Brian Thornton and Terri Treacy of KPMG, chartered accountants, highlight below some of the key points which emerged from the Minister’s speech in the Dáil.
Personal Tax Matters
The income tax measures outlined below are effective from January 1 2009.
The Minister announced the introduction of a new income levy of one per cent on income up to €1,925 per week (€100,100 per annum ) and of two per cent on income over that amount. It is noteworthy that this levy is applied on gross income before deductions including for example, tax credits or pension contributions. This new levy will not, however, apply to social welfare payments.
There will be no change to the lower or higher tax rates. They remain at 20 per cent and 41 per cent respectively. The Minister did not announce any increases in personal or married tax credits or to the employee tax credit.
The standard rate cut-off point will be increased by €1,000 per annum for both single individuals and married couples with one income to €36,400 and €45,400 respectively. It will increase by €2,000 to €72,800 for married couples with two incomes. The employee PRSI contribution ceiling will increase from €50,700 to €52,000.
Tax relief for medical expenses excluding nursing home charges will be reduced to the standard rate of 20 per cent. Nursing home charges will continue to attract tax relief at the taxpayer’s marginal rate of tax, either 20 per cent or 41 per cent, until 31 December 2009.
Whilst pension contributions continue to attract tax relief at the taxpayer’s marginal rate of tax 20 per cent or 41 per cent, the annual earnings limit for determining maximum tax relief for pension contributions has been reduced from €275,239 to €150,000.
First-time buyers will be pleased with the Minister’s decision to increase mortgage interest relief from 20 per cent to 25 per cent for year one and two, 22.5 per cent for years three, four and five and 20 per cent for years six and seven. Thereafter, these buyers will no longer be considered first-time buyers. The additional relief will be available to both new first-time buyers and existing first-time buyers who have bought a house in the last four years. However, the rate of mortgage interest relief for non-first time buyers is being reduced from 20 per cent to 15 per cent.
Bad news for employees working in certain urban centres whose employer provides them with car parking spaces; these employees will be subject to an annual flat rate levy of €200. It appears the urban areas involved are the centres of Dublin, Cork, Galway and Limerick. The Minister also announced a new incentive to encourage cycling to work where employer-provided cycling equipment is treated as an exempt Benefit in Kind subject to a €1,000 limit per employee in each five year period. In addition, the Minister announced that the Finance Bill will contain provisions that will link the basis of the Benefit in Kind charge to the CO2 emissions of company cars.
A new annual charge of €200 will be levied by local authorities in 2009 on each non-principal private residence including holiday homes and rented dwellings. The Minister confirmed that this charge will not apply to unsold housing stock held by property developers.
The rates of DIRT tax on savings have been increased by three per cent to 23 per cent for deposit interest and 26 per cent for life assurance policies and investment funds.
The rate of Capital Gains Tax has been increased from 20 per cent to 22 per cent with effect from midnight on 14 October 2008.
Business Tax Matters
The standard rate of VAT will be increased from 21 per cent to 21.5 per cent with effect from 1 December 2008.
With effect from accounting periods commencing on or after 1 January 2009 companies engaging in qualifying Research and Development (“R&D” ) activities will be entitled to claim a tax credit of 25 per cent on incremental R&D expenditure incurred over 2003 expenditure. The current tax credit rate is 20 per cent.
The Minister proposed a remission of Corporation Tax and Capital Gains Tax for new and start-up companies in their first three years of operation provided that their tax liability does not exceed €40,000 in each year. This proposal is subject to EU State Aid approval.
The top rate of stamp duty on commercial property and all non-residential property has been reduced from nine per cent to six per cent.
Stamp duty on cheques has been increased by 20 cent. However, the annual stamp duty on bank cards has been reduced from €5 to €2.50 for debit cards and ATM cards and from €10 to €5 for combination cards.
The Minister introduced a new air travel tax on all departures from Irish airports from 30 March 2009. Shorter air journeys, which are defined as journeys under 300 kms, will incur a €2 travel tax, with a €10 charge applying to all journeys in excess of 300kms. There are some exemptions from this tax including children under two years and disabled passengers.
Betting taxes have also been increased from one per cent to two per cent.
The Minister announced increases in excise duties which will apply as of 15 October 2008, petrol goes up by eight cent a litre, wine 50 cent a bottle and cigarettes increase by 50 cent on a packet of 20. No increases were announced on the price of diesel or beer and the level of duty has been halved for certain low-alcohol beer and cider products.
Motor tax rates are also being increased by four per cent or five per cent depending on engine size and CO2 bands.
The maximum weekly personal rates for all contributory, transition, non-contributory and related pensions will increase by €7 per week from the first week of January 2009 with proportionate increases for pensioners on reduced rates of payment. The maximum qualifying adult allowance will increase by €6.30 per week.
For people of working age the maximum personal rate for these schemes including jobseeker’s allowance and benefit will increase by €6.50 per week with effect from the first week in January. The associated maximum qualifying adult allowance will increase by €4.30 per week with a €2 increase for each qualifying child.
The rate of the National Fuel Scheme will increase by €2 to €20 per week, from January 2009. In addition, the duration of the scheme will increase by two weeks to 32 weeks commencing April 2009.
The automatic entitlement to a medical card for those over 70 years is being abolished and a means test is being re-introduced.
There will be an increase of €8.50 per week in the minimum rate of Maternity Benefit and Adoptive Benefit from January 2009.
There have been a number of changes to child benefit. For existing and future qualifying children aged 18 years, a half rate payment will be made from January 2009 and from January 2010 entitlement to child benefit will cease once the child is 18 years. In addition, children above the age of five and a half years will no longer be eligible for the €1,100 a year childcare supplement. This supplement was previously available to all children under six years. However, the Minister announced that there will be increased social welfare payment rates to compensate low income families for these changes.