan has today introduced the 2012 Finance Bill.  Its highlights include:  VAT cuts on bagels, blaas and other specialist bread products; tax relief for professional cricketers; new Revenue powers to combat serious tax scams, and a new self-assessment system for Stamp Duty.

The Bill gives effect to the changes set out in the Budget announced last December, and also contains a raft of technical housekeeping measures, in addition to the following key points:

INCOME TAX

Tax Relief on Third Level Fees

The tax relief on third level tuition fees is being curbed.  For full-time students, the first €2,250 in annual fees will not qualify for tax relief. For part-time students, the first €1,125 in fees is ineligible for relief.

Civil Partnerships

The Bill proposes two notable changes to the tax regime for civil partnerships. Legally binding maintenance agreements made on the breakup of a civil partnership will now be treated for tax purposes in the same way as those for married couples.

The second change will allow that following the breakdown of a civil partnership, where there is a  legally binding agreement, and the parties are still living under the same roof, they will enjoy  the same tax treatment as formerly married couples in similar circumstances.

Revenue Job Assist

Individuals who are signing for PRSI credits with the Department of Social Protection can now qualify for the Revenue Job Assist scheme. This scheme allows an individual to claim a partial tax deduction in each of the 3 tax years after they take up employment having been unemployed for at least 12 months.

Share-Based Remuneration

The Bill provides for the following changes to share-based remuneration: mainly affecting the I.T. sector.

• Where employees and directors have deferred the payment of income tax on share option gains due to a drop in the share price, half of any after-tax gain on the sale of the shares must now go to pay down the outstanding income tax liability until that liability has been cleared.

• Income levy and USC refunds may apply where shares are forfeited.

• An employer can now withhold or sell sufficient shares awarded to employees, to fund the income tax charge on that award of shares, before transferring the remainder  to the employee. This applies only where the employee fails to provide the employer with sufficient cash to pay the income tax charge.

Sportspersons’ tax relief

Professional cricketers can now on retirement avail of the sportspersons’ tax relief already enjoyed by other professional athletes. They can also qualify for a higher rate of relief on pension contributions.

CAPITAL ACQUISITIONS TAX (CAT)

The Group B (uncle, aunt, sibling, niece, nephew etc) CAT tax-free threshold is rounded up to €33,500 and the Group C (non-relatives) threshold rises to €16,750 with effect from Budget Day 7 December 2011

The annual pay and file date for CAT on Gifts & Inheritances is being moved back from 30 September to 31 October.

CAT Agricultural Relief

The three-year residence condition for CAT agricultural relief is being removed. This is in order to comply with EU Treaty provisions on freedom of movement of persons and capital.

A loan against a principal private residence will only qualify as a deduction for CAT agricultural relief purposes where the loan proceeds were used to purchase, repair or improve that residence.

Heritage Properties

The exemption from CAT on the gift or inheritance of heritage properties sold to State bodies will now include properties sold to cultural institutions funded by the Department of Arts, Heritage and the Gaeltacht.

STAMP DUTY

A self-assessment system will now apply to Stamp Duty is to be put on a self-assessment footing, in common with other taxes.

• A 30-day time limit will now apply to the stamping of a transaction.
• Revenue will have power to make Stamp Duty assessments, and new audit and appeal procedures will be introduced.
• The existing adjudication procedure will be abolished;

PENSION TAXATION

A number of changes are being made to relieve the often penal taxation that arises where the capital value of an individual’s pension benefits at retirement exceed €2.3 million (or a higher Personal Fund Threshold –PFT – if applicable).

RELEVANT CONTRACTS TAX

This Finance Bill gives legislative effect to the implementation of the new electronic Relevant Contract Tax (e-RCT) system from 1  January 2012.

REVENUE POWERS

The current general six-year requirement to keep business records will now also apply to liquidated and dissolved companies.

Payment Transactions Returns

Credit & Debit card merchant services and third party payment processors will now be required to make regular automatic returns to Revenue of all funds credited to traders. This is in response  to a suspicion that “some businesses may be underreporting card payment transactions.”

