Finance Bill 2011
Despite the expectation of a brief Finance Bill to give effect to the essential Revenue raising measures announced in the Budget, 223 pages of complex technical legislation was published. Normally, the committee and report stages would add a further 50%. While the government is driven by a political imperative to pass the Bill before the election, it really is unacceptable that such complex, far reaching legislation is not allowed sufficient time for proper consultation and meaningful debate. As a comparison the UK will often publish legislative proposals a year in advance.
Interaction with Revenue
The Revenue’s ability to recover unpaid taxes from individuals still in employment will be strengthened by Bill to allow it issue a notice of attachment to the individual’s employer. This will require that the employer deduct from the employee’s net (after tax) salary such amounts as specified by the Revenue.
The Bill proposes a new provision to deal with the confidentiality of taxpayer information. The provision provides for penalties of up to €10,000 to be imposed on Revenue officials who are guilty of unlawful disclosure of information. It also sets out the circumstances in which the Revenue may legitimately provide information to third parties.
Self Assessment
The Bill contains an unexpected surprise for the self employed and other non PAYE taxpayers who pay tax under the self assessment system. The date for payment of preliminary tax for income tax purposes has been brought forward by a month from 31st October to 30th September. Similarly the due date for payment of the balance of tax, and for the filing of tax returns, has also been brought forward to 30th September.
This will be effective for the 2011 tax year onwards, therefore;
• Preliminary tax for 2011 will be payable on 30 September 2011, and
• The due date for filing of the 2011 tax return will be 30 September 2012.
Taxpayers availing of electronic filing through the Revenue on Line Service (ROS) will continue to benefit from a 14 day extension period for filing and payment. The payment dates for capital gains tax will remain as at present.
These changes, which are primarily intended to accelerate the receipt of income tax payments by the Exchequer, will introduce further complexity into a system which many taxpayers already find difficult to comprehend. In the first year of operation (2011), a taxpayer with income tax and capital gains liabilities could have as many as five different dates for filing returns, meeting their tax liabilities and paying any pension contributions. None of this is likely to enhance the smooth operation of the self assessment system, which has, in some respects, been tinkered with to such an extent in recent years that it now bears little resemblance to the ‘pay and file’ system that it was initially intended to be.
Although the period allowed for filing and payment is relatively long compared to similar systems in other jurisdictions, (the US for example only allows 3 1/2 months), the complexity of the Irish system, with its multiple deadlines and inconsistencies between return filing and payment dates for different taxes is something that many taxpayers find difficult to understand. The proposed changes will do little to improve the position.
Personal Health Insurance
The Health Insurance (Miscellaneous Provisions) Act 2009 provided for an age-related tax credit in respect of private health insurance premiums paid to authorised insurers under relevant contracts renewed or entered into between 1 January 2009 and 31 December 2011. This applied for insured persons aged 50 years or over on the date the contract was entered into.
Age-related tax credit may be given for the years of assessment 2009, 2010 and 2011 only. However, in the case of private health insurance premiums payable under contracts of insurance renewed or entered into during the year ending 31 December 2011, where the premium is payable in instalments and some of those instalments are payable in 2012, age-related tax credit may be given in the year of assessment 2012.
The age-related tax credit is given at source by authorised insurers (e.g. the VHI) under the Tax Relief at Source (TRS) system.
The Bill contains an amendment to the age-related tax credit. It abolishes the tax credit for individuals aged 50 to 59 and increases the amount of the tax credit in the case of insured persons aged 60 years and over for relevant contracts renewed or entered into on or after 1 January 2011.
A relevant contract is generally one which provides for the reimbursement or discharge, in whole or in part, of actual health expenses (including non-routine dental expenses) of an individual, his or her spouse, children or other dependants of the individual or of his her spouse.
