Tax News

1. Are you letting a property through Airbnb?
2. Have you recently received a Letter from Revenue advising you that your tax affairs are “under investigation”?
3. Do you believe that you may be at risk of a Revenue Investigation?

The Irish Revenue is cracking down on anyone who has a listing on the accommodation website Airbnb.

It appears that Revenue is focusing on the tax years 2014, 2015 and 2016 but please be aware, Revenue have the legislative powers to extend the scope of their investigation to include previous years.

So, what does that potentially mean for a Tax Payer?

Once the Tax Payer receives a Notice of Investigation the option to make a voluntary disclosure no longer exists.

Previously unreported income from the letting of property via an accommodation website such as Airbnb will be liable to interest and penalties with potential publication of the Tax Payer’s name on the defaulters list.

What should the Tax Payer do?

If you haven’t received a Notice of Investigation, then you should file the relevant Income Tax Returns NOW.  If you have already filed tax returns for 2014, 2015 and 2016, you should make the necessary amendments to those forms as soon as possible.

If you file your Tax Returns immediately you are reducing the risk of being selected for a Revenue Investigation.

What should the Tax Payer include in his/her Return?

Your Rental Profit is liable to Income Tax, PRSI and Universal Social Charge.

The profit is arrived at by reducing your “Rents Receivable” figure by expenses which are wholly and exclusively incurred for the purpose of your business which include:

• Repairs and Maintenance including decorating, laundry and cleaning.

• Airbnb fees/commission

• Insurance

• Legal fees

• Accountancy / Taxation Fees

• Advertising Costs

• Utilities

Non-allowable expenses include:

• Food

• Commuting/Travel

Recent Revenue eBrief

Revenue eBrief No. 59/18 was published on 17^th April 2018 in relation to the Tax treatment of income arising from the provision of short-term accommodation:

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-01-20.pdf

This comprehensive and detailed guidance material differentiated between frequent hosting and occasional hosting:

Frequent Hosting – Schedule D Case I

If the property is expected to be available for rent on a frequent and/or regular basis as opposed to a once-off or occasional basis then any profits arising from the provision of the accommodation will be liable to Income Tax under Case I Schedule D.

Allowable Case I Expenses:

• Capital allowances – The annual wear & tear allowance of 12½% for plant and machinery used for the purposes of a trade e.g. furniture and fixtures.
• Pre-trading expenses – expenses incurred up to three years prior to the date of commencement of a trade are completely tax deductible where the expenditure would be deductible had it been incurred after the trade commenced. Examples include the cost of painting or wall papering a room or purchasing towels and bed linen in advance of the guest accommodation being put into use for the first time.
• Expenses wholly and exclusively expended carrying on a trade

Occasional Hosting – Schedule D Case IV

If the property is let only on an occasional or infrequent basis then the profits generated will be taxed under Schedule D Case IV.

Allowable Case IV Expenses:

• No Capital Allowances
• No Pre-trading expenses
• Annual costs with a property will not be permitted such as the Television licence, Insurance, etc.

Additional Tax Issues to Watch Out for

VAT @ 9% could arise if your turnover figure is greater than €37,500.  Please be aware that the VAT registration is based on Turnover (i.e. what you received in rental income) and not Profit (i.e. the difference between your rental income and the allowable expenditure).

In the event of a subsequent sale of this property, since it won’t have qualified as your home for the entire period of ownership, you may not be entitled to the full CGT exemption afforded by Principal Private Residence Relief.

What to do Next

If any of this post has affected you and you’re worried about a potential tax liability or Revenue Investigation, please don’t hesitate to contact us to see what we can do for You.

According to Malaysia’s Ministry of Finance, the supply of goods and services made in Malaysia will now be subject to the zero rated Goods and Services Tax (GST) effective from 1^st June 2018.  The “Goods and Service Tax (Rate of Tax) (Amendment) Order 2018” amends the rate of tax on the supply of goods or services as well as on the importation of goods from 6% to 0%.

Please be aware that the zero rating will not apply to the supply of goods and services listed under the Goods and Services Tax (Exempt Supply) Order 2014.  These goods and services will remain exempt from GST.

All persons registered for GST (Goods & Services Tax) must comply with the new legislation in relation to zero rating but will continue to be governed by the current regulations with regard to invoicing, filing and claiming input tax credits.

GST registered persons must continue to ensure that the pricing of goods and services provided adheres to the Price control and Anti-Profiteering Act 2011.

