Govt Jobs Initiative – The tax measures

Finance Minister Michael Noonan has today unveiled the Government’s much-heralded ‘Jobs Budget’, including the following tax measures:

Pension Levy

A levy of 0.6% is to be applied on the capital value of pension assets held within the State.

PRSI

Employers PRSI on lower-paid employees is to be halved. This will apply until the end of 2013 for employees earning less than €356 per week (not the figure of €365 per week as announced by the Minister in the Dáil today).

Employers PRSI will no longer apply to share-based remuneration.

9% VAT

A cut in the lower rate of VAT to 9% on so-called ‘tourism-related’ goods and services. This will apply from 1 July 2011 until the end of 2013.  The VAT cut will apply to

• restaurant and catering services
• hotel and holiday accommodation,
• theatre, cinema, museum, fairground and other entertainment tickets
• hairdressing
• newspapers and magazines.

Air Travel Tax

The Air Travel Tax of €3 per passenger is to be abolished, but not with immediate effect. Its abolition is to be conditional on the major Irish airlines opening new tourist routes into Ireland.

R&D Tax Credit

The Minister intends to introduce a technical change to the Research & Development tax credit legislation, in order to allow companies more flexibility in how they account for the credit. This is intended to make the credit more attractive for qualifying companies.

Corporation Tax

Unsurprisingly, the Minister confirmed that ‘our 12.5% rate of corporation tax is here to stay’

The Department of Finance have just published full details of the Jobs Initiative on their website.

High Earners can beat Budget 2011 Pension Blues

High earners can beat a Budget 2011 cut in pensions tax relief if they top-up their pensions before 31 December next.

This week’s Budget cut the earnings ceiling for tax relief on personal pension payments, from €150,000 to €115,000. This means that, from 1 January 2011 onwards, the tax relief claimed by a high-income earner in respect of pension payments is limited to the first €115,000 of their earnings.

Liam Ferguson, of Ferguson and Associates has kindly confirmed to me that this lower ceiling relates to ALL contributions physically made in 2011. This includes contributions made by 31 October 2011, which can be backdated to the 2010 tax year for tax relief purposes.

So if you are in a high income bracket, and you leave it until next October to pay a Personal Pension contribution for 2010, the lower ceiling will apply to your contribution.

However, if you top up your pension by 31 December 2010, before the higher €150,000 earnings ceiling expires, you can still avail of the higher ceiling.

21 days left to act…

16 Nov. ROS deadline applies to Pensions Relief

Chartered Accountants Ireland have confirmed today that the deadline for paying Pension Contributions that attract backdated tax relief for 2009 is extended from 31 October to 16 November. This applies where an individual has filed their 2009 Income Tax return by 16 November, and paid any 2009 tax balance via ROS by the same date.

In a statement issued  today, Chartered Accountants Ireland stated  “Following a request for confirmation from our members, we wish to advise all readers that where a taxpayer qualifies for the extended ROS Pay & File deadline of 16 November 2010, this extended deadline also applies to RAC, PRSA and AVC contributions.  Readers are reminded that in order to avail of this extended deadline, both the return and the payment must be made online.  Where only one of these actions is completed through ROS, the extension will not apply.”

As yet I don’t have a link for the statement but I will add this when it is online.

‘Levelling Down’ a threat to Pensions Plan

The Government’s plans for mandatory pensions by 2014 could mean lower pension cover for some workers.

Minister Mary Hanafin  yesterday unveiled the Government’s new National Pensions Framework, which aims to increase employees’ pension cover.   From 2014 onwards,  most workers will automatically join a new mandatory pension scheme. This scheme will require employees to contribute 4% of pay, with the State and the employer paying a further 2% of earnings, bringing the total contribution of 8%.

I am concerned that, for employees who already hold employer-funded pensions, the mandatory scheme may mean lower, not higher, pension entitlements.

At present, many workers participate in pension schemes where their employer contributes, say, 5% of salary, with another 5% being paid by the employee.  In the current environment, with employers under pressure to cut costs,  they may question the wisdom of such arrangements when the State-backed scheme requires only a 2% employer contribution.

If sufficient numbers of employers end their existing scheme and migrate their employees to the new mandatory scheme, this could represent a signficant hit to overall national pensions cover.

This phenomenon is known as “levelling down” and already has attracted much debate in the UK, where mandatory pensions will be launched in 2012.

Dr Ros Altmann, a pensions expert and a former adviser to Tony Blair, has warned in a recent press release, that “the new workplace pension savings accounts (in the UK)  could be a disaster for millions of unsuspecting individuals”, highlighting what she sees as the “huge incentive” for employers to “level down” their existing pension commitments to the State-scheme minimum.

What do you think?

Finance Bill: End of the 1% Levy on Pensions

Yesterday’s Finance Bill heralded the scrapping of the 1% levy on pension payments, which came into force last June.  This is a welcome development and highlights the absurdity of the original levy.

I cannot understand why the Minister decided last year to discourage taxpayers from saving for their old age,  especially at a time when we are told we have a serious national pensions deficit.

It appears from the Finance Bill that the 1% levy on life assurance payments will stay in place, at least for another year. Again, I am at a loss to understand why the Minister deems it fit to impose a tax on people who are prudent enough to put a few euro into a life assurance policy, to protect their family if they happen to die unexpectedly.

Last year’s Finance Bill included both the new 1% life and pensions levy, and also a hike in the insurance levy from 2% to 3%.  Unfortunately the insurance levy is unchanged this year. That said, it might be more than a little optimistic to pray for its demise.

Older readers will recall that the previous 2% levy was introduced as a ‘temporary’ measure in the early 1980s, in order to finance the State rescue of the stricken Allied Irish Bank.

It is ironic that, not only is the levy still in place a generation later, but it is now 50% higher, just as Nama is in the process of bailing out the banks once again! Plus ca change…

The 2010 Finance Bill is unveiled

The 2010 Finance Bill has been published earlier this afternoon.  In addition to the measures announced in the Budget, it contains a raft of new provisions, including the following:

• A new package of reforms to the Capital Acquisitions Tax system,  which are designed “to modernise and simplify the CAT regime, while delivering immediate and significant benefits to taxpayers, their legal advisers and the Revenue Commissioners”.



• Measures to facilitate the development in Ireland  of Islamic finance which  is compliant with the principles of Shari’a law.

• From 1 July 2010, VAT will apply to Public Bodies and local authorities, for waste collection, landfill, and recycling services; off-street parking; toll roads; and leisure facilities).  This follows a 2009 European Court of Justice (ECJ) ruling against Ireland. The changes will not affect education, health, water and passenger transport services.
• The abolition of  certain Tax Reliefs including tax relief on Service/Refuse charges (from 2012 onwards), relief for Gifts of property to the State and Capital Allowances for childcare facilities.
• Confirmation that the 80% Windfall Tax will now not apply to the sale of one-off sites below an acre and €250,000.

• Technical changes to procedures in relation to tax relief for medical expenses. According to the Dept of Finance “he relief is being refocused on expenses incurred by or on the advice of a medical practitioner”.
• The scrapping of the 1% Levy on pension products “in order not to discourage investment in pensions”.
• The introduction of transfer pricing legislation to regulate trading between associated companies.
• Measures to combat the misuse of tax avoidance schemes.