The new tax credits are as follows:
| Aged between | Tax Credit |
| 60 and 69 | increased from €525 to €625 |
| 70 and 79 | increased from €975 to €1,275 |
| 80 and over | increased from €1,250 to €1,725 |
The authorised insurer will grant the age-related tax credit and the income tax relief at the standard rate of tax at source under the TRS system. The net premium payable by the individual to the authorised insurer will be €1,260 (€2,200 – €625 - €315).
Perhaps the intent of the increased credit is to lessen the impact of much publicised increases in medical insurance premiums.
Property
There was a very strong backlash to the Budget proposal that the facility to offset property capital allowances against rental income from properties other than the specific tax based property would come to an end in 2011. The Minister has kicked this issue to touch and it will now be a matter for the next government to decide how to proceed.
The Bill sets out the changes in the Tax Acts required to bring these proposals into effect, but the Minister has deferred the implementation of the changes until the completion of an impact assessment. The Bill makes it clear that the changes cannot come into effect before 2012 and can only come into effect once the Minister signs a Commencement Order.
There remains great uncertainty regarding what will happen in 2012. At least the opportunity is now available through the proposed Impact Assessment, to demonstrate the type of financial carnage that could be created through the implementation of the restriction.
Should the Minister, (whoever it may be at the time) decide to proceed with the implementation of the restrictions in the manner proposed by the Finance Bill then, for passive investors, any capital allowances in respect of investment in a building or structure can only be set off against the rent arising from that particular building or structure and will not therefore be available to shelter rental income from other properties.
These restrictions apply both to property based capital allowance investment schemes and to residential property investments, often referred to as “Section 23 Relief”.
As well as the blanket restriction on the offset of excess capital allowances by passive investors against other rental income, the Finance Bill also contains provisions to limit the extent to which unused capital allowances from these investments can be carried forward. These changes, too, will only be implemented once the Impact Assessment has been completed and cannot be implemented prior to 2012.
Individuals and companies who are entitled to property capital allowances arising from an active trade, will continue to be able to have full access to these capital allowances.
CAT
The Bill “corrects drafting” errors in respect of the clawback period for agricultural and business reliefs, development land, and “offset” relief – relief when CGT and GAT arise on the same event.
The agricultural and business reliefs operate in that the value of the property is reduced by 90% for the purposes of calculating the gift and inheritance tax payable. The offset relief operates in that the CGT payable on the gift can be claimed as a credit for the CAT, therefore reducing the CAT liability.
If these reliefs are claimed but the property is subsequently sold, a clawback of the reliefs is triggered and the tax that would have been payable becomes due.
The clawback periods are as follows: |
| CAT Business relief | 6 years |
| CAT Agricultural relief | 6 years |
Development value of property on which agricultural or business relief was claimed sold between 6 – 10 years
Offset of capital gains tax against CAT where it occurs on the same event - 2 years
The drafting error referred to in the Bill, related to the wording of the clawback period for agricultural relief, development land, and offset relief. The clawback applied where the disposal of the property concerned occurs “after” the date of the gift or inheritance and in the periods outlined. The amendment in the Bill changes the word “after” to “commencing”, and this technical amendment clearly indicates that any disposal of property on the same day as the date the gift or inheritance was received or on the sixth anniversary for development land, will trigger a clawback, with the result no reliefs will apply. This amendment applies to gifts and inheritances taken on or after 21 January 2011.
Fees for Third level education
The Bill introduces changes to relief for third level education fees/charges by disallowing the first €2,000 of fees for each claim for full time students. For part time students the amount disregarded is €1,000.
The Student Services Charge (registration fee) is being replaced with a ‘Student Contribution Charge’. It appears that the Charge will be tax deductible (unlike the present registration fee). This will result in a benefit for families with two or more children attending public college as they would be entitled to tax relief (at 20%) on the charge which they pay for the second and subsequent child.
Conversely however, families with children attending private colleges would seem to lose out. This is because students in private colleges would not pay the Student Services Charge, therefore the amount of fees on which they can claim tax relief will be reduced by €2,000 for each child, without any compensating offset.