Revenue eBrief 66/18, published on 23rd April 2018, contained guidance on the VAT treatment of staff secondments to companies established in Ireland from related foreign companies.

https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0662018.aspx

These guidance notes confirm that staff secondments are subject to VAT at the standard rate, being 23%. This applies even where both companies are connected and members of an international group.  Revenue, however, have provided a concession whereby VAT will not be charged on payments in relation to the seconded staff provided that correct Irish PAYE and PRSI have been operated on these payments.

This concessionary treatment will only apply in situations where the staff members are seconded from a company established outside Ireland but which is part of the same corporate group as the recipient company and where the staff are seconded to an Irish established company or an Irish branch of a foreign company. In addition, the Irish company to which the employee is seconded must exercise control over the performance of his/her duties or the secondee must effectively have managerial responsibility for the operation of the Irish company or Irish branch. Finally, the PAYE and PRSI liabilities relating to the payments to the seconded employee must be paid over to the Irish Revenue in a timely manner.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Yesterday, Revenue eBrief No. 59/18 was published.

This comprehensive nine page document outlines the tax treatment for income arising from the provision of short-term accommodation:

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-01-20.pdf

A short term letting is defined as a letting of all or part of a house, apartment or other similar establishment:

– to a tourist, holidaymaker or other visitor
– for a period which does not exceed or is unlikely to exceed 8 consecutive weeks

There are a number of different circumstances which will be covered by this new guidance material including

(i) persons staying in hotels, guesthouses, B&Bs, hostels, etc.,
(ii) persons either sharing a property with the owner or occupying the whole property for a short period of stay or
(iii) persons occupying self-catering holiday accommodation for short periods

If your rental income meets the criteria outlined in this document, you could be looking at an obligation to register for VAT depending on your turnover as well compliance obligations under Cases I or IV Schedule D.  In addition to the annual tax on the rental profits and the potential VAT exposure, you could encounter a Capital Gains Tax liability on the sale of the property generating this rental income which might otherwise have been tax exempt.

This document has clarified situations where Rent-a-Room Relief will not be available.  Specifically if you are someone who rents out one or more rooms in your home through online accommodation booking sites you will not be entitled to the Rent-a-Room Relief.  Instead you may be treated as if you are carrying on a trade with an obligation to register and account for Income Tax and/or VAT.

If you provide short term rentals to tourists, guests or visitors where the room or property is available for rent on a regular or frequent basis with a view to making a profit and involves you, the owner, carrying out some or all of  the following activities then you may be deemed to be carrying on a trade and if so, this document is relevant to you:

1. Advertising the property online on accommodation booking websites
2. Dealing with booking enquiries, reservations and payments
3. Arranging for cleaning, laundry and maintenance during and between lets
4. Providing meals
5. Providing information to visitors about local tourist attractions, restaurants etc.
6. paying staff to provide such services, etc.

According to this document:

“The provision of traditional short-term guest accommodation in hotels, guesthouses, B&Bs and hostels will generally constitute a trade. Persons who provide short-term guest accommodation, either in their home or in another property owned by them, will only be trading to the extent the activity is sufficiently frequent and regular and is carried on a commercial basis and with a view to the realisation of profit.”

If you are renting out a room in your own home or an entire property using an online accommodation booking site and you are unsure of the correct tax treatment pertaining to your situation, why not contact us to discuss the matter further.

On Budget Day, 21^st February 2018, the South African Minister for Finance released updated draft regulations in relation to VAT levied on electronic services provided by foreign businesses.  The aim is to extend the definition of “electronic services” to include “any service supplied by means of an electronic agent, electronic communication or the internet…”

If enacted, the amended draft regulations could result in a significant overhaul of the VAT treatment electronic services.

In 2014 Section 89 of the Value Added Tax Act 1991 was amended.  From 1^st June 2014 on-wards the definition of “enterprise” was to include in the supply of electronic services provided by foreign suppliers to recipients within South Africa. As a result, non-resident suppliers of these services were required to register for VAT where their supplies exceeded the threshold amount of R50 000 in a twelve month period.

The amendments proposed in this Budget, which should take effect from 1^st October 2018, include the following:

• Repealing the current Regulation – This would allow for the deletion of the specific types of services currently outlined as “electronic services” and

• Revising the definition of “electronic services” to effectively include any type of service supplied electronically with the exception of telecommunication services and educational services provided by a person who is regulated by an educational authority in a foreign jurisdiction.

This new definition will bring into the South African VAT regime; foreign suppliers whose services were previously outside its scope including online advertising, broadcasting, cloud computing, access to databases and information systems, etc.

The VAT Act does not, however, distinguish between Business to Business (B2B) supplies and supplies made directly to South African consumers (B2C). This will have a significant impact on the tax compliance burden for foreign suppliers who supply services electronically into South Africa as well as for the South African Revenue Service.

