In the following article BDO Limerick Taxation Partner, Paul Nestor, examines some of the key points contained in the 2013 Finance Bill, which was published by the Minister for Finance, Michael Noonan earlier this month.
Finance Bill 2013 Summary
The following sets out some of the key measures introduced in the Finance Bill 2013.
- The reduced rate of 4% for USC purposes has been removed in respect of individuals where their income is in excess of €60,000 per annum. This 4% rate previously applied to individuals who held a medical card or individuals who had reached the age of 70 years.
- From 1 July 2013, maternity benefit will be treated as a taxable source of income.
- The tax treatment of maintenance payments made between separated civil partners is now brought in line with that of married couples. Maintenance payments for the support of children made from one separated civil partner to the other will not be treated as income in the recipient’s hands where that partner has custody of the child.
- Changes in respect of the remittance basis of taxation have been introduced. Where income or gains, which are subject to the remittance basis of taxation, are transferred to a spouse or civil partner, then a charge to income tax will arise where this income is remitted into the Ireland.
- From 1 January 2013, the rates in relation to the calculation of benefit –in –kinds arising in respect of loans from an individual’s employer have changed. The specified rate in respect of benefit-in-kind’s on home loans is now at a rate of 4%. This is reduced from 5%. The rate in respect of other loans has been increased to 13.5% from 12.5%.
- Top Slicing Relief in respect of ex-gratia payments is no longer available to individuals where the payment exceeds €200,000 on or after 1 January 2013. Additionally, Finance Act 2013 has abolished Foreign Service Relief. This relief was available to employees in respect of their foreign service when calculating the amount of an ex-gratia payment which would be liable to tax.
- From 1 January 2013, no tax relief will be available to individuals in relation to donations made to approved bodies. Instead, the charity will make a claim to Revenue, similar to procedure that had been in place for donations from PAYE workers.
- The threshold for tax relief on 3rd level fees is being increased to €2,500 for 2013, €2,750 for 2014 and €3,000 for 2015.
- A number of changes were introduced in Finance Act 2013 relating to the Personal Insolvency Act.
- If provides that no claw back of capital allowances will arise where property is transferred under a Debt Settlement Arrangement or Personal Insolvency Arrangement to a person where the property is held in trust for the benefit of creditors (i.e. personal insolvency practitioner).
- Additionally, where rental income is generated from this property while held in trust, the debtor will remain liable to income tax in respect of the rental income.
- The transfer of the property/assets to the personal insolvency practitioner will not be liable to CGT in respect of such a transfer.
- The payment of all tax liabilities due during the administration of any Debt Settlement Arrangement or Personal Insolvency Arrangement must be provided for in the arrangement. These liabilities must be paid in priority to other liabilities and failure of such a payment will result in a breach of the arrangement.
- Group relief for losses is now only available to subsidiaries where the parent company is tax resident in a DTA country or is an EU Member State.
- The Foreign Earnings Deduction which was introduced in Finance Act 2012 has been extended to include Algeria, Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal and Tanzania.
- For accounting periods ending after 1 January 2013, the first €200,000 (up from €100,000) of R&D spend in a year will qualify, without reference to the 2003 base year.
- An R&D tax credit can be used to reward ‘key employees’. Previously, in order for an employee to be considered a ‘key employee’, the individual had to spend at least 75% of their working time on R&D activities. This threshold is reduced to 50%.
- The clawback period in respect of intangible is reduced from 10 years to 5 years from the date the asset was acquired.
- For accounting periods ending after 1 January 2013, the deminimis amount of undistributable investment income that may be retained by a close company without giving rise to a close company surcharge has been increased from €635 to €2,000.
- Finance Act 2013 introduces new rules in relation to debt forgiveness and the use of trading losses in relation to those engaged in land dealing/development. Where a debt is released, the amount released will be treated as taxable income in the year of release and any losses carried forward can be used against this receipt of income. However, the debt must have arisen as a result of financing the purchase or development of land. Furthermore, write downs of land (where not a realised loss from the sale of land) or interest costs not paid will not be available as a deduction.
- Finance Act 2013 introduces a Real Estate Investment Trusts (REIT) regime. This regime is to facilitate the attraction of foreign investment capital to the property market in Ireland. A REIT company will be exempt from corporation tax on income and gains related to rental investment properties subject to certain conditions being met.
Capital Gains Tax
- The budget measure increasing the rate of CGT from 30% to 33% with effect from 6 December 2012 is confirmed.
Value Added Tax
- The annual turnover threshold for eligibility for the cash receipt basis of accounting for VAT will be increased from €1 million to €1.25 million with effect from 1 May 2013.
- The farmer’s flat-rate addition will be reduced from 5.2% to 4.8% with effect from 1 January 2013. The flat-rate addition is reviewed annually in accordance with the EU VAT Directive. The new 4.8% rate continues to achieve full compensation for farmers.
Capital Acquisition Tax
- The rate of tax has been increased from 30% to 33%. The new rate of tax applies to gifts and inheritances taken after 5 December 2012.
- The Capital Acquisitions Tax tax-free thresholds have been reduced as follows:
- Group A from €250,000 to €225,000
- Group B from €33,500 to €30,150
- Group C from €16,750 to €15,075
- The reduced tax-free thresholds apply to gifts and inheritances taken after 5 December 2012.
Local Property Tax (LPT)
- From 1 July 2013, residential property owners will be liable for an LPT based on the self-assessed market value of their property on 1 May 2013.
- Property values are grouped into value bands. A rate of 0.18% will apply to the midpoint of the value band up to €1m. For properties valued at over €1m the LPT liability will be calculated as follows: 0.18% on the first €1m and 0.25% on the portion above €1m.
- LPT will be taxed on the following basis:
Local Property Tax Valuation Bands
- Where an individual is selling a property, that individual will have an obligation to disclose to the purchaser the value declared to Revenue for the purposes of the LPT
- The buyer will also have an obligation to inform Revenue if the previous owners had put the property in a valuation band lower that the actually selling price of the property.
- Individuals who do not comply with these new rules will be subject to a fine in the amount of €500.