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Friday, May 16, 2014
Thursday, April 4, 2013
Are mortgage write downs and debt forgiveness subject to 33% tax?
At the end of last month, the Association of Chartered
Certified Accountants (ACCA) warned that mortgage write-offs and debt
forgiveness taking place under the Mortgage Arrears Resolution Process (MARP) could
be treated as a taxable gift under Capital Acquisitions Tax (CAT) rules and
therefore subject to 33% tax. In legislation the definition of a taxable gift
includes “the release, forfeiture, surrender or abandonment of any debt”. The
ACCA had particular concerns over this due to the fact that debt write offs
which will take place under the new Personal Insolvency Act (as opposed to
under MARP), have been specifically stated by government as not being subject
to CAT. The ACCA asked Revenue to clarify the position regarding debt write
offs which take place under MARP.
A Revenue spokeswoman responded shortly thereafter to
advise that they would not deem mortgage write downs to be taxable provided
that Revenue are assured of the “bona fides of particular arrangements”, i.e.
that the debt forgiveness scheme is legitimate and undertaken purely for
commercial reasons.
Revenue have clarified their position in e-Brief No.
12/13 issued on Tuesday (2nd April), which reads:
Section 5 of the
Capital Acquisitions Tax Consolidation Act 2003 provides that a person is
deemed to take a gift where, under or in consequence of any disposition, that person becomes beneficially entitled
in possession, otherwise than on a death, to any benefit otherwise than for
full consideration in money or money’s worth paid by such person.
By virtue of the definition of "disposition" in section 2 (1)
CATCA 2003 the release, forfeiture, surrender or abandonment of any debt or
benefit, or the failure to exercise a right may be subject to CAT in certain
situations.
Where for bona fide
commercial reasons, a financial institution enters into a debt restructuring,
forgiveness or write-off arrangement with a customer, Revenue’s approach,
subject to being satisfied as to the bona fides of the arrangement (which may
be subject to Revenue audit or enquiry) is that the financial institution is
not intent on making a gift of any sort to the mortgagor/debtor – and
accordingly the mortgagor/debtor would not be subject to a CAT charge in
respect of any such debt restructuring, forgiveness or write-off arrangement.
This approach will
only apply in the above-mentioned circumstances. In particular, should any debt
restructuring, forgiveness or write-off arrangement be undertaken for the
purposes of the avoidance of tax, the treatment outlined above would not apply.
In summary therefore, so long as Revenue are happy that
the debt forgiveness is legitimate and a bona fide commercial transaction, no
tax liability will arise.
Contact Details:
01-6877400
info@fenero.ie
Monday, March 11, 2013
What Self-Employed people need to know about the Local Property Tax
Perhaps having learned some lessons from the high level
of resistance to, and non-payment of, the Household Charge, Revenue have
approached the issue of taxpayer compliance to the new Local Property Tax (LPT)
differently and have made every effort to ensure this tax will be collected.
It is crucial for self-employed persons to be aware of how
the provisions of the LPT may affect them. Hugely important to take note of is
the fact that Revenue has linked the submission of a LPT return to the
submission of annual income tax returns.
As you will probably be aware, a late filing surcharge
applies if you are late in filing your income tax return. This surcharge is
calculated as a percentage of your tax liability. A 5% surcharge applies where
your income tax return is submitted no more than 2 months after the deadline.
This increases to 10% where the return is more than 2 months late.
Revenue has now linked the late filing of a LPT return to
the filing of an income tax return. This means that if you do not file your LPT
return, your income tax return will be deemed to have been filed late, even if
it was not. This will trigger a late filing surcharge to be raised on your income
tax return.
No tax clearance certificates will be issued to
individuals where there is an unpaid LPT. If you need a tax clearance
certificate to be able to deal with certain customers (such as under a Public
Sector contract), you will need to be very conscious of the impact that
non-payment of the LPT could have on your business.
If you are due any other type of tax refund, unpaid LPT
may be offset against your refund.
If you are in receipt of any kind of social welfare
payment, the LPT may be deducted directly at source from the payment.
As will also be the case with PAYE workers and other
individuals, the Revenue now also has the power to attach the amount of LPT due
to your bank account. This means that they have the power to take unpaid tax
amounts directly out of the bank accounts of people who do not pay the tax, by
ordering a bank to hand over the money from the person’s bank account.
Finally, as will be the case with all property owners,
PAYE or self-employed, unpaid LPT will be added as a charge to your property.
This means that you will not be able to sell your property until you have paid
all LPT outstanding on it, plus interest due and also penalties where
appropriate.