Amendments have been proposed for intermediaries and platforms to be allowed to register as vendors.  This will enable them to account for the VAT arising on sales made through such platforms providing the platform or intermediary facilitates the supply and assumes responsibility for the issuing of invoices and collection of the associated payments.

The National Treasury has allowed until 22^nd March to provide comments.  Following which, if the proposed amendments are enacted they will become effective from 1^st October 2018.

It’s very difficult to keep up to date with all the amendments to the Irish tax system so here is a summary of some of the changes to be mindful of in 2018:

1. Annual Membership Fees paid to a professional body (Revenue eBrief 04/18 published on 9^th January 2018)

 https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0042018.aspx

The updated Revenue guidance notes allow an employee to claim a deduction for professional membership fees only in circumstances where:

1. There is a statutory requirement for that employee to be a member of a specific professional organisation or body or to hold a practicing certificate in order to carry out the duties of his/her employment or
2. In the absence of that professional membership or practicing certificate the individual cannot legally fulfill the full duties of his/her employment.

Where the employer pays the membership fee on the employee’s behalf and either of the above two conditions apply then no Benefit-in-Kind is deemed to have arisen.  Subsequently no payroll taxes will arise.

We would advise all employers to ensure the payment of professional membership fees on behalf of employees can be supported in the event of a Revenue Audit.

2. Increase in Employer’s Pay Related Social Insurance from 10.75% to 10.85% from 1^st January 2018.

 3. Benefit-in-Kind Exemption of Electric Vehicles for 2018. 

Finance Act 2017 introduced this exemption for electric vehicles which were available for private use for employees during the 2018 tax year.  It is not clear whether or not this scheme will be extended into 2019 which may result in a low uptake in purchasing electric vehicles by employers.

The exemption applies to cars and vans deriving their power from an electric motor.

It does not apply to hybrid vehicles.

4. PAYE Modernisation or Real Time Reporting

From 1^st January 2019 all employers will be required to accurately provide PAYE data to Revenue on a Real Time basis.

This effectively means:

• Revenue will be able to automatically review employees’ payroll information and immediately identify any discrepancies and errors.
• The PAYE information submitted to Revenue must be 100% correct.  In other words, the opportunity to amend errors at the end of the year has been elimited.

For further information, please follow the link:

https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-892017.aspx

We would advise all employers to take the time, sooner rather than later, to ensure their payroll processes will be adequate to handle the increased obligations of the Real Time Reporting.

 Here is a list of other relevant Revenue eBriefs:

Home Carer Tax Credit – Revenue eBrief No. 009/18 (29 January 2018) https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0092018.aspx

Change in Basis of Assessment – Schedule E – Revenue eBrief No. 127/17 (29 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1272017.aspx

Taxation of payments to craft apprentices by Education and Training Boards –Revenue eBrief No. 126/17 (29 December 2017)

Benefit-in-Kind on use of Company Vans – Revenue eBrief No. 124/17 (28^th December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1242017.aspx

Exemption from Income Tax in respect of certain payments made under employment law – Revenue eBrief No. 118/17 (20 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1182017.aspx

PAYE Services: Tax and Duty Manual Updates – Revenue eBrief No. 111/17 (01 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1112017.aspx

Amendments to the Employment and Investment Incentive on 2^nd November 2017 – Revenue eBrief No. 99/17 (02 November 2017)
 https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-992017.aspx

Finance Act 2017 increased the rate of Stamp Duty on all non-residential properties from 2% to 6% and includes non-residential lease premiums.  This 6% rate applies to documents executed on/after 11^th October 2017.

Although transitional measures have been introduced, this higher Stamp Duty rate will apply for conveyances executed from 1st January 2018.

To be able to avail of the previous 2% rate on commercial property (i.e. where contracts were entered into before 11th October 2017), the two following conditions must be met:

1. a binding contract must have been in place before 11th October 2017 and
2. the instrument for the transfer must have been executed before 1^st January 2018.

The increased Stamp Duty rate also applies to certain shares which derive their value or the greater part of their value, directly or indirectly, from Irish non-residential land and buildings.  The 6% Stamp Duty Charge was introduced by Section 31C SDCA 1999 on conveyances/transfers of shares in Irish and non-Irish companies.  The provision also applies to units in an Irish real estate fund, interests in foreign collective investments schemes as well as to interests in a partnership.

This 6% Stamp Duty rate will apply if the result of the transfer is a change in the person/persons having direct/indirect control over the non-residential property and where it would be reasonable to consider that the immovable property concerned was:

1. acquired by the company, IREF or partnership with the sole or main object of realising a gain from its disposal,
2. being developed by the company, IREF or partnership with the sole/main object of realising a gain from its disposal when developed, or
3. held as trading stock by the company, IREF or partnership.

