Budget 2015 was announced today.

Here is a brief Summary of some of the Taxation Measures for introduction in Ireland in 2015

INCOME TAX

 There will be an increase in the standard rate band of income tax by €1,000 from €32,800 to €33,800 for single individuals and from €41,800 to €42,800 for married one earner couples.

There will also be a reduction in the higher rate of income tax from 41% to 40%.

Artists’ Exemption

 The threshold for the artists’ exemption will be increased by €10,000 to €50,000.

 The Exemption is also being extended to non-resident artists i.e. to individuals who are resident or ordinarily resident in another Member State or in another EEA State.

Foreign Earnings Deduction

 FED is being extended for a further 3 years until the end of 2017 and qualifying countries have been extended to include Chile, Mexico and certain countries in the Middle East & Asia.

 Other changes are as follows:

• The number of qualifying days abroad is being reduced from 60 to 40
• The minimum stay in a country is reduced to 3 days and
• Travelling time is being included as time spent abroad.

 Special Assignee Relief Programme

 The main points are as follows with other details being provided in the Finance Bill:

• SARP is being extended for a further 3 years until the end of 2017 and the upper salary threshold is being removed. 
• The residency requirement is being amended to only require Irish residency and the exclusion of work abroad is also removed.
• The requirement to have been employed abroad by the employer is being reduced to 6 months.

Employment and Investment Incentive

The EII is being amended: 

• to raise company limits
• increase the holding period by 1 year and
• include medium-sized companies in non-assisted areas and internationally traded financial services (These measures are subject to approval from the European Commission).

Hotels, guest houses and self-catering accommodation will remain eligible for a further 3 years and the operating and managing of nursing homes will be included for 3 years.

Seed Capital Scheme

This scheme will now be known as “Start-Up Relief for Entrepreneurs” (SURE).

It has been extended to individuals who have been unemployed up to 2 years.

Rent-a-Room Relief

 The threshold for exempt income under this scheme has been increased from €10,000 to €12,000 per annum.

Water Charges

Tax relief at 20% will be provided on water charges, up to a maximum of €500 per annum.

 This relief will be paid in arrears

 Home Renovation Incentive

 The HRI Scheme has being extended to include rental properties owned by landlords subject to income tax.

UNIVERSAL SOCIAL CHARGE

Incomes of €12,012 or less will be exempt from the Universal Social Charge.

 In situations where the annual income is in excess of €12,012 the tax will be calculated as follows:

€0 to €12,012 @ 1.5%

€12,013 to €17,576 @ 3.5%

€17,577 to €70,044 @ 7%

€70,044 to €100,000 @8%

For individuals with PAYE income in excess of €100,000 per annum they will be liable to USC @ 8%.

 Self-employed individuals with income in excess of €100,000 will be liable to USC @ 11%

 There will be an extension of the exemption from the 7% rate of USC for medical card holders whose total income does not exceed €60,000 (who will now pay a maximum rate of 3.5% USC).

 Individuals aged 70 years and over whose total income is €60,000 or less will pay a maximum rate of 3.5% USC.

CAPITAL GAINS TAX

Property purchase incentive

 The incentive relief from CGT (in respect of the first 7 years of ownership) for properties purchased between 7 December 2011 and 31 December 2014 is not being extended beyond 31 December 2014.

 Where property purchased in this period is held for seven years the gains accrued in that period will not attract CGT.

 Windfall tax

Windfall tax provisions introduced in 2009 are being abolished from 1^st January 2015.

This relates to provisions which apply an 80% rate of tax to certain profits or gains from land disposals or land development, where those profits or gains are attributable to a relevant planning decision by a planning authority.

CORPORATION TAX

R&D Tax Credit

 The 25% tax credit applies to the amount of qualifying R&D expenditure incurred by a company in a given year that is in excess of the amount spent in 2003 (base year).

 This 2003 base year restriction is now being removed from 1 January 2015.

 Three Year Relief for Start-up Companies

 This relief from corporation tax on trading income (and certain capital gains) of new start-up companies in the first three years of trading has been extended to new business start ups in 2015.

A review of this measure will take place in 2015.

Capital Allowances for the Provision of Specified Intangible Assets

 This provides capital allowances for expenditure incurred by a company on the provision of certain intangible assets for use in a trade.

 The use of such allowances in any accounting period is currently restricted to a maximum of 80% of the trading income from the relevant trade in which the assets are used.

 This 80% restriction on aggregate allowances (and any interest expense incurred on borrowings to fund the expenditure) will be removed.

