Budget 2019 Breakfast Briefing Newsletter www.cahilltaxation.ie - - PowerPoint PPT Presentation

Budget 2019 Breakfast Briefing

Newsletter

@cahilltaxation CTS | Cahill Taxation Services

www.cahilltaxation.ie

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
• ver 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
• f 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

• n

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.

• 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

FA2017 – Committee Stage

• Section 135 TCA 1997.
• An anti-avoidance section.
• Applies distribution treatment (income tax) to capital

proceeds from the sale

• f

shares in contrived scenarios.

• New legislation is very broadly drafted.
• Capable
• f

applying to genuine commercial transactions.

• Let’s look at an example:

FA2017 – Committee Stage

• Michael and Mary have operated a

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)

• n its balance sheet.
• The

cash has allowed MikeCo to expand, hire employees and secure large contracts from larger customers.

• Michael & Mary built the business over

15 years and receive an offer from a competitor.

MikeCo Mary & Michael

FA2017 – Committee Stage

• Purchaser
• ffers

to buy the business for €1m on a debt free cash free basis.

• MikeCo

has €500k cash

• n

hand at the time of sale.

• Michael

requests the purchaser to add €500k to the purchase price of the shares. Purchase price agreed at €1.5m.

• After

completing the purchase, MikeCo pays a dividend to PurchaseCo.

MikeCo PurchaseCo Dividend Mary & Michael MikeCo

Offer Consideration

FA2017 – Committee Stage

• Prior to FA 2017, full €1.5m would be

treated as capital.

• Post

FA 2017, €500k

• f

sales proceeds capable

• f

being treated as a distribution if a scheme or arrangement is present.

• Despite

lobbying, no bona fide test.

• Effective tax rate on net payment

as high as 60%.

• Legislation

punishes conservative shareholders who retained cash for investment in their business.

MikeCo PurchaseCo Dividend Mary & Michael Share Sale

Position Before Finance Act 2017 Position After 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 – No Reliefs

Position Before Finance Act 2017 Position After 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 – Entrepreneur Relief

Position Before Finance Act 2017 Position After 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

Section 135 – Retirement Relief

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
• r professional income and to business owners who are

ineligible for a PAYE credit on their salary income.

Tax Bands

Taxpayer Tax Band 2018 Tax Band 2019 Difference

Single/Widowed €34,550 €35,300 €750 Married One Income €43,550 €44,300 €750 Married Two Incomes €69,100 €70,600 €1,500 Single Parent €38,550 €39,300 €750

Tax Credits

Taxpayer Tax Credits 2018 Tax Credits 2019 Difference

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 PRSI 8.6% 8.7%

*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 Charge* 5% 4.75% 4.5% 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%).

Single Person Employee

Annual Income Net Wage 2018 Net Wage 2019 Difference

€20,000 €18,604 €18,618 €14 €35,000 €28,860 €29,002 €142 €75,000 €49,199 €49,489 €290 €150,000 €85,199 €85,489 €290

Married Couple – One Income Employee

Annual Income Net Wage 2018 Net Wage 2019 Difference

€20,000 €19,304 €19,318 €14 €35,000 €30,600 €30,652 €52 €75,000 €52,649 €52,939 €290 €150,000 €88,649 €88,939 €290

Married Couple – Two Incomes*

Annual Income Net Wage 2018 Net Wage 2019 Difference

€20,000 €20,000 €20,000

• €35,000

€34,260 €34,260

• €75,000

€60,283 €60,699 €416 €150,000 €98,399 €98,976 €577

*Assumes both spouses earn same income

Single Person – Self-Employed

Annual Income Net Wage 2017 Net Wage 2018 Difference

€20,000 €17,763 €17,977 €214 €35,000 €28,360 €28,702 €342 €75,000 €48,699 €49,189 €490 €150,000 €83,199 €83,689 €490

The Personal Tax Story – Income Tax, USC and PRSI

Who pays what?*

*Source: Irish Tax Institute – pre Budget 2019 Briefing Paper

• The top 26% of income earners (> €50,000)

will pay 85% of the total income tax and

• USC. The remaining 74% of income earners

will pay 15% of the total income tax and USC.

• Those earning over €200,000 (the top 1%) will

pay 28% of the total income tax and USC.

• Those earning over €100,000 (the top 7%) will

pay 53% of the total income tax and USC.

The Personal Tax Story – Income Tax, USC and PRSI

Yield increasing but % of taxpayers contributing is falling*

*Source: Irish Tax Institute – pre Budget 2019 Briefing Paper

Tax Freedom Day

• If workers paid all their

tax upfront, they would

• nly start earning for

themselves

• n

their “Tax Freedom Day”*

• Calculations

are based on the income tax, levy/ USC and PRSI applying to a single employed person at each

• f

the listed salary levels for the tax year 2018.

*Source: Irish Tax Institute – pre Budget 2019 Briefing Paper

When do we enter the tax doors (Single Person)?

Enter PRSI at €18,305 Enter Income Tax at €16,500 Enter USC at €13,000

Interest Relief – Rented Residential Property

• Currently,

the deduction available for qualifying interest payments is restricted to 80%.

• The restriction is being removed for 2019.

Therefore, 100% of qualifying interest will be deductible against rental income in 2019.

Deposit Interest Retention Tax

• Budget 2017 also introduced a rolling reduction in the

DIRT rate by 2% per annum for a period of 4 years until the rate of DIRT returns to 33%.

• Accordingly, the rate applicable from 1 January 2019

will be 35%.