Although the legislation applies to any instrument executed on or after 6^th December 2017, there are transitional provisions, which will limit the Stamp Duty rate to its existing rate (i.e. 1% or qualifying for an exemption) where:

1. A binding contract was entered into before 6^th December 2017,
2. the instrument is executed or the binding contract is completed before 1st March 2018 and
3. the instrument contains a statement certifying that the instrument was solely executed in pursuance of said binding contract which was entered into prior to 6^th December 2017.

The new rate will apply to contracts for sale of such shares as well as actual transfers of shares.

As the 6% rate applies to all non-residential property, this means the disposal of goodwill or the transfer of Debtors, as part of the sale of a business, could also give rise to a 6% Stamp Duty charge.

The rates of stamp duty on residential property remain at a rate of 1% up to the first €1,000,000 with 2% payable on the excess over €1,000,000.

The Stamp Duty rate on leases of commercial property will continue to be charged at a rate of 1% on the average annual rent.  However, where the landlord receives a premium from the tenant at the commencement of the lease, this will be subject to Stamp Duty at 6%.

Finance Act 2017 (Section 83D SDCA 1999) introduced a Stamp Duty Rebate Scheme in relation to land purchased for the purpose of developing residential property.  The Act provides that where Stamp Duty at the new higher rate of 6% is paid on the acquisition of land which is subsequently used to develop residential property, then the purchaser will be entitled to a rebate of 2/3 of the 6% upfront duty paid i.e. a potential refund of up to 4% can be claimed provided the following conditions are satisfied:

• The Stamp Duty Rebate Scheme is limited to the proportion of land used for residential development.
• The Scheme only applies where construction operations for residential property commence before 1^st January 2022 and construction must begin within thirty months of the date the land was acquired.
• The time required to conclude any planning appeal can be added to this thirty month period.
• The repayment cannot be claimed in advance of the commencement of construction operations.
• There is a four year time limit on claiming a repayment. The supporting documentation required to substantiate the claim include (i) a certified copy of the deed of transfer, (ii) a statutory declaration stating that building work commenced within the thirty month period immediately after the date the instrument was executed and (iii) written consent by all the accountable persons to the person making the claim.
• Where the Stamp Duty rebate claims relates to only part of the land, the Statutory Declaration must clearly state the specific part of the land to which the claim relates.
• The rebate will not carry interest.
• The refund can only be claimed via Revenue’s e-Stamping system.
• In situations where the residential development is being carried out in phases, repayments can be sought on a phased basis.
• The Rebate will be clawed back in two situations: (i) where the residential development is not completed within two years of acknowledgement, by the relevant building control authority, of the commencement notice or (ii) where at least 75% of the units or a minimum of 75% the total area of the land in question is not occupied.

Construction operations” is defined as the construction of buildings or structures including the preparatory operations of site clearance, drainage, earth-moving, excavation, laying of foundations and provision of roadways and other access works.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Today the Minister for Finance Michael Noonan T.D. delivered Budget 2017.

Until the Brexit negotiations begin it is impossible to know the impact for Ireland however today’s Budget gave Minister Noonan the opportunity to affirm the stability of Ireland’s tax policies while at the same time introducing measures to promote economic growth.

The overall Budget package was €1.3 billion; of which just over €300 million was set aside for tax adjustments.

Unless otherwise stated, the following tax changes will take effect from 1^st January 2017

PERSONAL TAX

1)   USC Reductions

There will be a half per cent reduction to the first three USC rates of 1%, 3% and 5.5% to 0.5%, 2.5% and 5% respectively.  While this will benefit all taxpayers, it is aimed at easing the tax burden on low and middle income earners earning up to €70,044 per year.

There will also be an increase in the entry point to the 5% band from €18,668 to €18,772.

There has been no change to the 8% or 11% USC rates.

While the reduction in USC rates is a welcome reduction in the overall tax burden, the top marginal rate for employed individuals with earnings over €70,044 is still 52% and 55% for self-employed individuals with income in excess of €100,000.

2)   Home Carer Credit

The Home Carer Tax Credit is being increased by €100 to €1,100 for 2017.

The Home Carer Tax Credit may be claimed where an individual cares for one or more dependent persons.  These include children, an elderly person, an incapacitated individual, etc.

It can be claimed by a jointly-assessed couple in a marriage/civil partnership where one spouse/civil partner cares for one or more dependant individuals.

3)   Earned Income Tax Credit

The Earned Income Credit has increased from €550 to €950.

The tax credit is expected to increase to €1,650 in 2018 which will see self-employed individuals being on a par with employees who are currently entitled to a PAYE tax credit of €1,650.