It seems that the Revenue has put a lot of thought into
ensuring compliance with the LPT. There are very few places for people to hide
and costly consequences for those who may try.
Contact Details:
01-6877400
info@fenero.ie
Wednesday, December 5, 2012
Review of Budget 2013 Announcements
So the speculation is over and the announcements have
been made. For a round up of all the main announcements made in today’s Budget,
read on….
TAXATION MEASURES
INCOME TAX CHANGES
-
Universal
Social Charge (USC)
Currently reduced rates of USC apply to the over 70s and
full medical card holders. From 1 January 2013 the standard USC rates will
apply to both the over 70s and full medical card holders earning more than
€60,000 per annum.
-
PRSI
The minimum annual PRSI contribution for the self-employed
is increasing from €253 to €500.
The weekly PRSI allowance for PAYE employees is to be
removed. Currently the first €127 of weekly pay for a PAYE employee earning
more than €18,305 is exempt from PRSI. This relief is to be abolished in a move that will cost PAYE employees earning over €18,305 an extra €264 per annum.
PRSI to be payable on passive income e.g. rental and other investment income.
-
Maternity
Benefit
Maternity Benefit is to become a taxable source of income
with effect from 1 July 2013.
-
Top
Slicing Relief
Top Slicing Relief will no longer be available, from 1 January 2013, on ex-gratia lump sums in respect of
termination and severance payments where the non-statutory element is €200,000
or over.
-
Charitable
Donations
A number of changes to the administrative regime of tax
relief for donations to charities and approved bodies have been announced. One
new blended tax rate for relief on charitable donations of 31% to be
introduced.
-
Benefit in
Kind
The specified interest rate used in calculating benefit
in kind on preferential loans (other than home loans) is to increase from 12.5% to 13.5%. However the specified rate of 5% for home loans is to be reduced to
4%.
-
Film
Relief
The current film relief scheme is to be extended to 2020.
However the scheme will be removed and will move to a tax credit model from
2016.
CORPORATION TAX
-
3 Year
Corporation Tax Exemption
An extension to the 3 year corporation tax exemption for
new start-up companies is to occur. The relief is being extended to allow any
unused relief arising from insufficient profits during the first 3 years
trading to be carried forward for use in future years. However the maximum
allowable relief cannot exceed the eligible amount of Employers PRSI in the
year claimed.
-
R&D (Research
and Development) Tax Credit
The amount of qualifying expenditure which can benefit
from the tax credit without reference to the 2003 threshold is being increased
from €100,000 to €200,000.
-
Close
Company Surcharge
Close Companies are currently exempt
from the surcharge where the amount of any undistributed investment income is
less than €635. This threshold is being increased to €2,000. The majority of Irish companies are Close Companies. A Close Company is a company that is controlled by five or fewer participators or is controlled by any number of participators who are directors.
VAT
-
VAT rate
for the tourism sector
The 9% VAT rate for the tourism (and certain other)
industries is to be retained.
-
Threshold
for accounting for VAT on a cash receipts basis
Businesses with an annual turnover of €1 million or less
are currently eligible to account for VAT on a cash receipts basis. This
threshold is to be increased to €1.25 million. Accounting for VAT on a cash
receipts basis is a significant cash flow advantage for businesses.
PENSIONS
-
Access to
pension fund pre-retirement age
Individuals will be allowed a once-off option to withdraw
up to 30% of the value of their AVCs prior to retirement. However any withdrawals will be liable to
tax at the individual’s marginal rate. This option will remain in place for
three years after the passing of Finance Bill 2013.
-
Changes to
maximum tax relief on pension contributions
The government plans to introduce a cap on tax relief for
pension contributions into pension funds which will provide annual pension
income of more than €60,000.
-
Pension
Levy
The annual Pension Levy of 0.6% of pension funds levied to
fund the Jobs Initiative is set to end as planned in 2014.
CAPITAL GAINS TAX
The current rate of 30% is to be increased to 33% and
will apply to disposals made after 5 December 2012.
Relief to capital gains tax will be available for farm restructuring.
This will be available where the proceeds of the sale of a farm are reinvested
for the same purpose.
CAPITAL
ACQUISITIONS TAX
The current rate of 30% is to be increased to 33% and will
apply to gifts and inheritances received after 5 December 2012. The current
group tax free thresholds are also being reduced by 10% with effect from the
same date.
DIRT (TAX ON
SAVINGS)
The rate of DIRT is to be increased from 30% to 33% for
savings products which pay interest annually or more frequently. For products which pay
interest less frequently than annually the applicable rate will be 36%. These
increased rates will apply from 1 January 2013.
