Income Tax Measures

Remittance Basis

The Finance Bill includes an anti-avoidance provision dealing with the transfer of income between a non-Irish domiciled spouse to an Irish domiciled spouse who brings the income into Ireland, such transfers will now be considered a remittance from 13 February 2013.

Maternity Benefits

Maternity Benefits are now subject to Income Tax from 1 July 2013. Patricia Quigley's article ‘Employment Taxes – An Update’ in this issue of tax.point considers the taxation of maternity and other benefits.

Foreign Earning Deductions (FED)

The FED has been extended to include the following countries:

• Algeria
• The Democratic Republic of Congo
• Egypt
• Ghana, Kenya, Nigeria, Senegal & Tanzania

Ex Gratia Payments

The Finance Bill confirms the Budget announcement that top slicing relief will not apply on ex-gratia lump sums in excess of € 200,000 effective from 1 January 2013.

Foreign service relief will is abolished with effect from 13 February 2013.

The Bill also extends the provisions to ensure the maximum life time limit of €200,000 is to cover ex-gratia payments made on death or disability.

Relief for Foreign Losses

The Finance Bill confirms that while Case III Foreign Investment and Foreign Rental Income is deemed from a single source, rental losses cannot be used to relieve foreign investment income.

Charitable Donations

With effect from 1 January 2013 tax relief will no longer be available to individuals, the relief will be given to the charity at a blended tax rate of 31%.

Film Relief

Film relief will now be given as a credit to the film production company at the rate of 32% rather than the individual investor. These changes are subject to a ministerial order.

Changes to Income Tax regarding Land and Developing Trades

With effect from 13 February 2013, if a loan is released or forgiven and the loan was used to finance the purchase of land as trading stock, such a release of the loan is liable to Income Tax in the individual hands. This provision applies even where the trade has actually ceased.

Loss relief is also restricted for certain individuals (such individuals who less than 50% of their income is derived from dealing and developing land). The restrictions are as follows:

• Relief is only available for the interest that is actually paid
• Loss reliefs can only be used on the reduction in the value of land where the land is disposed of.

Employment Incentive and Seed Capital

The EIIS and Seed Capital have been extended to 31 December 2020 (Which is subject to a Ministerial Order and contingent of European Commission approval).

There is also an amendment to allow EISS in respect of holiday and guest houses and self-catering accommodation to apply.

Living City Initiative

The Finance Bill provides details of this new scheme which seeks to provide tax relief on refurbishment of certain residential and commercial properties.

There are requirements that the refurbishment work should constitute at least 10% of the pre- refurbished value of the property.

Residential owners and occupants of their Principal Private Residence can claim 10% of the value of the works each year for 10 years against their income.

Retailers are entitled to claim Capital Allowances over 8 years (15% years 1–7 and 10% on year 8).

Pensions

Approved Retirement Funds

The Finance Bill has reverted to the lower limit of € 63,500 required to hold funds in an AMRF (Approved Minimum Retirement Fund) where the pensioner has a guaranteed annual income of less than €12,700. These amendments reverse the former increases in these levels, introduced in Finance Act 2011.

Access to Additional Voluntary Contributions (AVC) Before Retirement

The Bill allows an individual access to their AVC contributions and to withdraw up to 30% of the value of the AVC. This provision will apply for a three year period expiring on 14 February 2016.

Corporation Tax

R&D Credit

The Bill confirms the budget announcement that first € 200,000 (Previously €100,000 of qualifying expenditure will qualify for the R&D Credit).

The working requirement for key employees has been reduced to 50% (previously 75%).

Intangible Asset Scheme

The Bill has reduced the claw back period for Intangible Assets from 10 years to 5 years.

Corporation Tax Exemption

The three year start up relief is extended to allow any used credit to be carried forward to use in subsequent tax periods subject to the amount of relief being restricted to the employers PRSI spend.

Real Estate Investment Trusts (REIT's)

A new section has been introduced in the Finance Bill for REIT's.

A REIT will have the following main characteristics:

An exemption from Income and Corporation Tax in respect of rental income and chargeable gains.

The REIT must derive 75% of it's income from property rental

85% of its property income must be distributed by dividends

The dividends will be subject to Dividend Witholding Tax

Capital Gains Tax

The rate of CGT has increased to 33% effective from on or after 6 December 2012.

Remittance Basis

The transfer of property gains by a non – domiciled to a domiciled spouse who brings the proceeds into the state will be deemed to be remitted into the state for CGT purposes.

Retirement Relief

The Bill confirms that where individuals dispose of an asset to a child on or after 1 January 2014 and the Market Value is less than €3M, relief will be given in respect of the disposal.

CGT on Disposal of Agricultural Land for Restructuring

A relief from CGT on the disposal of farm land for restructuring will apply where the proceeds are reinvested within 24 months of each other.

Capital Acquisitions Tax

The Bill confirms the increase in the CAT rate to 33% effective from 6 December 2012.

The new CAT-free thresholds for gifts and inheritances taken on and after 6 December 2012 are as follows:

Group A - €225,000

Group B - €30,150

Group C - €15,075

The Bill clarified that interest on the late payment of Discretionary Trust Tax by a Trust runs from the valuation date for the 6% once off charge, and 1% annual charge until the tax is discharged.

Stamp Duty

Resting on Contract

The Bill brings in provisions for contracts entered into after 13 February 2013 and where 25% or more of the consideration for the property has been paid, a charge to stamp duty will arise in this structure.

Young Trained Farmers

Relief on transfers of agricultural land to young trained farmers has been extended to 31 December 2015.

VAT

Cash Receipt Basis

The threshold has increased to €1.25M with effect from 1 May 2013.

Receivers and Liquidators

The receiver/liquidator is the accountable person for any supplies made by the business while under control of receiver/liquidator.

The VAT obligations rest with the receiver where land or buildings are transferred to a receiver.

Conclusion

While Finance Bill contains some unexpected amendments and measures, it generally is in line with the Budget 2013 announcement.

Paul Dillon is Tax Partner with Duignan Carthy O'Neill Chartered Accountants

Email: pauldillon@dcon.ie

Tel: 01 668 2404