An Earned Income Tax Credit of €550 was introduced in Budget 2016 for self-employed individuals, including proprietary directors, with earned income who were not otherwise entitled to the PAYE Tax Credit.

 4)   Deposit Interest Retention Tax (“DIRT”)

The rate of DIRT has been reduced from 41% to 39%.

In his Budget speech, Minister Noonan also committed to reducing the DIRT rate by a further 2% in the next three years until it reaches 33%.

 5)   Fisherman’s Income Tax Credit

A new income tax credit of up to €1,270 can be claimed by fishermen who spend at least 80 days in the tax year fishing for wild fish or shellfish.

CAT thresholds

The Group A tax-free threshold, which applies primarily to gifts and inheritances from parents to their children, is being increased from €280,000 to €310,000.

The Group B threshold, which applies primarily to gifts and inheritances to parents, brothers, sisters, nieces, nephews, grandchildren, etc., is being increased from €30,150 to €32,500.

The Group C threshold, which applies to all relationships other than Group A or B, is being increased from €15,075 to €16,250.

PROPERTY

1.    Help to Buy Scheme

Minister Noonan announced the new “Help to Buy” scheme for First Time Buyers of newly-built houses today.  This new tax incentive is aimed at assisting first time buyers in meeting the acquisition deposit limits set by the Central Bank.

Under this scheme, first-time buyers will receive a rebate of income tax of the previous four years, of up to 5% of the value of a newly constructed home, up to a maximum value of €400,000.

A full rebate (which will be calculated on a maximum of €400,000) will apply to houses valued between €400,000 and €600,000 i.e. where the new house is valued between €400,000 and €600,000 the rebate will still apply but it will be capped at €20,000.

No rebate can be claimed on house purchases in excess of €600,000.

The scheme will be back-dated to cover new houses acquired between 19^th July 2016 and December 2019.

A number of conditions must be met as follows:

• The property must be a new build or a self-build which was either purchased or built as the First Time Buyer’s main or primary residence.
• Second-hand properties will not qualify for this relief.
• The First Time Buyer must take out a mortgage of at least 80% of the purchase price.

 2.    Interest on rental properties

 For landlords of residential property, 100% relief for mortgage interest incurred on the acquisition or development of residential rental properties will be restored on a phased basis over the next five years.

The Relief will increase by 5% per annum, beginning with 80% interest relief in 2017. This change will apply to both new and existing mortgages.

Under this new measure, the relief will be increased by 5% every year over the next five years, which will ultimately bring the relief in line with that currently available to landlords of commercial property.

3.    Rent-a-Room relief

The annual tax free income limit for Rent-a-Room Relief is being increased by €2,000 from €12,000 to €14,000 per annum for 2017 and subsequent years.

4.    Home Renovation Incentive

The Home Renovation Incentive which offers a tax incentive of up to approximately €4,000 for homeowners wishing to renovate a property has been extended for another two years until the end of 2018.

It was originally introduced in Finance Act 2013 and was due to expire at the end of 2016 but Minister Noonan announced today that this will now be extended to the end of 2018. This is seen as of great benefit to the Irish construction industry.

The rate of credit and the expenditure thresholds remain unchanged.

 5.    Living City Initiative

This Initiative provides tax relief on the refurbishment of properties in designated areas in Ireland’s six cities.

The conditions of the Living City Initiative are being amended as follows:

• Landlords can qualify for the relief where they let qualifying residential property.
• The current cap on the maximum floor space of a residential property has being removed.

BUSINESS TAX

There were a number of welcome changes for business owners in today’s budget:

I.          Revised Entrepreneur Relief

Minister Noonan announced a reduction in the preferential Capital Gains Tax rate, from 20% to 10%, for those qualifying for Entrepreneur Relief on the disposal of certain business assets, including shares, provided conditions are met.

There was no change to the €1m lifetime limit on chargeable gains.

II.     Foreign Earnings Deduction (“FED”)

This scheme which was due to expire in December 2017 has been extended until the end of 2020.

The minimum number of qualifying days spent abroad for Foreign Earnings Deduction Relief has been reduced from 40 days to 30 days.

The list of qualifying countries has been extended to include two additional countries: Colombia and Pakistan.

III.          Share-based remuneration regime for SMEs

The Minister signalled his intention to develop a SME focused, share based incentive scheme which would be introduced in Budget 2018.

The Minister noted that any new regime would have to satisfy EU State Aid rules.

IV.            Start Your Own Business scheme

 The Start Your Own Business relief, which was due to expire on 31^st December 2016, has been extended for a further two years.

The cap on eligible expenditure is being increased from €50 million to €70 million, subject to State Aid approval.