The penalties for deliberately or carelessly making incorrect income tax returns will now also apply to Domicile Levy and the Universal Social Charge returns

Tax Debts

A tax debtor may now be required to complete a statutory statement of affairs to demonstrate their ability or otherwise to pay debts to Revenue. Failure to do so will now be a Revenue offence. This is designed to stymie efforts by some debtors to hide assets in negotiations with Revenue.

Serious Tax Criminality

The Bill proposes extended Revenue powers to counter tax evasion and the black economy, focusing on serious Revenue offences. This includes oil laundering and cigarette smuggling, Relevant Contracts Tax scams, and major cross-border VAT and other frauds.

VAT

VAT on Bread

The range of breads eligible for Zero rate VAT is being extended to include loaves, rolls, batch bread, bagels, baps, blaas, burger buns, finger rolls, wraps, naan breads and pitta bread.

Other bread products which are reckoned to have “excessively high levels of sugar and fat” will remain liable for VAT at either the 13.5% or 23% rate. These include croissants, brioche and Danish pastries

VAT on Property

A number of minor changes are being made to the VAT rules regarding property.

• A reverse charge will now apply where construction services are supplied between connected persons.

•  Under the capital goods scheme, the adjustment period for ‘transitional properties’ will not revert to 20 years “where development has taken place and where that development constitutes a ‘refurbishment’ for VAT purposes”.

iXBRL FINANCIAL STATEMENTS

Corporation Tax returns can now include iXBRL (inline eXtensible Business Reporting Language) accounts.

The full text of the Bill is online, while the Dept of Finance Explanatory Memorandum and List of Items explain the changes in (relatively) plain English.

Budget 2012 Live Updates

Michael Noonan, Minster for Finance is now delivering his Budget 2012 speech to Dáil Éireann.

The Minister has announced the following Tax measures:

Corporation Tax

• No change in the 12.5% Corporation Tax rate.
• A special Assignee Relief Programme to attract multinationals’ executives to Ireland
• New Foreign Earnings deductions for individuals developing markets abroad
• International financial services sector boosted by measures to be announced in Finance Bill
• First €100,000 of Research & Development expenditure to be allowed for R&D credit.
• Corporation Tax exemption for new companies extended for a further 3 years.

Farming

• Farm transfers to the next generation are to be incentivised
• Significant fall in the rate of stamp duty for farmland and other commercial property
• Retirement relief for CGT to be modified – no detail of this measure included in the Budget Speech.
• Farm partnerships to be encouraged by 50% Stock relief for participating farmers and existing 100% Stock relief for young farmers
• The 9% rate of VAT to apply to Open Farms

Air Travel Tax

• Government are ‘prepared to negotiate’ with Aer Lingus and Ryanair to incentivise tourist routes into Ireland

Construction Sector

• Stamp duty for commercial property to be cut to 2% overnight – the previous top rate was 6%
• The current rates for residential property will apply
• CGT exemption for properties bought between tonight and the end of 2013 – if they are held for 7 years.
• Commercial properties – NAMA can now approve rent reductions in certain cases, even in cases where ‘upward only rent review’ clauses apply
• Those who bought homes at the end of the property boom will gain by an increase in mortgage interest relief to 30% for those homeowners
• First time buyers will get 25% mortgage interest relief for property purchases in 2012

Property Reliefs

• Detailed policy measures to be made in Finance Bill
• s.23 Reliefs to small scale investors will not be cut
• Surcharge of 5% will apply to sheltered income where one’s income is over €100,000

Income Tax

• No increase in Income Tax bands, rates or credits.
• Universal Social Charge to be changed to help low paid seasonal & temporary workers – the exempt income level rises from €4,004 to €10,036
• the USC will be collected on a cumulative basis in 2012

Value Added Tax

• The Standard rate of VAT will rise by 2% to 23%
• The other rates of VAT remain unchanged