Accelerated Capital Allowances for Energy Efficient Equipment

This is a measure to incentivise companies to invest in energy efficient equipment was due to expire at the end of 2014 however it is being extended to the end of 2017

DEPOSIT INTEREST RETENTION TAX

First time buyers DIRT relief has been introduced which is a relief from DIRT on savings used by first time house buyers towards the deposit on a home.

OTHER AREAS

There have also been changes to Agri-Taxation in terms of Income Tax, VAT (Increase in the Farmer’s Flat Rate Addition from 5% to 5.2%), Capital Gains Tax (Relief for Farm Restructuring), C.G.T. (Retirement Relief), Capital Acquisition Tax (Agricultural Relief) and Stamp Duty (Agricultural leases and Consanguinity Relief).

The 2010 Finance Act introduced a fixed pay and file date for all gifts and inheritances with a “valuation date” after 14^th June 2010.  As a result, the Capital Acquisitions Tax year runs from 1^st September to 31^st August in the following year.

 C.A.T. arising on gifts/inheritances, where the “valuation date” falls within the twelve month period ending on 31^st August in a particular tax year, must be paid and filed with Revenue by the 31^st October of that year.

 What do we mean by “Valuation Date”?

 The “valuation date” is the date on which the property making up the gift or inheritance is valued.  The “valuation date” for a gift is the date the individual receives the gift but determining the “valuation date” for an inheritance is far more complex.

 Section 30(4) Capital Acquisitions Tax Consolidation Act 2003 defines the valuation date as the earliest of the following:

1. the date on which the Executor is entitled to retain the inheritance for the benefit of the beneficiary or
2. the date on which the inheritance is retained for the beneficiary or
3. the date of delivery to the beneficiary i.e. the date on which the inheritance is paid over or transferred to the beneficiary.

 In many estate cases, the date of the grant of probate or grant of administration is generally taken to be the “valuation date.”

The situation can be more complicated in the following situations: 

• where the asset passes automatically on the death of an individual by operation of the law (e.g. where joint property passes by survivorship) or
• where there are several valuation dates for different bequests.  For example some assets may be distributed before the grant of probate which would mean the “valuation date” is the date of transfer or payment and other inheritances, such as the reside, would be valued after the date of grant.

Common Problems

 The main problems for Tax Practitioners and Accountants are as follows:

• The very short time frame between a valuation date in, say, August and the pay and file date of 31^st October in the same calendar year.  In situations where the valuation date is the grant of probate it may not be possible for the Executors to extract sufficient cash before the deadline date.
• The value of the assets can fluctuate greatly between the date of death and the valuation date.  This is especially relevant to property and share values so particular attention should be given to the correct valuation of these assets.
• In the event of a date of death valuation, a beneficiary may not have sufficient information to establish whether or not there is a liability to C.A.T. until after the pay and file deadline.

A date of death valuation arises in the event of a beneficiary having an immediate entitlement to an inheritance. This could arise if a remainder interest is taken on the death of a life tenant or if there is an inheritance of a joint tenant by survivorship.

Compliance

 An IT38 Return should be filed if:

(a) the beneficiary has a CAT liability or

(b) the benefit exceeds 80% of the Tax Threshold Amount.

IT38s must be filed by 31^st October along with any CAT due.

 An IT38 in paper form can only be filed if the individual is not claiming any reliefs or exemptions other than the small gift exemption of €3,000.

 Where other reliefs or exemptions are being claimed then it is essential that the Return is filed electronically through the Revenue Online System in which case the pay and file deadline will be 13^th November 2014.

 Tax Thresholds

 Group A – €225,000 – Generally from parents to children

Group B – €30,150 – In general from brothers, sisters, aunts, uncles, etc.

Group C – €15,075 – Gifts/inheritances from other people deemed to be “strangers in blood.”

 Are there any penalties for late filing?

 If you are up to two months late filing your Tax Return there will be a 5% surcharge of the amount of tax payable up to a maximum of €12,695.00.

 If you file your Return after that a 10% surcharge will be levied up to a maximum amount of €63,485.00.

 What about interest?

 Interest of 0.0219% per day or part of a day will be applied to all late payments of Capital Acquisitions Tax.

If you’ve already made or about to make a disposal of a capital asset (e.g. certain shares, an investment property, a business, etc.) anytime  between 1^st January and 30^th November 2014 you will be obliged to pay your Capital Gains Tax by 15^th December 2014.

 If you decide to wait and dispose of your asset between 1^st December and 31^st December 2014 then your payment will be due by 31^st January 2015.

 What happens if you miss these deadlines?

 Interest of 0.0219% per day will be applied to all late payments of Capital Gains Tax.

 What happens if you make a gain in the first part of the year and a loss in the second part?