AGRI SECTOR

The following changes were introduced for individuals operating in the Agri sector in light of the challenges posed from Brexit:

• The flat-rate addition for VAT unregistered farmers is being increased from 5.2% to 5.4% from 1^st January 2017.
• The extension of the scheme of accelerated capital allowances for energy efficient equipment to sole traders and non-corporates.  Previously this scheme only applied to companies who could claim relief for expenditure on qualifying plant and equipment.
• A new income tax payment option for farmers was introduced whereby farmers can opt to ‘step out’ of income averaging to allow for “unexpectedly poor income” and pay tax based on their actual profits in that year. The tax deferred must be paid in subsequent years however the period over which the deferred tax must be paid is as yet unclear. Therefore this is a tax deferral scheme and not an actual tax saving.  Farmers can opt to avail of this “step out” in 2016.
• A new low cost loan fund is to be established for farmers, with an interest rate of less than 3% per annum. These loans will enable farmers to improve their cashflow management and reduce the cost of their short term borrowings.
• The CGT relief for farm restructuring was introduced to facilitate sales, purchases and swaps of land parcels and to ensure more efficient farm structures. Although the terms of the relief remain unchanged, this relief, which was due to expire on 31^st December 2016, has been extended to 31^st December 2019.
• Payments under the raised bog restoration incentive scheme will be exempt from Capital Gains Tax.

INTERNATIONAL TAX

Special Assignee Relief Programme (“SARP”)

The SARP regime, which was due to expire at the end of 2017, has been extended for a further three years until the end of 2020.

This Relief exempts 30% of the income of between €75,000 and €500,000 of employees assigned to work in Ireland for a minimum of twelve month provided certain conditions are satisfied.

No other changes were announced in relation to SARP.

Tackling offshore tax evasion

 The Irish Revenue will be carrying out a comprehensive programme of targeted compliance interventions which will be focused on offshore tax evasion.

Attention will be given to the information Revenue receives under FATCA, EU and OECD information exchange initiatives etc.

The legislative changes contain measures to deny individuals involved in illegal offshore tax planning the opportunity to make qualifying voluntary disclosures from 1^st May 2017.

Also, a new strict liability offence will also be introduced for failure to return details of offshore assets/accounts.

Consultation on modernising PAYE

Minister Noonan announced a Revenue consultation regarding the proposed modernisation of the PAYE system to take effect from 1^st January 2019.

The consultation process will begin today regarding the implementation of a real time PAYE / Tax reporting regime for employers similar to that which currently operates in the UK.

 OTHER MEASURES

• There was no change to the VAT rates with the 9% VAT rate applying to tourism related activities remaining unchanged.

• The Minister intends to extend mortgage interest relief to 2020. The details of the extension will be set out in Budget 2018.

• A tax on sugar-sweetened drinks will be introduced in 2018 which will coincide with a similar regime in the UK. A public consultation on the form and implementation of the tax was released today by the Department of Finance and will run until 3^rd January 2017.

• The excise duty on a packet of twenty cigarettes will increase by 50c (VAT inclusive) from midnight tonight.  A corresponding pro-rata increase will also apply to other categories of tobacco products including smoking tobacco, cigars, etc.

• There is no change to the excise duty on alcohol or fuel.

• The qualifying limit on excise duty for Microbreweries was extended which will reduce the standard rate of tax (alcohol products tax) by 50% on beers produced in Microbreweries where the output is 40,000 hectolitres or less per year.  Previously the limit was 30,000 hectolitres.

• VRT relief on the purchase of electric vehicles is extended by five years and hybrid vehicles is to be extended by two years.

• Relief from carbon tax is being introduced to promote the use of “green fuels” i.e. solid fuels that include a biomass element.

When setting up a Trust, it is essential to take into consideration the following tax heads.

INCOME TAX

The tax residence of the trustees is what determines the extent of their liability to Irish income tax.

If all the trustees are Irish resident then they are liable to Irish income tax on the worldwide income of the trust from all sources.

If, however, the trustees are resident in say France or the U.S. for tax purposes, then the trustees will only be liable to Irish income tax on Irish source income.

The Trustees must pay income tax at the standard rate of 20% on any income arising but they will not be entitled to claim any of tax credits, allowances or reliefs as they are not deemed to be individuals.

If the income of the trust has not been distributed within eighteen months from the end of the year of assessment in which the income has arisen, there will be a 20% surcharge on this accumulated income.

In circumstances where a beneficiary has an absolute right or entitlement to the trust income as opposed to the Trustees then Revenue will assess the beneficiary directly.  In other words if the terms of the trust state that income is to be paid directly to a particular beneficiary as opposed to the trust then the beneficiary will be liable to Income Tax on the amounts received.  That individual must file the appropriate tax return and pay the relevant taxes within the deadline dates.

