Budget 2019 Breakfast Briefing
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Agenda • Introduction • Personal Taxes • Agricultural Measures • Indirect Taxes • Capital Taxes • Business Taxes • Tax Appeals Commission
Economic Position • Forecast growth at 7.5% for 2018 • Forecast growth at 4.2% in 2019 • Deficit Target 105% of GDP in 2018 (target of 101% in 2019) • Unemployment at lowest level since recession. There are over 380,000 more people at work today than the lowest point in 2011. • However, there are some uncertainties……..
Economic Position • Brexit … Brexit … Brexit! • International tax changes – Trump, Apple, BEPS, etc. • Our National Debt is still extremely high at € 200 billion. • Per capita, our National Debt levels are second only to Japan. • Household debt levels still very high, vulnerable to interest rate increases.
Economic Position Buzzwords • Brexit • Confidence and Stability Pact • Chequers • The Back Stop • Trump
Main Points • Modest changes to personal taxes • Substantial increase in projected spending • Measures to deal with housing crisis • Measures to prepare Ireland for Brexit • Very few changes to the tax system • An election budget perhaps?
Budget 2019 – A Roadmap • Budget Day – full of good news • However, Budget day is just the start of the process. • 9 October 218 – Budget Day • 18 October 2018 – Publication of Finance Bill • 23 – 24 October 2018 – Second Stage
Budget 2019 – A Roadmap • 7 – 9 November 2018 – Committee Stage • 20 – 21 November 2018 – Report Stage • 27 November 2018 – Seanad Second Stage • 5 December 2018 – Seanad Committee Stage • 11 December 2018 – Seanad Report Stage • Late December 2018 – Passed into Law
Finance Act 2017 • Very little content on Budget day – all good news! • Very few new measures on introduction of Finance Bill. • However, Committee stage amendments included lots of anti-avoidance legislation with little public attention. • Introduced very quietly – but with significant implications.
FA2017 – Committee Stage • Transfer of Business Assets • Significant change to CGT on business transfers to companies. • No Entrepreneur Relief or Retirement Relief on transfers of goodwill or shares to a company if the transferor connected to the company after the transfer.
FA2017 – Committee Stage • No Entrepreneur Relief or Retirement Relief on non- share consideration received for transfer of a business on incorporation if transferor connected to the company after the transfer. • Restrictions do not apply if bona fide commercial purposes test met and not part of a tax avoidance scheme or arrangement.
FA2017 – Committee Stage • Prevalence of sole trades in 1980s/1990s. • Succession of those businesses is now being considered in many cases. • Given current income tax rates, it is difficult to operate as a sole-trader as cash retention is difficult. • Therefore, business succession is quite often handled by the parent selling goodwill to a company owned by the child. • Is this bona fide? • Do Revenue think that it is bona fide?
FA2017 – Committee Stage • Section 135 TCA 1997. • An anti-avoidance section. • Applies distribution treatment (income tax) to capital proceeds from the sale of shares in contrived scenarios. • New legislation is very broadly drafted. • Capable of applying to genuine commercial transactions. • Let’s look at an example:
FA2017 – Committee Stage • Michael and Mary have operated a Mary & Michael successful business through a company, MikeCo. • MikeCo decided not to pay dividends to Michael and Mary – instead it has retained profits (net of corporation tax) on its balance sheet. • The cash has allowed MikeCo to expand, hire employees and secure large contracts from larger customers. MikeCo • Michael & Mary built the business over 15 years and receive an offer from a competitor.
FA2017 – Committee Stage • Purchaser offers to buy the Consideration Mary & business for € 1m on a debt free Michael cash free basis. • MikeCo has € 500k cash on Offer hand at the time of sale. PurchaseCo • Michael requests the purchaser to add € 500k to the purchase price of the shares. Dividend Purchase price agreed at € 1.5m. MikeCo MikeCo • After completing the purchase, MikeCo pays a dividend to PurchaseCo.
FA2017 – Committee Stage Prior to FA 2017, full € 1.5m would be • Mary & treated as capital. Michael Post FA 2017, € 500k of sales • proceeds capable of being treated as a distribution if a PurchaseCo scheme or arrangement is present. Despite lobbying, no bona fide • test. Share Sale Dividend Effective tax rate on net payment • as high as 60%. Legislation punishes conservative • MikeCo shareholders who retained cash for investment in their business.