Capital Taxes

• Capital Acquisitions Tax & Capital Gains Tax go from 25% to 30%
• Standard Exemption for Capital Acquisitions Tax (parent-child transfers) cut from €332,084 to €250,000

Investment Income

• Deposit interest retention tax (DIRT) increased from 27% to 30%
• PRSI will cover rental and investment income from 2013

Approved Retirement (ARF) Funds

• ARF ‘imputed distribution’ charge increased to 6%
• ARF tax on death of a child over 21 goes to 21%
• Citizenship condition on domicile levy is scrapped
• Carbon Tax goes up from €15 to €20 per tonne – a 33% increase. This increase does not apply to home heating oil or solid fuel.
• Double income tax deduction for Carbon tax for farming
• VAT Refunds on farm buildings will include wind turbines

Other

• The income tax relief on pension contributions remains unchanged – tax relief will remain at the marginal rate of tax.
• A household charge of €100 per household is being introduced. Certain limited waivers will apply.
• Motor Tax increases to raise €47 million
• A new export refund scheme will apply to exports of motor cars
• The existing tax exemption for the first 26 days of disability benefit per annum is to be abolished. The Minister described this as ‘an incentive for absenteeism’

Excise Duty

• Alcohol excise duty is unchanged.

 

 

 

 

2011 Form CT1 Corporation Tax Return now online

Revenue have today unveiled the ROS Form CT1 Corporation Tax Return for 2011.

For the first time ever, this year’s CT1 return includes an an optional facility to pre-populate the tax return with data extracted from the company’s CT1 tax return for 2010. This useful feature is included in both the ROS on-line and ROS off-line applications.

Online CT1 filing is now compulsory for most companies from 1 June 2011. Revenue have now also published a downloadable pdf-format paper CT1 return to facilitate the remaining companies who are still permitted to file paper returns.

Thankfully Revenue have now ceased the wasteful practice of mass-producing paper CT1 returns, most of which ended up in recycling bins.

For more, see todays Revenue eBrief on the 2011 CT1 return, and the recent eBrief on mandatory e-filing.  Revenue have promised to publish soon a further eBrief on how to use the pre-population facility on the new CT1 tax returns.

Corporation Tax: Radio debates worth listening to

If you’re interested in the current debate over EU attitudes to the 12.5%  Irish Corporation Tax rate, two radio discussions on the topic within the past 24 hours are certainly worth a listen.

Matt Cooper’s The Last Word on Today FM featured a debate between Brian Keegan, Tax Director of Chartered Accountants Ireland, and The Irish Times’ Fintan O’Toole on the wisdom of Ireland’s 12.5% rate (pretty obvious if you ask me, although Fintan doesn’t seem to agree).

The discussion is online until next Tuesday on the TodayFM Archive (Go to  ‘The Last Word section, then ‘Part 2′, approx 41.40 minutes in, ending at 53.00 minutes).

Meanwhile this morning Tax Lawyer Suzanne Kelly discussed the new EU CCCTB consolidated tax base proposals on the Breakfast Show on Newstalk 106-108, with presenters Shane Coleman and Ivan Yates.

This is also archived online on the Newstalk Media Player (part 2 of the show, starts at 7.20 minutes, ends at 12.20 minutes).

Irish Corporation Tax – Setting the Record Straight

The 12.5% Irish Corporation Tax rate has recently attracted plenty of criticism at EU level.  In response, Chartered Accountants Ireland have today strongly defended the 12.5% rate and debunked some of the common arguments used against it.

Their case is outlined in a newly-published position paper ‘Europe and Corporation Tax – Setting the Record Straight’.

The report compares the Irish Corporation Tax system with the corresponding systems in France and Germany, and finds that there are vastly different approaches in each country on how Corporation Tax rates are arrived at, what relief is available for capital investment, and how dividends are treated.

For example, France operates a headline Corporation Tax rate of 33.3%, yet there is a special rate of 15% for companies earning below €38,000 and various other exemptions.