LOCAL PROPERTY TAX
The new local property tax will take effect from 1 July
2013. A half-year payment will be charged in 2013.
The tax will be charged at a rate of 0.18% on properties
valued at less than €1 million and at a rate of 0.25% will apply to any excess
value over €1 million. Importantly these rates will be known as the “central
rates” but from 2015 onwards, local authorities will be able to vary the rate
of the tax by up to +/- 15%. Therefore different rates will apply depending on
the local authority that you live under.
The Household Charge will cease with effect from 1
January 2013 as this local property tax is to replace it. In addition the NPPR
(non principal private residence) charge will cease with effect from 1 January
2014. Any unpaid Household Charge or NPPR taxes will remain as a charge on the
related property however.
For full details on the local property tax, see our
separate blog article at: http://smallbusinessadviceireland.blogspot.ie/2012/12/overview-of-new-local-property-tax.html
VEHICLES
-
VRT
Vehicle Registration Tax (VRT) rates are to be increased with
effect from 1 January 2013. VRT reliefs currently in place for electric vehicles
and certain hybrid vehicles are to be retained until the end of 2013.
-
Motor Tax
Motor tax rates will increase from 1 January 2013 across
all categories although the rate for electric cars is being reduced to €120.
A full list of current and the new revised motor tax and
VRT rates is available from page 2 onwards at: http://budget.gov.ie/Budgets/2013/Documents/Annex%20C%20-%20VRT%20and%20Motor%20Tax.pdf
EXCISE DUTIES
-
Alcohol
Excise duty on a pint of beer and cider, and on a
standard measure of spirits, is being increased by 10 cent. The excise duty on
a 75cl bottle of wine is to be increased by 1 euro. Pro-rata increases take
effect on other products. These increases take effect from midnight 5th
December 2012.
-
Tobacco
Excise duty on a packet of cigarettes is to be increased
by 10 cent with a pro-rata increase on other products. Excise duty on roll-your-own
tobacco will increase by 50 cent per 25g pouch with effect from midnight 5th
December 2012.
SOCIAL WELFARE AND EXPENDITURE MEASURES
-
Statutory
Redundancy Payments
The partial refund of statutory redundancy payments to
employers, which was substantially reduced last year, is to be abolished
completely.
-
Health
The prescription charge for medical card holders to be
increased from 50c to €1.50 per item and the monthly cap for a family is being
increased from €10 to €19.50.
Drug Payment Scheme threshold is being increased from
€132 to €144 per month.
Medical cards to be replaced by GP only cards for persons
aged over 70 with a weekly income of €600-€700 for single persons and €1,200-€1,400
for a couple.
-
Social
Welfare Changes
No change to core weekly payment rates.
Child Benefit to be reduced by €10 per month.
The length of time which an individual can claim Jobseeker’s
Benefit will be reduced by 3 months, from 12 months to 9 months. After 9 months
a means test will be required.
Telephone and electricity allowances which are currently
available under the Household Benefits package are to be reduced.
-
Education
For third level students, the student contribution to
fees will be increased by €250 for the years 2013 to 2015.
Disclaimer: The above list is not an exhaustive list of proposed changes. In addition, the above notes are based on the budget speech and not on draft legislation, which will not be available until the Finance Bill is published. Fenero accepts no responsibility for any action which any individual or business may take or not take based on their reading of this article. Professional advice should be taken before any action is taken.
Contact Details:
01-6877400
info@fenero.ie
Overview of the New Local Property Tax
Overview of the Local Property Tax
The new local property tax will tax effect from 1 July
2013. The property owner will be liable to the tax (and not tenants where the property
is rented). Co-owners will be jointly and severally liable for the tax. A
half-year payment will be charged in 2013 and a full year payment will be due
from 2014 onwards.
The tax will be charged at a rate of 0.18% on properties
valued at less than €1 million and at a rate of 0.25% will apply to any excess
value over €1 million. Importantly these rates will be known as the “central
rates” but from 2015 onwards, local authorities will be able to vary the rate
of these “central rates” by up to +/- 15%. Therefore different rates will apply
depending on the local authority that you live under.
The amount of tax paid will be determined on a
self-assessment basis. i.e. the property owner must establish the market value
and calculate the applicable tax amount to be paid. The property tax will be
collected by the Revenue Commissioners.
The Revenue will be setting up a dedicated Lo-Call number
to deal with enquiries about the tax from 7th January 2013.
How much tax do I have to pay?