CAPITAL GAINS TAX

For the purposes of CGT, the trustees will to be Irish resident and ordinarily resident if the general administration of the trust is carried out in Ireland and if all or the majority of the trustees are resident or ordinarily resident in Ireland.

In general, if the trustees are resident or ordinarily resident in Ireland they will be liable to Irish capital gains tax on their worldwide gains.

If, however, the trustees are not resident or ordinarily resident in Ireland they will be liable to Irish capital gains tax in respect of any gains arising on disposal of specified assets including:

• Land and buildings in Ireland .
• Minerals in Ireland including related rights, and exploration or exploitation rights in a designated area of the continental shelf.
• Unquoted shares deriving their value, or the greater part of their value, from such assets as mentioned above.

Please keep in mind that, just as for Income Tax purposes, the trustees are not deemed to be individuals and are therefore not entitled to the annual CGT exemption of €1,270 which is only available to individuals.

Apart from selling/distributing the trust assets, the trustees will be deemed to have disposed of assets for CGT purposes in the following three situations:

1. Where the trustees cease to be Irish resident or ordinarily resident.
2. Where a life interest in the trust property has ended but the property continues to be settled property.
3. Where a beneficiary becomes absolutely entitled in possession to the settled property except in situations where it occurred as a result of the death of the individual with a life interest in that property.

Market Value rules are imposed on this event with the Trustees being deemed to have disposed of and immediately reacquired the property at open market value.  As with all CGT computations, the liability is calculated on the difference between its base cost and the deemed market value.

CAPITAL ACQUISITION TAX

Capital Acquisition Tax is only payable when the beneficiary actually receives a gift or inheritance.  Where a beneficiary receives the gift/inheritance under a deed of appointment from a trust then he/she will be taxed as if the benefit was received from the settlor/testator.

Capital Acquisition Tax at 33% is payable by the beneficiary and is charged on the value of the gift or inheritance to the extent that it exceeds the relevant tax-free threshold amount.

A charge to Irish Capital Acquisition Tax will arise in the following situations:

• If the beneficiary is Irish resident or ordinarily resident on the date he/she receives the benefit.
• If the settlor is Irish resident or ordinarily resident either (a) at the date of setting up the trust or (b) on the date the beneficiary receives the benefit.
• In circumstances where the settlor is Irish resident or ordinarily resident at the date of his/her death a liability to Irish CAT will arise on any benefit taken on the settlor’s death
• Where the property, which comprised the benefit, is situated in Ireland.

Points to keep in mind

• The creation of a discretionary trust or the transfer of funds to a discretionary trust will not give rise to a charge to capital acquisitions tax.
• Distributions from a trust, however, can potentially give rise to both an Income Tax and a Capital Acquisitions Tax liability. You’re probably asking yourself if a double charge to tax has arisen.  It has.  Regular or periodic distributions to a beneficiary will be subject to the individual’s marginal rate of Income Tax but can also, at the same time, be liable to CAT.  A Revenue concession exists where CAT is chargeable on the net benefit i.e. the benefit after Income Tax has been deducted.  Don’t forget, the small gift exemption of €3,000 per annum can also be deducted.

STAMP DUTY

Stamp Duty can arise on the transfer of assets into a trust at 1% in the event of shares, residential property valued at less than one million euros, etc. or 2% in the event of commercial property, business assets, etc.

There is no Stamp Duty on the transfer of assets into a trust that is created by a Will.

Where trust assets are appointed by the Trustees to the beneficiaries then no Stamp Duty charge will arise i.e. there is an exemption from Stamp Duty in this situation.

DISCRETIONARY TRUST TAX

Discretionary trust tax of 6% is a once off charge based on the value of assets comprised in a discretionary trust.

If the Trust is wound up and all the assets are appointed within a five year period then 50% of this initial charge will be refunded i.e. 3%

The initial charge is due and payable on the later of the following dates:

• The death of the settlor or
• Where the last of the “principal objects” (i.e. spouse, child or child of a predeceased child of the Disponer) has reached his/her 21st birthday.

A 1% annual charge on undistributed assets comprised in a discretionary trust will arise every year on 31st December.  This annual levy, however, will not arise within the same twelve month period as the initial charge of 6% has been levied.

Are you aware of how many changes to our tax system have been implemented between 1st January 2016 and today?

