Income Tax - BDO

BDO BUDGET BREAKFAST BRIEFING
Thursday, 6 December 2012
Kevin Doyle
Partner
kdoyle@bdo.ie
Eddie Doyle
Partner
edoyle@bdo.ie
+353 1 470 0301 +353 1 470 0271

Topics
• Corporation Tax Issues
• SME’s 10 Point Plan
• SME Funding
• REITs and NAMA
• Film Relief
Page 2

CORPORATION TAX
Non-negotiable
Substance
Compliant
Robust
Headline
Transparent
Effective
Ability to Exit Troika Programme

Corporation Tax in Context
•2012 CT expected to be €4bn or 11% of tax take
• from €6.4bn in 2007
•Compared to Income Tax of €15.3bn in 2012 or 42% of Tax
Take ( from €13.5bn in 2007)
But…
•FDI is worth c.€19bn to the Irish economy (including CT)
•Supports 250k jobs (1 in 5.5 private sector jobs)
•€115bn in exports
Has enough been done to retain the 12.5% rate?
Page 4

The Global Focus on Tax Planning & Competition
Can the 12.5%/CT Base be retained in light of …..
• A focus on MNC Tax Planning
• Use of Ireland in Global Structure
• References to Ireland as a “Tax Haven”
• EU: Aggressive Tax Planning
Page 5

Other Threats to Irelands Corporation Tax Take
• Financial Transaction Tax
• CCCTB/ Tax Harmonisation
• UK FDI Tax Policy
Page 6

SME 10 Point Plan
•Start up relief: Carry forward unused credits
•Close Co: Re-minimus surcharge up to €2k from €635
•R&D: Volume basis €200k up from €100k
•VAT cash receipts basis: €1.25m up from €1m
•FED: Extended beyond BRIC countries to more jurisdictions
Page 7

SME – 10 Point Plan Continued
•EIIS: extended to 2020
•Farmer stock relief extended
•CGT Relief on farm restructures
•Review “Carried Interest” Provisions
•Consultation on ‘Taxation of Micro Enterprises’
Page 8

SME – Funding
•NPRF investment funds for SME sector
• Equity & credit investments
• Operational in Quarter 1 & 2 of 2013
• Funds of between €100m and €400m
•More reviewers for the credit review office!
Page 9

FATCA
•Ireland/US Intergovernmental Agreement (IGA)
•IGA expected to mirror UK IGA
•Report to the Revenue as opposed to IRS
•Implement new client account procedures and due diligence by 1 January 2014
•Pre-existing accounts due diligence 30 June 2014
•First reporting deadline likely to be 31 March 2015
Page 10

Property Sector
REIT’s
•Internationally recognised property investment structure
•Listed company
•Diversified ownership: Non Irish Institutions Pensions and more
•NAMA lobbied
NAMA
•2bn of funding over 4 years for completion of projects in Ireland
•€2bn vendor finance for purchasers of commercial property over four years
Page 11

Film Relief
•Relief extended to 2020
•Move to tax credit model from 2016 (repayable credit?)
•Perceived inefficiencies in the 481/investor relief model
•Goes against domestic producer views in consultation
•Net producer benefit of 28% through a credit is still likely to be costly
•Hopes to push Film Investors into EIIS
•Further consultation to come
Page 12

Topics
• Personal Tax
• Property Tax
• Pensions
• Capital Taxes
Page 13

Income Tax
• No changes to Income Tax Rates and Credits for 2013
• Maternity Benefit subject to Income Tax (but not USC) from 1 July 2013
• Top Slicing relief no longer available on tax free termination payments in
excess of €200,000
• Tax relief on charitable donations at blended Rate of 31% to be reclaimed by
the charity
• Increase from 12.5% to 13.5% in the specified interest rate used in calculating
the taxable benefit from preferential loans The specified rate for home loans is
reduced from 5% to 4%
• DIRT rate increased from 30% to 33% for payments made annually or more
frequently, and from 33% to 36% for payments made less frequently
Page 14

PRSI & USC
• The standard rates of USC will apply to individuals aged 70 years and over and
medical card holders earning €60,000 per annum from 2013
• The weekly allowance for full rate and modified rate PRSI contribution is
removed
• The minimum annual PRSI contribution for self – employed earners will be
increased from €253 to €500.
• Where modified PRSI rate payers have income from trade or profession, such
income and any unearned income will be subject to PRSI with effect from the
1 st of January 2013; and
• Unearned income for everyone else will become subject to PRSI in 2014. This
means PRSI will be payable on passive income, such as rental Income,
investment income, dividends, interest on deposits and savings.
Page 15