The tax rate will be applied to the market value of your
property to arrive at the amount of tax payable. However for the purposes of
calculating the tax, property values will be organised into bands.
The first band is €0 - €100,000. Subsequent bands will be
organised in values of €50,000 width up to €1 million i.e. the second band is
€100,001 to €150,000; the third band is €150,001 to €200,000 etc. The tax liability
will be calculated by applying the tax rate to the mid-point of the band. For
example, if your property is valued at €130,000 it will fall into the €100,001
to €150,000 band. The mid-point of this band is €125,000. Therefore you will
pay 0.18% on €125,000 (and not 0.18% on €130,000). An online calculator is
available on the Revenue website to help you work this out at: http://www.revenue.ie/lpt_reckoner/index_en.html
How do I value my property?
In March 2013 the Revenue Commissioners will be sending
out an explanatory booklet on the operation of the local property tax including
procedures for arriving at the property’s market value. Property owners will
also be free to use the services of an independent property valuer if they
choose. The new Property Prices Register is also intended to assist people in
valuing their property.
You will be required to determine the market value of
your property as at 1 May 2013. This valuation will then remain valid for the
purpose of your Local Property Tax Return for three years up to and including
2016. This will useful in that you will not need to repeat this exercise each
year and also if you improve or renovate the property which may increase the
property value before 2016.
However it is not clear from information currently
available whether you can choose to revalue your property and resubmit details
again before 2016 if you wish to – this would be important in the context of
falling property prices.
You will be required to submit a Local Property Tax
Return to Revenue stating your valuation either online or using a paper return
(however if you own more than one property you cannot avail of the paper return
option). Paper returns will be required to submitted by 7th May
2013. If you are filing online you will have until 28th May 2013.
Michael Noonan has advised that a number of methods will
be used to identify valuations which are far below market value in an attempt
to curb any tax evasion which might arise though the intentional undervaluing
of a property. This includes a “heat map” showing the average market value of
properties in a particular area. The idea is that if one property owner values
their property substantially lower than their neighbours, it should be quickly
flagged by the Revenue for further investigation.
The government have said they expect that 85% to 90% of
properties will be valued at below €300,000.
Are there any exemptions to the Local
Property Tax?
The exemptions to the tax will be broadly in line with
those applied to the Household Charge. Additional exemptions will also apply to
First Time Buyers and to new or previously unused properties.
Second hand properties purchased by a first time buyer in
2013 will be exempt until the end of 2016.
New and previously unused properties which are purchased
from a builder or developer between 1 January 2013 and the end of 2016, will be
exempt until the end of 2016.
How and when do I pay the tax?
The tax will be operated and collected by the Revenue
Commissioners. You can choose to make one single payment or instead to spread
out the payments in equal instalments between 1 July and 31 December 2013. If
you are opting for one single payment by a single debit instruction, this will
be taken from your bank account on 21 July 2013.
There will be a
range of payment options including credit/debit card, direct debit and cash payment
through certain providers. You can also opt for voluntary deductions at source
meaning payment can be deducted from your salary or certain social welfare
payments. If you do not elect for a particular payment method, the Revenue will
automatically collect the tax at source.
Interest charges will apply to late payment of tax.
What if I cannot afford to pay?
For owner occupiers with a gross income of up to €15,000
(single) and €25,000 (couples), the tax can be deferred in full until financial
circumstances improve or until the property is sold. For owner occupiers with a
gross income of up to €25,000 (single) and €35,000 (couples), 50% of the tax
can be deferred in full until financial circumstances improve or until the
property is sold. However interest at 4% per annum will apply to all deferred
amounts.
What about the existing Household Charge?
And the NPPR tax on second properties?
The Household Charge will cease with effect from 1
January 2013 as this local property tax is to replace it. In addition the NPPR
(non principal private residence) charge on second homes will cease with effect
from 1 January 2014. Any unpaid Household Charge or NPPR taxes will remain as a
charge on the related property however.
Disclaimer: Please note that the information
provide above is based on detail announced in the Budget on 5th
December 2012 and is subject to enactment of the Finance Bill 2013.
Contact Details:
01-6877400
info@fenero.ie
Sunday, December 2, 2012
The Self-Employed and Jobseeker's Benefit/Allowance
One issue that we are commonly asked about is that of social welfare
entitlements for the self-employed, in particular JobSeekers Benefit. If you
are self-employed, what social welfare safety nets are there should your
business fail or not provide you with sufficient income?
