Against the background of tough budgets in recent years, Ministers Noonan and Howlin framed their speeches in the context of preparing the country to exit the EU/IMF recovery programme and the creation of jobs in a range of sectors. Set out below is an outline of the main measures announced. More detail will be included in the Finance Bill which is to be published next month.
and job growth
Minister Noonan announced some welcome tax measures around entrepreneurship and job growth:
• A new “Start Your Own Business” income tax exemption will be introduced for individuals who have been unemployed for a period of 15 months and who start their own unincorporated business. The exemption will apply for two years and will cover income tax up to a maximum of €40,000 in each of those years.
• A new Capital Gains Tax (“CGT” ) relief will apply to those who:
- paid CGT on the disposal of assets since 2010
- invest in new businesses in the period from January 1 2014 to December 31 2018 and
- retain the new investment for at least three years.
The relief will operate by reducing the CGT payable on the disposal of the new investment by the lower of the CGT payable on the sale of the old investment or 50 per cent of the CGT payable on the sale of the new investment. This relief is subject to EU approval.
• The threshold for businesses to account for VAT on a cash receipts basis will increase from €1.25m to €2m with effect from May 1 2014. This will improve the cashflow position of small and medium sized enterprises (“SMEs” ).
• Removal of investments in companies under the Employment and Investment Incentive Scheme from the list of tax reliefs which is restricted for high earners.
• A new exemption from the usual 1 per cent Stamp Duty for transfer of shares listed on the Enterprise Securities Market of the Irish Stock Exchange. This is a special market for companies in an early stage of development. The start date for this exemption is to be announced.
In addition, the loan amount threshold for applications to the Credit Review Office has been increased from €500,000 to €3m. This should help the SME sector gain access to credit. Furthermore, there will be a new programme of two days offsite training available to SME’s to aid understanding of financial products and preparing applications for credit.
Other business measures
The Government has reaffirmed its commitment to the 12.5 per cent corporate tax rate and to working with the OECD in its review of global tax measures. To strengthen Ireland’s reputation as a place to do business, measures will be introduced to ensure that companies incorporated in Ireland are resident for tax purposes in Ireland or another country – they will not be permitted to assert that they are not tax resident anywhere.
The Department of Finance conducted a detailed review of the R&D tax credit over the past few months and on foot of that review, it is intended to ultimately phase out the exclusion of spend on R&D activities in 2003 from the calculation of R&D tax credits. In the interim, the first €300,000 of 2003 expenditure will be ignored in calculating R&D tax credits in 2014. The limit on the amount of R&D expenditure that can be outsourced to third parties will be increased from 10 per cent of in-house spend to 15 per cent of in-house spend in 2014. Finally, it is also intended to remove some measures which were seen to discourage employers from sharing R&D tax credits with key R&D employees.
A new banking levy will be introduced for 2014 to 2016 which will seek to raise €150m from the banking sector. The levy on each financial institution will be based on the tax paid by them on deposit interest in 2011.
A number of measures will be introduced to combat VAT fraud including a rule providing that businesses which have not paid for goods or services within six months will have to repay the VAT claimed on those supplies.
Income tax rates and tax bands will remain unchanged in 2014. Most tax credits will also continue at 2013 levels except:
• The One Parent Family Tax Credit of €1,650 will be replaced by a new Single Person Child Carer Tax Credit of the same amount but this credit will only be available to the principal carer of the child.
• The tax credit for medical insurance premia will be capped. This tax credit is currently worth 20 per cent of the full amount of medical insurance premium paid by a taxpayer. In 2014 this will be capped at 20 per cent of €1,000 per adult and €500 per child covered by the medical insurance policy.
A new tax credit will be introduced for expenditure in 2014 and 2015 on home renovations costing between €5,000 and €30,000. A tax credit of 13.5 per cent of the expenditure will be granted in the two years after the year in which the work is carried out. This incentive will cover expenditure on extensions, windows, plumbing, tiling and plastering on the taxpayer’s principal private residence. Qualifying projects will need to be registered with the Revenue Commissioners and must be carried out by fully tax compliant builders.
It is worth noting that in last year’s Budget, the Minister announced that PRSI of four per cent would apply to the non employment income earned by the majority of PAYE workers from 2014 e.g. rental income and deposit interest. This will take effect from 1 January 2014.
The DIRT rate applying to deposit interest and exit taxes on certain life assurance policies will increase from 33 per cent to 41 per cent on 1 January 2014.