In addition, the allowances for capital investment for French companies are vastly more generous than the capital allowances available in Ireland.

In France, these amount to €6.60 for each €100 invested in machinery, equipment etc, while the equivalent allowance in Ireland is a mere €1.65 per €100 invested.

And the French tax system allows for 40% of company dividends received by an individual to be disregarded for income tax purposes. In Ireland, dividends payable to individuals are fully taxable.

The report concludes that there is no direct correlation between Corporation Tax rates in individual countries and the sums raised from Corporation Tax in each country.

For example, Ireland raises 2.9% of GDP from Corporation Tax in 2008, while France  (with a higher ‘headline’ rate) raised 2.8%, and Germany (with a higher rate still) raised 1.1%.

The report  puts forward a number of ideas to address unfair tax competition within the EU Single Market and attacks the current EU Common Consolidated Corporate Tax Base proposals.

Well done to Chartered Accountants Ireland for commissioning and publishing this important, and most welcome, report.

Budget 2011 Latest

The 2011 Budget has been announced by Brian Lenihan, Minister for Finance.

The key tax measures announced by the Minister in his Budget Speech are as follows:

• Income Levy & Health Levy to be replaced by a new Universal Social Charge.

• Tax Bands and Credits to be cut by 10%

• Nine tax relief schemes are to be abolished

• Restrictions on the carry forward of property-based capital allowances and Section 23 reliefs.

• Capital Acquisitions Tax tax-free thresholds to be cut by 20%

• D.I.R.T. tax increases to by 2% from 25% to 27%.

• Pension Tax relief employee PRSI & levy relief to be abolished.

• No change to 12.5% Corporation Tax rate.

• Employer PRSI relief on employer Pension contributions to be cut by 50%

• Business Expansion Scheme to be revamped & renamed – a new investment limit of €10 million will apply up to 2013.

• Accelerated Capital Allowances scheme for energy efficient equipment is to be extended.

• Major revamp of Residential Stamp Duty with a 1% flat rate on transactions  up to €1m, 2% thereafter. All current Residential Stamp Duty exemptions & reliefs to be abolished – changes apply from tomorrow 8 December, transitional arrangements for contracts in progress, once they are completed by 30 June 2011.

• Major changes to Relevant Contracts Tax with a cut from 35% to 20% for contractors with an established compliant tax record. Existing rate of 35% will continue to apply to other contractors.

• Travel Tax to be cut to €3 from 1 March 2011, subject to review at end of 2011.

• Excise Duty rises of cent per litre on petrol, 2 cent per litre on auto diesel, applying from midnight tonight.

• Internet betting to be subject to Betting Tax as applies to Betting Shops.

The Minister’s speech is now online.

Start-ups’ Tax Relief is a Big Disappointment

Start-up Companies can now avail of a major new tax relief, but unfortunately it is not nearly as attractive as it sounds.

The Revenue Commissioners  this week published a detailed guide to the new Corporation Tax relief for new start-up companies.

How the Scheme Works

Qualifying companies will be fully exempt from Corporation Tax on profits up to €320,000 each year.  There is partial relief available for companies with taxable earnings above this figure. The relief applies for the first three years of trading.

To qualify a company:

• must have been incorporated on or after 14 October 2008,  and
• must commence trading in 2009 or 2010, and
• must carry on a genuinely new trade.

If the company merely takes over an existing trade, or a part of a trade, carried on by another individual or company, it will not qualify.

Yes Minister, its a great idea, now how do we stop it working?

Some industry sectors are barred from claiming the relief.  These include:

• land  and property development
• mining exploration and extraction of natural resources
• fishing or agricultural activities
• export-related activities
• agricultural production, processing or marketing
• road freight and haulage
• the coal sector

Is the Relief any good?

The relief will be a lucrative one for any company lucky enough to use it to the maximum extent possible. A €120,000 tax saving over three years is not to be sneezed at. That said, it is hard to tell just how many companies will benefit greatly from it – I suspect that very few will.