Local Property Tax (LPT)
1. Who Pays
2. How will the tax be calculated
3. How do you pay
4. Exemptions
5. Deferrals
6. Household Charge and NPPR
7. Example
8. Key Dates
Page 16

Who Pays
• Owners of residential properties, including rental
properties, will be legally responsible (“liable persons”) for
payment of the tax.
• The liability will rest with the tenant in the case of long
leases (over 20 years) or life tenancies.
• Co-owners will be jointly and severally liable for the tax.
Page 17

How will the tax be calculated?
The History
• ESRI (2012)
• €2.50 to €3.00 per €1,000 of house value
• €500 million per annum
• Commission on Taxation (2009)
• At 0.25%, property €150k-€300k = €563 property tax (€926m p.a.)
• At 0.30%, property €150k-€300k = €675 property tax (€1.1bn p.a.)
• National Recovery Plan
• €200 per dwelling (site value tax)
• Minister Noonan:
• “On the IMF advice that should be 0.5 per cent of the value, which would bring in
about €1 billion, I would not propose to the Government at that level. I think it’s too
high”.
Page 18

How will the tax be calculated?
• The market value of residential properties will be the basis
of assessment for the tax.
• Taxable bands with the initial band covering €0-€100,000
and bands of €50,000 width thereafter up to €1,000,000 in
value. The tax liability is calculated by applying the tax
rate to the mid-point of the band.
• Houses valued over €1m will be chargeable to LPT on their
market value, with no banding applied.
Page 19

How will the tax be calculated?
• Liable persons will self-assess the market value of their
property.
• Revenue will publish guidance about valuing a property.
Where Revenue guidance about valuing a property is
followed, property valuations will not be challenged by the
Revenue.
• The initial valuation is valid up to and including the year
2016.
Page 20

How will the tax be calculated?
• For the first 18 months (up to 31 December 2014) the national central tax rate
will be 0.18% for properties valued up to €1m.
• For properties valued over €1m, the first €1 million is taxed at 0.18% with any
excess value over €1 million taxed at 0.25%.
• From 1 January 2015 local authorities will have discretion to vary the LPT rates
by +/-15% of the national central rate.
• The national central rate will not be increased for the lifetime of the current
Government.
Page 21

How do you pay
• LPT will operate through a system of self-assessment and
self-declaration by liable persons.
• Revenue will have responsibility for all administration,
collection, enforcement and audit aspects.
• Normal Revenue enforcement and collection procedures
will apply.
Page 22

How do you pay?
• LPT may be paid in full by a Bank Single Debit Authority, by
Debit/Credit card (online) or by cash through certain service providers.
• Alternatively the tax may be paid by equal instalments through
deduction at source, direct debit or by cash payments, such as
• Deduction at source from salary/occupational pension
• Deduction at source from social welfare payments including
contributory and non-contributory state pensions and other longterm
schemes.
• Deduction at source from scheme payments made by the Department
of Agriculture, Food and the Marine.
• Direct Debit.
• Cash Payments through certain service providers.
Page 23

How do you pay
• Revenue are developing a comprehensive register of residential properties in
the State.
• During March 2013, Revenue Commissioners will advise liable persons of their
obligations in relation to the LPT and how to comply.
• In the absence of a return the Revenue Commissioners will pursue collection
of an estimated amount of LPT.
• In the absence of a return or an election by the taxpayer for a particular
method of payment, as far as possible, deduction at source will be the default
means of collection.
• In the case of the self-employed, the Revenue Commissioners will not issue a
tax clearance certificate where there is unpaid LPT. Also late delivery of an LPT
return will be linked to the filing of an income tax return, thus exposing a selfemployed
taxpayer to the penalty of an income tax surcharge.
• Where property tax remains outstanding a charge will attach to that property.
This charge will have to be discharged on the sale/transfer of the property.
Page 24

Exemptions
• Newly constructed but unsold
residential property
• Where ownership is vested in a public
body or approved charitable body and
used to provide accommodation to
people with special housing needs
such as the elderly or people with
disabilities
• Where principal private residence is
unoccupied by reason of long term
mental or physical infirmity
• Mobile home, vehicle or a vessel
• Property fully subject to commercial
rates
• Houses in certain unfinished
developments as prescribed by law
• Properties enjoying protection in
other legislation – diplomatic or
similar property
• Certain new and previously unused
houses that are purchased between
1 Jan 2013 and 31 Dec 2016 are
exempt until end 2016
• Second hand property purchased by
a first time buyer between 1 Jan
2013 and 31 Dec 2013 will be
exempt until end 2016
Page 25