Section 135 – No Reliefs Position Before Finance Position After Act 2017 Finance Act 2017 Sale Proceeds € 1.5m Sale Proceeds € 1.5m CGT @ 33% € 495,000 CGT € 1m @ 33% € 330,000 Income Tax € 500k @ 52% € 260,000 Total Tax € 495,000 Total Tax € 590,000 Effective Tax Rate 33% 39.33% Additional Tax € 95,000
Section 135 – Entrepreneur Relief Position Before Finance Act Position After 2017 Finance Act 2017 Sale Proceeds € 1.5m Sale Proceeds € 1.5m CGT @ 10% € 150,000 CGT € 1m @ 10% € 100,000 Income Tax € 500k @ 52% € 260,000 Total Tax € 150,000 Total Tax € 360,000 Effective Tax Rate 10% 24% Additional Tax € 210,000
Section 135 – Retirement Relief Position Before Finance Position After Act 2017 Finance Act 2017 Sale Proceeds € 1.5m Sale Proceeds € 1.5m CGT @ 0% € - CGT € 1m @ 0% € - Income Tax € 500k @ 52% € 260,000 Total Tax € - Total Tax € 260,000 Effective Tax Rate 0% 17.33% Additional Tax € 260,000
Brexit • Brexit will be effective from March 2019. • Government introducing measures to ensure we are Brexit ready. • It is an evolving situation. Will it happen at all? • If it does, it will have significant implications for all businesses and tax changes will be inevitable. • What is the Government doing? • Let’s take a look back at last years presentation …
Getting Ireland Ready For Brexit Budget 2018: • Retention of 9% VAT rate • Brexit Loan Scheme • Establishment of “Rainy Day Fund” in 2019 • What effect will Brexit have on taxation? Clearly, there will be changes to VAT and Excise dealings with the UK. Other tax implications uncertain.
Budget 2019 Personal Taxes
Earned Income Credit • An earned income credit of € 550 was introduced for self-employed taxpayers in Budget 2016. • After Budget 2018, the tax credit was € 1,150. • Budget 2019 increased the tax credit from € 1,150 to € 1,350. • Applicable to taxpayers earning self-employed trading or professional income and to business owners who are ineligible for a PAYE credit on their salary income.
Tax Bands Tax Band Tax Band Taxpayer Difference 2018 2019 Single/Widowed € 34,550 € 35,300 € 750 Married € 43,550 € 44,300 € 750 One Income Married € 69,100 € 70,600 € 1,500 Two Incomes Single Parent € 38,550 € 39,300 € 750
Tax Credits Tax Credits Tax Credits Taxpayer Difference 2018 2019 Personal - Single € 1,650 € 1,650 - Personal - Married € 3,300 € 3,300 - Employee Credit € 1,650 € 1,650 - Single Person Child Carer € 1,650 € 1,650 - Home Carer € 1,200 € 1,500 € 300 Age Credit – Single € 245 € 245 - Earned Income Credit € 1,150 € 1,350 € 200
PRSI 2018 2019 PRSI Rate 4% 4% Self-Employed PRSI 4% 4% Employer PRSI 10.85% 10.95% Employer Lower Rate 8.6% 8.7% PRSI *From 2020, Employer PRSI will increase to 11.05% and 8.8% respectively **Weekly income threshold for high rate of employers PRSI will increase from € 376 to € 386.
USC – PAYE Earners 2018 2019 Band Rate Band Rate Income < € 13,000 Exempt Income < € 13,000 Exempt First € 12,012 0.5% First € 12,012 0.5% € 12,013 - € 19,372 2% € 12,013 - € 19,874 2% € 19,373 - € 70,044 4.75% € 19,875 - € 70,044 4.5% Balance 8% Balance 8% *The USC relief for medical card holders is being extended for a further two years. Medical card holders and individuals aged 70 years and older with total income < € 60k pay USC at 2%.
USC – Self-employed 2018 2019 Band Rate Band Rate Income < € 13,000 Exempt Income < € 13,000 Exempt First € 12,012 0.5% First € 12,012 0.5% € 12,013 - € 19,372 2% € 12,013 - € 19,874 2% € 19,373 - € 70,044 4.75% € 19,875 - € 70,044 4.5% € 70,045 - € 100k 8% € 70,045 - € 100k 8% Balance 11% Balance 11%
Income Tax – Top Rate 2017 2018 2019 Income Tax 40% 40% 40% PRSI 4% 4% 4% Universal Social 5% 4.75% 4.5% Charge* Total 49% 48.75% 48.5% *52% for individuals earning between € 70,044 and € 100,000. *55% for self-employed earning over € 100,000 (USC 11%).
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