For a start, many prominent business sectors are excluded, presumably in order to comply with EU State Aid rules.

In addition, most start-ups don’t earn enough profits in the start-up phase to have large Corporation Tax bills. Many lose money in the early stages and only recoup these losses later on.  For the minority that are profitable from day one, our low 12.5% Corporation Tax rate isn’t exactly a massive burden.

I have yet to see a company fold because they couldn’t afford to pay their Corporation Tax bills, yet problems with other taxes, namely VAT, PAYE/PRSI  and Relevant Contracts Tax can cripple a business overnight.

And if a company generates large profits and avoids Corporation Tax on these earnings, they still face a substantial tax hit if they wish to distribute these profits to shareholders.

And finally…

This tax relief has been widely welcomed and hailed as a much-needed boost for enterprise.  I must confess that I disagree. In fact,  I can’t help viewing it as a major disappointment. It reminds me a bit of the culture of the old “Yes Minister” TV series, where worthwhile political initiatives were announced with great fanfare only be rendered useless by bureaucracy and red tape.

What do you think?

The Seed Capital Scheme should be extended

The Seed Capital Scheme is a very valuable tax relief for some new enterprises. It should be extended to more start-ups.

The Scheme allows an individual, who invests in a new enterprise, to receive tax relief for the share capital they invest in the business.  The tax relief is in the form of a refund of income tax paid in previous years.

The Enterprise Ireland website contains  a useful summary of the Seed Capital Scheme,  while Revenue.ie has a more detailed (and equally useful) guide to the Scheme.

Unfortunately, the Seed Capital Scheme is restricted to a narrow range of business activities. In general, these  are

• manufacturing,
• tourism undertakings,
• internationally traded services,
• horticulture/mushrooms/plant cultivation,
• commercial research and development,
• musical/video industry; and
• recycling activities.

The full list of eligible categories,  and detailed conditions,  are listed on the above Revenue link.

In my experience, the Scheme’s restrictions mean that most service-sector start-ups don’t qualify for it.  This needs to change.

The extension of the Scheme to all genuine start-ups would provide a fresh incentive for new enterpreneurs and a strong stimulant for job creation.

The Corporation Tax exemption for Start-ups

Start-up Companies can now enjoy exemption from Corporation Tax on their first three years profits.  The relief applies to companies formed after 14 October 2008 who start trading in 2009 or 2010.

It is available to companies with an annual Corporation Tax liability below €40,000 (this would represent profits of approx. €320,000).  It does not apply to all businesses, as some types of trade are excluded. These exception include:

• agricultural production, processing and marketing,
• road freight transport,
• certain export-related trades, and
• professional services.

It is not possible to claim the exemption in relation to an activity that has previously been carried on by another entity.  For example, if a company manufactures bread and cakes, it cannot avail of the relief by setting up a new company to manufacture the cakes.

Obviously this exemption will be very useful to many start-ups. That said it is not without its flaws.

For a start, it refers only to companies. It does not apply to sole traders or partnerships.  Many new businesses trade as sole traders or partnerships in the initial years, mainly for reasons of flexlibility, simplicity and minimising costs.

In addition,  although companies will be exempt from Corporation Tax, they will still face sizeable tax bills if and when the directors extract these funds from the company for their own use.

This is a key issue. Very few small company directors can afford to leave significant sums of retained profits sitting indefinitely in a company bank account.  It generally makes sense for them to withdraw reasonable levels of ongoing salary for personal use, and have the company deduct PAYE/PRSI in accordance with Revenue rules.

For these reasons, I generally find that, for most small  start-ups, Corporation tax is largely a non-issue.  I  would guess that only a minuscule percentage of start-ups pay more than a few thousand Euro in Corporation Tax in any given year  – unless they are highly successful or badly advised, or both.  In comparison, the PAYE/PRSI costs attaching to directors salary payments will normally greatly outweigh the Corporation Tax bills.

That said, the Corporation Tax exemption will be very valuable incentive for some companies. As such it is to be warmly welcomed.