Top slicing relief on ex-gratia redundancy payments operates to ensure that the tax paid on ex-gratia payments is capped at that individual’s average effective tax rate for the past three years. This relief was abolished from January 1 2013 for ex-gratia redundancy payments in excess of €200,000, and will be abolished completely from January 1 2014.
Lump sum payments from the Magdalene Laundry Compensation Fund will be exempt from income tax.
There will be no change to the 33 per cent CGT and Capital Acquisition Tax rates in 2014.
The income tax relief for pension contributions will remain unchanged. However the pension levy on pension funds of 0.6 per cent will increase to 0.75 per cent in 2014 but will reduce to 0.15 per cent in 2015. Finally the Standard Fund Threshold on pension funds will reduce from €2.3m to €2m on January 1 2014. This gives people a short window of time to work with their pension provider to consider additional pension contributions or claiming a personal fund threshold in excess of €2m. There are also complex changes to valuation of defined benefit pension funds. These changes are not as severe as many feared and are partly designed to reflect different retirement ages.
The nine per cent VAT rate has been retained. This applies to a wide range of hospitality related goods and services including restaurants, hot takeaway food and hot drinks, hotel and other tourist accommodation, cinema, theatre and art gallery tickets, hairdressing and printing.
The Air Travel Tax of €3 has been reduced to zero from April 1 2014.
The Minister announced that the current income tax relief available to individuals investing in films would be replaced by a new incentive which would direct the tax relief to the film production company rather than the investor. This incentive was to be introduced in 2016 but the Minister has accelerated this to 2015 and allowed the film production company to employ non EU persons. The Minister also announced the introduction of a withholding tax but no other details were provided on this point. This relief is also subject to EU approval.
In addition to the Home Renovation Incentive mentioned above, there were a few measures focused on the construction sector:
• The Living City Initiative was introduced in 2013 to encourage the renovation of pre 1830 buildings in Limerick and Waterford. The incentive has now been extended to cover pre 1915 buildings and to include Galway, Cork, Kilkenny and Dublin. The incentive grants tax relief of 10 per cent of expenditure on refurbishment and conversion of qualifying residential properties by an owner occupier every year for 10 years. Tax relief is also available for expenditure on the renovation of certain pre 1915 commercial premises at a rate of 15 per cent per annum for six years and 10 per cent in year seven. Again, this relief requires EU approval.
• The CGT exemption for property purchased between December 7 2011 and December 31 2013 and held for a period of at least 7 years has been extended to include properties purchased before 31 December 2014.
The flat rate addition which is available to farmers is increasing from 4.8 per cent to five per cent from January 1 2014. The number of qualifying courses which allow young farmers to avail of certain stamp duty and income tax stock reliefs has been increased. CGT Retirement Relief will now also apply to agricultural land which has been let for a period of at least five years and the land is sold to a person other than a child of the farmer. This should encourage older farmers to let their farms to younger farmers.
The Minister has announced a review of incentives in the agri-food sector with any resulting changes to be introduced for 2015.
Excise rates were increased with effect from midnight on October 15 as follows:
• 10 cent on a packet of 20 cigarettes
• 10 cent on a pint of beer or cider or a standard measure of spirits
• 50 cent on a 75cl bottle of wine
There was no increase in excise rates on petrol, diesel, or home heating fuels.
There will be no change in the main social welfare and pension rates. The child benefit will also remain unchanged in 2014. However, the following changes are to be introduced from January 1 2014:
• The €100 pw Jobseekers Allowance will now be paid to those up to the age of €24 and €144 pw paid to those aged 25. All jobseekers age 18-25 who participate in the Back to Education Scheme will get €160 pw.
• The bereavement grant of €850 is to be discontinued
• The telephone allowance of €9.50 per month included in the household benefits package provided to those claiming social welfare and those over 70 will be abolished.
• Maternity benefit which currently ranges from €217.80 to €262 per week will be standardised to €230 per week.
• The number of waiting days for Illness Benefit will increase from 3 to 6 days.
The Minister announced the introduction of free GP care for all children age five and under. However, the income thresholds for the over 70s Medical Cards will be reduced from €1,200 per couple per week to €900 in 2014, and from €600 to €500 per week for a single person. Finally, prescription charges for those with a medical card increase from €1.50 per item (max €19.50 per month ) to €2.50 per item (max €25 per month ).
Detailed advice should be sought before acting on any of the above matters.
This article was compiled by the KPMG Galway Tax Team, Odeon House,
Eyre Square, Galway. Tel: 091-534600.