Deferrals
• A system of voluntary deferral arrangements for owner-occupiers will be
implemented in specific conditions to address cases where there is an inability to
pay the LPT:
• Where gross income does not exceed €15,000 (single) and €25,000 (couple).
• For income stressed owner-occupiers who have an outstanding mortgage, an
adjusted gross income limit will apply – where gross income less 80% of mortgage
interest falls below €15,000/€25,000 a deferral option will be available up to end
2017 (when mortgage interest relief also ends).
• Marginal relief will apply for owner-occupiers where the income or adjusted
income is €10,000 above the full deferral income limit of €15,000/€25,000, i.e.
€25,000/€35,000, to permit deferrals of up to 50% of LPT liability.
• Interest will be charged on deferred amounts at a rate than the rate of 4%. The
deferred amounts, including interest, will be a charge on the property. Deferred
property taxes and interest will have to be discharged on the sale/transfer of the
property.
Page 26

Household Charge/NPPR
• The Household Charge is to be abolished from 1 January 2013
• The arrears of the Household Charge for 2012 will be capped at €130 if paid to
the Local Government Management Agency before 30 April 2013.
• From 1 May to 30 June 2013 normal Household Charge collection, late payment
fee and interest procedures will apply. The cap of €130 will no longer be
available.
• From 1 July 2013, any outstanding Household Charge will be increased to €200
and added to Local Property Tax due on the property. In effect, the arrears of
the Household Charge will be converted into LPT and collected through the LPT
system. The Revenue Commissioners will pursue this additional liability when
the LPT system is fully operational. Interest and penalties under the LPT system
will apply to the additional €200.
• TheannualNPPRchargewillapplyfor2013andtheNPPRwillbeabolished
thereafter
• Similar provisions as for arrears of Household Charge will be put in place for the
collection of any arrears of NPPR.
Page 27

Example
Buy-to-let property owner:
• 4-bed semi-detached house in Terenure €450,000
• Holiday home €150,000
• 2 buy-to-let apartments €150,000 each
Property Tax
House in Terenure (€425,000 * 0.18%)
Holiday Home (€125,000 * 0.18%)
2 buy-to-let apartments (€125,000*2*0.18%)
2013
€
382
112
224
2014
€
765
225
450
NPPR charge
Holiday Home
2 buy-to-let apartments (€200*2)
Page 28
200
400
Total Property taxes 1,318 1,440
Nil
Nil
Gross Income needed to pay this 2,746 3,000

Key Dates
2012
December Budget Announcement; Bill published and debated in Oireachtas
2013 (If passed)
March
Revenue Commissioners will issue return forms and a detailed
explanatory booklet to Liable Persons.
1 May Property Ownership and Property Valuation Date – Value valid up to and
including 2016
7 May Return Forms due to Revenue
28 May Return forms due if filing electronically
From 1 July Phased payments such as direct debit or deduction at source
payments commence
(From 1 January in subsequent years)
21 July Single Debit Option Payments deducted
(21 March in subsequent years) Key Dates
Page 29

PENSION CONTRIBUTIONS
• No change to basis of relief for employer or employee contributions for 2013.
• Maintain marginal Income Tax relief for personal contributions
• Standard Fund Threshold of €2.3m unchanged for 2013
• From 2014 onwards tax relief on pension contributions to pension schemes to
fund pension income of up to €60,000 per annum
• Pension levy abolished for 2015
• Further consultation with pension sector in relation to implementation of
changes required
• Pre-retirement access to up to 30% of AVC funds. Amounts withdrawn will be
subject to Income Tax. Details in Finance Bill 2013.
Page 30

CAPITAL TAXES
Capital Acquisitions Tax
• Rate increased from 30% to 33%
• Thresholds reduced
- Children €250,000 to €225,000
- Relatives €33,500 to €30,150
- Others €16,750 to €15,075
• Changes effective for gifts/inheritances after 6 December 2012
Capital Gains Tax
• Rate increased from 30% to 33% with effect from 6 December 2012
• Relief on disposals of farm land for farm restructuring purposes from
2013 to 2015 (subject to EU approval)
Page 31

PLANNING POINTS
• Transfer of Business
- Restriction of reliefs for over 66’s after 2013
- Low Valuations for Stamp Duty & other taxes
• Incorporation
- Lower headline rate
- Pension planning opportunities
- Capital receipt – 33% on exit
- Low Stamp Duty rate for asset transfers
• Transfer of Personal Investment Assets to Companies
- Tax efficient funding
- Low Stamp Duty rate for asset transfers
• R&D Tax Credits
- Broad range of activities
- Tax rebates and incentives for employees
Page 32

BDO BUDGET BREAKFAST BRIEFING
Thursday, 6 December 2012
Kevin Doyle
Partner
kdoyle@bdo.ie
Eddie Doyle
Partner
edoyle@bdo.ie
+353 1 470 0301 +353 1 470 0271