 Even if you’ve made an overall loss for the year, you will be obliged to pay the Capital Gains Tax arising on any gain you’ve made in the first part of 2014 by the specific payment date being 15^th December 2014.

 You can then submit your claim for a tax refund in January 2015 if a loss arises in the second part of the year.

 Any tax saving tips?

 Plan the timing of your disposals so that capital gains and capital losses arise in the same period thereby enabling you to offset the losses against the gains and effectively reduce any potential tax liability.

 This can be very useful from a cash flow point of view.

 What about filing obligations?

 You must include details of all your capital acquisitions and/or disposals made in 2013 in your 2013 Income Tax Return. 

 This Return must be filed with Revenue by 31^st October 2014.

 There is an extension to 13^th November 2014 if you are using the Revenue Online System (ROS).

 What happens to individuals who are not obliged to file an Income Tax Return?

 You may file a CG1 Form which can be downloaded from the Irish Revenue website www.revenue.ie

 As with the Income Tax Return, the due date for filing is 31^st October 2014.

 Please be aware, there is no facility to file this Form online which means the 13^th November 2014 extension does not apply to the CG1 Form.

Are there any penalties for late filing?

 If you are late filing your Tax Return but manage to do before 31^st December 2014 there will be a 5% surcharge of the amount of tax payable up to a maximum of €12,695.00.

 If you file your Return after 31^st December 2014 a 10% surcharge will be levied up to a maximum amount of €63,485.00.

The High Earner’s Restriction was introduced in the 2006 Finance Act with effect from 1^st January 2007.  The objective was to limit the use of certain tax reliefs and exemptions and to ensure that high income individuals who were eligible for these “specified reliefs” paid an effective tax rate of at least 20%.

 Changes were introduced by Finance Act 2010 which extended the scope of the restriction to ensure these individuals now pay an increased effective rate of 30%.  From 2010 onwards, the High Earner’s Restriction applies to a much greater number of tax payers which we can see from published figures (*Dáil PQ 25 March 2014)

To whom does the High Earner’s Restriction apply?

 From 2010 the restriction applies to an individual who meets all three of the following criteria:

1. The individual’s Adjusted Income (being the Taxable Income before applying the Specified Reliefs) for the tax year is greater than or equal to the “Income Threshold Amount.”  In general this figure is €125,000 but it may be less depending on whether the individual has ring-fenced income (E.g. Irish Deposit Interest that has suffered Deposit Interest Retention Tax; payments and gains relating to certain foreign life policies; certain offshore payments and gains; gross deposit interest arising in an E.U. member state with an Irish tax rate equal to the D.I.R.T. rate, etc.) and
2. The total Specified Reliefs used by the high earner is greater than or equal to the “Relief Threshold Amount” of €80,000 and
3. The aggregate specified reliefs used by the individual are less than 20% of the Adjusted Income.

How do we calculate the tax?

1. Compute the Taxable Income (ignoring the restriction) (T)
2. Identify any Ring fenced Income (R)
3. Identify the Specified Reliefs used in the calculation of the Taxable Income (S)
4. Compute the Adjusted Income (A) using the formula: A = T + S – R
5. At this point you should check whether you meet all the three criteria necessary for the restriction to apply.  If the answer to one or more questions is NO then the restriction does not apply to the tax year in question.
6. If the answer to all three questions is YES, compute the “Recalculated Taxable Income” using the formula: T + (S – Y) where Y = the greater of (i) the Relief Threshold Amount of €80,000 or (ii) 20% of the Adjusted Income.

The effect of the High Earner’s Restriction is to increase the individual’s taxable income liable to Income Tax at the normal rates.

Example 

Mr A has the following income for 2013:

• Case I Trading Income                                   €200,000
• Case V Rental Income                                    €300,000

He also has Section 23 Type Property Relief of €300,000

Steps:

1. Calculate the Taxable Income (T) 

Case I Trading Income                                         €200,000

 Case V Rental Income                  €300,000

Section 23 Relief                          (300,000)                   Nil

 Taxable Income (T)                                              €200,000

2. Calculate (R) – Mr A has no Ring fenced income

3. The Specified Reliefs (S) = €300,00

4. The Adjusted Income (A) is calculated using the formula

A = T + S – R              €200,000 + €300,000 – Nil = €500,000

5. Does the High Earner’s Restriction Apply
   1. Is (A) i.e. €500,00 greater than or equal to €125,000                   – YES
   2. Is (S) i.e. €300,000 greater than or equal to €80,000                    – YES
   3.  Is 20% of (A) i.e. €100,000 less than the Total SpecifiedReliefs i.e. €300,000                                                                              – YES 

      Therefore, the Higher Earner’s Restriction applies.