Budget 2019 Agricultural Measures

Agricultural Measures

• No major changes for farmers.
• However, stock relief extended for 3 years until the end of
• 2021. There are three forms of stock relief:

a) 25% general stock relief on income tax; b) 50% stock relief on income tax for Registered Farm Partnerships; c) 100% stock relief on income tax for certain young trained farmers.

Agricultural Measures

Income Averaging

• Income Averaging allows eligible farmers to calculate their

taxable income as the average of their farm income over a 5-year period.

• Restrictions

relating to farmers with

• ff

farm income removed. Stamp Duty

• Young Trained Farmer Stamp Duty Relief extended for 3

years until 2021.

Budget 2019 Indirect Taxes

VAT

• Rate of 9% for tourism sector

increased to 13.5% with effect from 1 January 2019.

• Rate change also effects other

industries including hairdressing.

• However, 9% VAT rate retained

for sports facilities and newspapers.

• VAT rate on electronically

produced publications reduced from 23% to 9%.

Excise

• Increase of 50 cent on pack of 20 cigarettes
• No change to motor tax and fuel
• No change in alcohol excise rates
• No

increase in customs tax

• Increase from 1% to 2% in

Betting Duty

Electric Vehicles

Diesel Surcharge

• 1%

VRT surcharge is being brought in for diesel engine passenger vehicles from 1 January 2019. VRT for Hybrid Vehicles

• VRT relief for the purchase of hybrid electric vehicles is being

extended for a period of 1 year until end of 2019. BIK for Electric Vehicles

• Budget 2018 introduced a 0% Benefit-in-Kind rate for 2018 on

electric vehicles. Introduced for a period of 1 year only. Extended for 3 years until 2021. A cap of €50,000 on OMV of vehicle will be applied.

Budget 2019 Capital Taxes

Capital Taxes

• Very little changes to capital taxes.
• Stamp duty on residential property rate remains at 1% (up to

€1m) and 2%. Stamp duty on commercial property remains at 6%.

• Capital Gains Tax rate remains at 33%.
• Capital Acquisition Tax rate remains at 33%.
• No changes to reliefs.

Capital Acquisition Tax

Threshold Pre- Budget Threshold Post Budget Difference Group A €310,000 €320,000 €10,000 Group B €32,500 €32,500 €

• Group C

€16,250 €16,250 €

Tax on Family Business Transfer

Business Transfer Within a Family

Capital Gains Tax 33% Retirement Relief Capital Acquisitions Tax 33% Business Property Relief Stamp Duty 6% No Relief

Transfer of Family Business

• Tommy has a retail business in Ennis which he has
• perated for many years.
• Tommy’s daughter Caroline is looking to take over the

business.

• The business, including the business premises, is valued

at €500,000.

• What tax liabilities will arise for Tommy and Caroline on

a transfer of the business?

Tax on Family Business Transfer

Business Transfer Within a Family

Capital Gains Tax € 0 Retirement Relief Capital Acquisitions Tax € 0 Business Property Relief & Group A Threshold Stamp Duty €30,000 No Relief

• No CGT and no CAT which is good news.
• However, the absence of stamp duty relief is a massive issue.

It will result in asset transfers being delayed until death. Consanguinity Relief should be extended.

Budget 2019 Business Taxes

Business Taxes – Other Measures

• Standard rate of corporation tax remains at 12.5% -

Cornerstone of Government tax policy.

• Ireland still participating in international tax projects including

Anti-Tax Avoidance Directive (“ATAD”).

• Finance Bill 2018 will introduce an exit tax of 12.5% on unrealised

capital gains where companies migrate or transfer assets

• ffshore.
• The Finance Bill will also provide for the introduction of

Controlled Foreign Company (“CFC”) rules. CFC is designed to prevent the diversion of profits to offshore countries with a low tax rate. Full details awaited in Finance Bill.

Key Employee Engagement Programme (KEEP)

• It is generally recognised that our employee share award

legislation is not attractive from a tax perspective

• Stock options currently taxable at marginal rate (c50%)
• In an increasingly competitive employee market, staff

retention is now a key consideration

• Prior to FA2017, with the exception of share “clog” schemes,

there was little scope to tax efficiently reward employees in the form of shares. The Minister therefore introduced KEEP.

Key Employee Engagement Programme (KEEP)

• KEEP applies to unquoted SME companies.
• Gains arising to employees on KEEP share options will be

liable to CGT, as opposed to income tax.

• Tax will not be payable on exercise of the options, CGT will

arise on the ultimate disposal of the shares.

• Incentive will be available for qualifying share options

granted between 1 January 2018 and 31 December 2023.

• However, there has been little take-up on KEEP.

Key Employee Engagement Programme (KEEP)

Three measures proposed by Budget 2019: a) Ceiling on maximum annual market value of shares that may be awarded to equal 100% of salary (up from 50%); b) Replacement of 3 year limit with a lifetime limit; and c) Increase in quantum of options that can be granted under KEEP from €250,000 to €300,000. Will these changes result in an increase in the take up of KEEP? We think not. The main issue with KEEP is the requirement for the

• ption price to not be less than the market value of the shares at

the date of grant. Therefore the cash flow burden is the main difficulty for the employee particularly where the company has value. Share “clog” schemes seem to give a more practical outcome.

Business Taxes – Other Measures

• Film Relief Corporation Tax Credit extended until 2024.
• Three Year Start-Up Corporation Tax Relief extended

until end of 2021.

• Accelerated capital allowance scheme for employer

provided fitness and childcare facilities will come into effect from 2019.

• Introduction of an accelerated capital

allowances for gas propelled vehicles and refuelling equipment.

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