The Miniter for Finance, Mr Brian Lenihan, delivered his first budget on Tuesday, 14 October 2008.

ICAI Tax – Budget Special was sent out to all our subscribers of eNews (not just the usual ICAI Tax subscribers) on Tuesday evening. Edited by ICAI's staff, it offers a unique insight into the budgetary measures from a Chartered Accountant's perspective. ICAI Tax – Budget Special is reproduced at Section 2.01.

A copy of the Budget speech, together with supplementary information was published on the Department of Finance website and was available at http://www.budget.gov.ie/ at the conclusion of the Minister's speech to Dáil Éireann.

Income Levy

One of the new measures for which there is the most available detail is the Income Levy, given that the enabling legislation has been published in the form of a Financial Resolution (see the next story).

The Income Levy will not actually apply to all income. Interest from Deposits, which would have been subject to DIRT, will not be liable to the Levy. This is presumably on the basis that the DIRT rate has gone up by three percentage points, to 23%. But interest income from a foreign bank would be subject to the levy.

Several categories of income which are otherwise sheltered from tax will be caught for the Levy, as if the usual tax reliefs or exemptions did not apply. For example exempt patent income, either directly or by dividend is subject to the Levy. Income from rental properties, relieved under the various “Section 23” type reliefs, is also caught. Likewise Artist's income, which might otherwise be exempt.

Some payments which are taken into account in reducing income tax liabilities will be disregarded when calculating the Levy. Donations to Charities and Sporting Bodies will not reduce the amount of income liable to the Levy.

On the past two occasions when an Income Levy was introduced, there was a minimum amount of income below which the Levy wasn't payable. The Taoiseach announced in the Dail on 21 October 2008 that the Income Levy would not apply to those on the minimum wage. Those earning above the minimum wage will be subject to the Levy on the entire amount.

A deeming provision is in place to ensure that the Levy must be taken into account by the self employed when paying preliminary tax for 2009, even if that preliminary tax is based on the 2008 liability when the Levy did not apply.

It's always possible that the Financial Resolution details could change in the Finance Bill – there may for example be some anomalies in the application of the levy as currently drafted between different types of investment funds.

Car Parking Spaces and Second Residences

Is it a tax, or is it a levy? And does it really matter?

The taxation of the benefit of having a car parking space has presented problems ever since it was seriously proposed by Charlie McCreevy as Finance Minister some ten years ago. There are a few practical problems. How do you value the cost to the employer of providing the space in a fair manner, given the huge discrepancies in parking costs throughout the country? Some of the most valuable spaces are arguably in the Government's possession. And do you need to distinguish between people who use their cars for business purposes, and those who simply use the car to get in and out of work?

The Benefit-in-Kind tax system we have is messy. It raises issues of valuation and a notional amount of income as a consequence. Instead what is now proposed is a “flat rate levy”, levies being the instruments of choice in this Budget. The levy of €200 per annum is to be confined to “employer provided car parking facilities situated in the main urban areas”.

The thing about a levy, as distinct from some kind of notional taxable income amount, is that it raises the same amount of tax from everyone. It won't matter if you are a top rate taxpayer or a full rate PRSI contributor. It applies irrespective of whether you actually own your car or borrow it from your significant other, whether the space is on the employer's premises, balancing somewhere on a car stacker, or leased in a public car park. In equity, some apportionment method should be considered so that if you don't use the space for the full year, you don't pay the full levy. This might arise where someone joins or leaves an organisation which offers a parking space as a perk.

The levy will most likely be collected through the PAYE system, with the employer permitted to withhold the €17 or so a month from the employee. It will probably also be up to the employer to identify the number of spaces on offer, and which of his staff are entitled to use them. The measure will add to the compliance burden, and possibly create HR nightmares.

Charge on non principal private residences

€200 per dwelling is also to be applied to private rented accommodation, holiday homes and other “non principal” residences. The point here is that this is to be a Local Authority charge, rather than a central government charge. While Revenue would already have some records relating to principal residences, it's unclear as to what criteria the Local Authorities will apply.

Among the issues to be determined is the scope of the charge. Will someone from Germany, owning a holiday home in Connemara, be subject to the charge?