       

6. Recalculate the Taxable Income using the formula T + S -Y where Y = 20% of (A) i.e. €500,000 x 20% = €100,000

(T) i.e. €200,000 + (S) i.e. €300,000 – (Y) i.e. €100,000 = €400,000

7. The excess specified reliefs of €200,000 (i.e. €300,000 – €100,000) are available to be carried forward to the next tax year.

 Carry Forward of Excess Reliefs (S.485F TCA 1997)

 Any “unutilised reliefs” in the tax year in question can be carried forward for offset against the individual’s total income in subsequent tax years.

The following points should be kept in mind:

• When the reliefs are carried forward, they are pooled together in a single amount thereby loosing their individual character.
• The excess reliefs will be subject to the same restrictions in the subsequent tax year.
• The excess relief can be offset in the next tax year only after relief has been given for other available tax reliefs.
• Excess specified reliefs will be lost on the death of the individual.
• From 2010 onwards where the excess relief is carried forward for deduction against total income, the excess relief will not be an allowable deduction for calculating PRSI, the Income Levy (when relevant) or Universal Social Charge.

 What items are included in the list of specified reliefs?

 Appendix 3 – list of Specified Reliefs is available on www.revenue.ie and the full list is set out in Schedule 25B of the Taxes Consolidated Acts 1997.

 Here are some of the items included:

• Capital Allowances on Buildings
• Film Relief
• Artist’s Exemption
• Student Accommodation Relief
• Section 23 Type Relief (Property Based Incentives)
• Patent Royalty Income
• Patent Distributions

Examples of what’s not included are:

• Pension Contributions
• Trade Losses
• Capital Allowances on Plant & Machinery except in certain situations where they are claimed by passive traders in a leasing trade
• E.I.I.(Employment Investment Incentive) is no longer a specified relief under Finance (No. 2) Act 2013 where the subscription for eligible shares was made under the scheme between 16/10/2013 and 31/12/2016.
• Medical Expenses, etc.

What about Double Taxation Relief?

 Finance (No. 2) Act 2013 amended how Double Taxation Relief was calculated for those individuals subject to the High Earner’s Restriction.

The formula to be used is:

 Irish Tax (after applying the High Earner’s Restriction)

                      Adjusted Income (A)               

Previously the credit was calculated before applying the High Earner’s Restriction.

 A repayment of an under claimed foreign tax credit is available for individuals who filed a tax return after 1^st January 2008 and who would be entitled to a greater tax credit for double taxation suffered as a result of this new provision than under the pre Finance (No. 2) Act 2013 legislation.

 Compliance Issues

 Any individual subject to the High Earner’s Restriction must file a Form 11 (Self Assessment) and Form RR1 setting out details of the calculations of the H.E.R.

The details to be included in the RR1 Form are:

• The aggregate of the specified reliefs used by the individual in the tax year.
• The individual’s taxable income before the H.E.R.
• The amount of the individual’s recalculated taxable income after the application of the High Earner’s Restriction.

 Following Finance Act 2007, a jointly assessed married couple or civil partnership will be treated as two separate individuals in determining if the restriction applies.

 A single Form RR1 should be completed providing details of the application of the restriction to each spouse or civil partner where relevant.

 Property Relief Surcharge (S.531AAE TCA 1997)

 Finance Action 2012 introduced the 5% Property Relief Surcharge which applies where the individual’s aggregate income (i.e. gross income for Universal Social Charge purposes) is €100,000 pre annum or more and where certain property based incentive reliefs have been claimed in that tax year.

 By property reliefs, we mean Section 23 type reliefs, property based capital allowances, etc.

 The 5% Property Relief Surcharge is collected as additional Universal Social Charge.

 There is an exception to this rule in the case of owner occupiers for residential properties.

 Revenue’s view is that the surcharge does not take into consideration any restriction imposed by the High Earner’s Restriction.  In other words, the surcharge applies to the specific property reliefs which would have been available in calculating the taxable income of the individual had the restriction been ignored.

Example

 Mr A’s income for 2013 was as follows:

 Case V – Rental Income                                 €250,000

 He also has Section 23 Type Relief                €300,000

 The Property Relief Surcharge will be 5% of €250,000 being €12,500

 The surcharge is computed by reference to the S.23 Property Relief used in calculating Mr A’s taxable income before applying the High Earner’s Restriction.

 Conclusion

 This is an area currently under scrutiny by the Revenue Commissioners.  If this is something that affects you, it might be worth reviewing the information contained in the previous tax returns you’ve submitted as well as double checking that your 2013Tax Return, which must be filed by 31^st October 2014, is accurate and correct in line with Finance Act amendments.