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Updated: Wednesday, 5th December, 2012 5:30pm
Mairead O'Grady, Tax Partner, Russell Brennan Keane outlines some of the main financial change in the budget.
Budget 2013 continues the trend started in recent years where there is a joint presentation both the Minster for Finance and the Minster for Public Expenditure. Also many of the provisions were well flagged in advance by the media but it does however contain some welcome surprises especially on initiatives that effect the SME sector.
The financial adjustment has been well known for some time with a total of ?3.5billion with ?1.25billion coming from increased taxation. Whilst this is the fifth austerity Budget and the cumulative effect of previous measures is beginning to have serious impact on business, the economy and on society in general.
The Minister this time has stayed away from direct taxes. Income Tax, and Stamp Duty all of which remain unchanged. The emphasis has been on broadening the tax base so the focus has been on areas such a property tax, PRSI reforms; specific measures aimed at restricting relief for pensions and a Ten Point tax plan designed to assist with employment initiatives in the SME sector. Given the targets that had to be achieved the budget overall is regressive but on a positive note the Minster was reassuring that he will not have to take such similar tax measures in future years
A summary of the main changes introduced in the Budget 2013 are as follows:
A new 10 point tax plan for SMEs specifically designed at encouraging employment
The measures include increasing the cash receipts threshold to ?1.25m; reform of the start up relief; amending R+D credits and extending the foreign earnings deduction
Simplify procedures for start up businesses coupled with a number of initiatives to assist in accessing credit.
Specific measures for the Agri-Food Industry such as the continuation of stock relief to 2015 for farmers; the extension of the enhanced stock relief for farm partnerships and specific CGT relief on the disposal of farms for farm restructuring purposes
On the propety side the establishment of a Real Estate Investment Trust to encourage investors to finance property investment in a risk diversified manner.
Targeted incentives for already identified regeneration areas.
Special reliefs to be introduced in the aviation sector for both construction and the financing of airlines
Marginal rate tax relief on pension contributions to pension funds to be capped at a level which will generate pension fund income of ?60,000 p.a. which would take effect from the 1st January 2014
Limited withdrawal up to a value of 30% from AVCs but will be taxed at marginal tax rate
Increase in the minimum annual PRSI for self earners to increase from ?253 to ?500 per annum and the employee annual allowance to be abolished
The extension of PRSI to rental income and other income earned by certain individuals
Local Property Tax (LPT)
A summary of the key provisions is as follows:
To be introduced with effect from the 1st July 2013
To be collected by Revenue Commissioners and will apply to PPRs and all other forms of residential accommodation
Market value based on the self assessment system with the Revenue Commissioners giving valuation guidance or alternatively the option of a competent valuer
The tax will be set in bands with the rate struck at the midpoint of the band
Once the valuation is struck for 2013 it will continue for 3 years to 2016
The rate of tax point 0.18% up to first ?1million and 0.25% for valuations above ?1million
Household Charge will cease with effect from 1st January 2013
NPPR to cease with effect from 1st January 2014
Local authority will have a certain discretion in that they can charge up to 15% plus or minus the national rates
Voluntary deferral for individuals below a certain income and gross income less mortgage interest. Interest will apply to deferral amount
The deferred amount will be payable on sale or transfer
Outstanding household charges to be collected by the Revenue Commissioners which will increase to ?200 with effect from 1st July 2013
Specific exemptions for any new or previously unoccupied homes bought up to the end of 2016; homes bought by first time buyers in 2013 and residents of unfinished housing estates.
Other Changes
Capital Gains Tax and Capital Acquisitions Tax to increase from 30% to 33%
The capital acquisitions tax thresholds to decrease by 10%. For a parent to a child this means a decrease of ?25,000 in the lifetime tax exempt threshold
Deposit Interest Retention Tax (DIRT) to increase to 33%
A key objective of the Minister is to provide stability and confidence to business generally. This has been achieved somewhat in the property market and building on this confidence is a primary objective of the Budget. The Minster, despite on the dire predictions beforehand, has made an effort to encourage the creation of jobs especially in the SME and Agri Food Sector and the announcement of consultation process on micro business and Real Estate Investment Trusts. All of these are to be welcomed. However the proof of these initiatives will be judged on the employment and improvement / stabilisation in the domestic economy over the next twelve months. The Minster commented on the tax system being one of the most progressive tax systems in the developed world with over 30% of the overall adjustment being borne by richest 10% of the population and 70% by the top 40% of income earners.
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