• eBrief No. 52/2016: Requirement for Security Bonds Section 960 S TCA 1997
• eBrief No. 51/2016: Rental Income
• eBrief No. 50/2016: Recent enhancements to VAT Return of Trading Details (RTD) in ROS
• eBrief No. 49/2016: Tax Treatment of Flight Crew Members
• eBrief No. 48/2016: Non-Filing of Returns – Prosecution and Penalty Programmes
• eBrief No. 47/2016: Revised tax treatment of royalty income, with effect from 1 January 2016, under the terms of the Ireland-Estonia Double Taxation Convention 1997
• eBrief No. 46/2016: Corporation Tax (CT1) Returns for 2015 and 2016, Forms 46G (Company)
• eBrief No. 45/2016: Mandatory eRepayments
• eBrief No. 44/2016: Tax and Duty Manual Part 17-01-03 (Profit Sharing Schemes)
• eBrief No. 43/2016: Clarification of circumstances where a CGT clearance certificate is not required
• eBrief No. 42/2016: VAT – “Cancellation of a registration number – special provisions for notification and publication” (section 108D)
• eBrief No. 41/2016: Termination of carry forward of certain unused capital allowances beyond 2014
• eBrief No. 40/2016: High Income Individuals Restriction – Specified Reliefs
• eBrief No. 39/2016: Disclosure by Revenue of taxpayer information – Finance Act 2015 changes
• eBrief No. 38/2016: Surcharge for Late Submission of Returns
• eBrief No. 37/2016: New appeals process – issuing of Revenue ‘settlement’ letters
• eBrief No. 36/2016: Payment and Receipt of Interest without Deduction of Income Tax
• eBrief No. 35/2016: Tax and Duty Appeals Manual
• eBrief No. 34/2016: Change of Responsibility for e-Tax Clearance from 1st April 2016
• eBrief No. 33/2016: Increased compliance interventions in the construction sector – application of the Reverse Charge for VAT and other matters
• eBrief No. 32/2016: Guidelines for Using the Court Process to Pursue Tax Liabilities
• eBrief No. 31/2016: ROS – Extension of Pay & File Deadline for ROS Customers for 2016
• eBrief No. 30/2016: Commencement of new tax and duty appeals process
• eBrief No. 29/2016: Sub-Postmasters and Social Welfare Branch Managers – Tax and PRSI
• eBrief No. 28/2016: Credit in respect of tax deducted from emoluments of certain directors and employees – Section 997A TCA 1997
• eBrief No. 27/2016: Health Expenses section 469 Taxes Consolidation Act 1997
• eBrief No. 26/2016: Taxation Treatment of Termination Payments on Retirement or Removal from Office or Employment
• eBrief No. 25/2016: Gross Roll-Up Life Assurance Policies
• eBrief No. 24/2016: Order of offset of income tax reliefs, allowances and deductions
• eBrief No. 23/2016: Bus, Rail, and Ferry Passes
• eBrief No. 22/2016: Return by employer of employees who availed of relief under the Special Assignee Relief Programme (SARP)
• eBrief No. 21/2016: Transition to the reformed tax and duty appeals process
• eBrief No. 20/2016: Revenue launches dedicated Tax Avoidance webpage
• eBrief No. 19/2016: Procedures to follow when Issuing S110 VAT Estimates/Amended Estimates
• eBrief No. 18/2016: Agents Guide to Collector-General
• eBrief No. 17/2016: Average Market Mid-Closing Exchange Rates v Euro
• eBrief No. 16/2016: Guidelines for Phased Payment/Instalment Arrangements
• eBrief No. 15/2016: Exemption in respect of certain payments under employment law
• eBrief No. 14/2016: Relief from tax for certain start-up companies
• eBrief No. 13/2016: Finance (Local Property Tax) (Amendment) Act 2015
• eBrief No. 12/2016: VAT on eServices Scheme (VOES) / Electronic Services Scheme (ESS)
• eBrief No. 11/2016: Guidelines on PAYE/PRSI/USC/LPT monthly and annual estimates
• eBrief No. 10/2016: Exemption in respect of water conservation grant
• eBrief No. 09/2016: Exemption in respect of certain expenses of State Examinations Commission examiners
• eBrief No. 08/2016: Exemption in respect of certain expense payments for relevant directors
• eBrief No. 07/2016: ROS Digital Certificate renewals 2016 – reminder to save your new Certificate
• eBrief No. 06/2016: Exemption in respect of fuel grant
• eBrief No. 05/2016: Home Carer Tax Credit
• eBrief No. 04/2016: Taxation of Community Midwives employed by the Health Service Executive
• eBrief No. 03/2016: Finance Act 2015 – Stamp Duty Provisions
• eBrief No. 02/2016: eRCT payments to subcontractors for 12-month period 1 January 2015 to 31 December 2015
• eBrief No. 01/2016: Tax Treatment of Married Couples