Qualifying for
Jobseeker’s Benefit
Most self-employed people cannot qualify for Jobseeker’s Benefit due to the
fact that it is only given to people who have paid PSRI at Class A. However, if
you have previously worked and paid Class A PRSI as an employee before becoming
self-employed you may be entitled to Jobseeker’s Benefit.
To qualify for
Jobseeker’s Benefit you need:
·
At least 104 Class
A PRSI contributions paid since you first started work
·
And have 39 Class
A PRSI contributions paid or credited in the relevant tax year (a minimum of 13
weeks must be paid contributions*) or
·
Have 26 Class A
PRSI contributions paid in the relevant tax year and 26 weeks Class A PRSI paid
in the tax year immediately before the relevant tax year.
The relevant tax
year is the second last complete tax
year before the year in which your claim is made. So, for claims made in 2012,
the relevant tax year is 2010.
If you are unsure
as to how many Class A PRSI contributions that you have, you can check your
PRSI record directly with the Department of Social Protection (contact details
available at www.welfare.ie).
I do not qualify for
Jobseeker’s Benefit. What happens next?
If you do not qualify for Jobseeker’s Benefit you may instead qualify
for Jobseeker’s Allowance which is a means-tested social welfare payment. If
you have applied for Jobseeker’s Benefit and did not qualify, you should be automatically
assessed for Jobseeker’s Allowance. In fact, you cannot actually apply for
Jobseeker’s Allowance until you have first applied for Jobseeker’s Benefit
(even if you know that you will not qualify for Jobseeker’s Benefit).
Jobseekers Allowance – Means Test
If you do not earn
enough from self-employment and you do not qualify for Jobseeker’s Benefit, you
may be able to get Jobseeker’s Allowance if you pass a means test. To qualify,
you must also be:
·
Over 18 and under
66
·
Unemployed and
available for, capable of and genuinely seeking work
·
Habitually
resident in Ireland
How can I be available for work if I
am self-employed?
You will no doubt have noticed that one of the qualifying criteria is
that you must be available for and seeking work. For the self-employed, you can
remain so and can even be engaged in self-employment every day and still be
entitled to receive Jobseeker’s Allowance, provided your overall income stays below
a certain amount. The number of days you are engaged in self-employment is
not relevant.
In order to satisfy the criteria of being capable of, available for, and
genuinely seeking work, you must be able to show evidence of this to the
Department of Social Protection.
Available for work
Essentially the
Department of Social Protection considers that you are available for employment
if you are prepared to accept any offers of suitable employment immediately. It
is important to be aware that you can be regarded as not being available for
work and therefore not entitled to Jobseeker's Allowance if you put
unreasonable restrictions on the following:
·
The nature of the
employment
·
The hours of work
·
The rate of pay
·
The duration of
the employment
·
The location of
the employment
Genuinely looking for work
You must be able
to show that you are making genuine efforts to secure employment. You need to
provide examples of such steps. Steps which would indicate that you are
considered to be genuinely seeking work may include:
·
Making oral or
written applications for work
·
Looking for
information on the availability of employment from employers, advertisements
and employment agencies
·
Taking up
reasonable training opportunities
·
Acting on the
advice given by a Job Facilitator, a FÁS adviser or other placement agency such
as the Local Employment Service (LES)
·
Taking positive,
well advised steps towards establishing yourself in self-employment such as
researching possible areas of self-employment,
·
Preparing business
plans for a self-employment project
·
Attending relevant
"start your own business" courses or seeking information, advice or
guidance in relation to any of these steps
How is the Means Test Carried Out?
For information on
how the means test is carried out, watch out for a future blog post coming
soon.
Other Benefits
If you qualify for Jobseeker's Allowance you may also be eligible to
apply for secondary benefits
such as a medical card, rent supplement, mortgage interest supplement, fuel
allowance, assistance with school costs etc.
Contact Details
www.fenero.ie
info@fenero.ie
01-6877400
Monday, October 15, 2012
Single parents – Earn an extra €8,250 free of income tax with the one-parent family tax credit
If you are a single parent, you are entitled to claim an
extra tax credit known as the One-Parent Family Tax Credit. The one-parent
family tax credit is worth €1,650 in 2012. This will allow you to earn an extra €8,250 free of income tax.
(Unfortunately it will not reduce the amount of PRSI or USC that you pay as all
tax credits only impact on your income tax liability).
Who qualifies for
the one-parent family tax credit?
The one-parent family tax credit can be claimed if you are
a single parent and you have a child, under the age of 18, who is dependent on
you and resides with you for at least one night in the year.
In addition to children aged 18 or under, you can also
receive this for a child over the age of 18 who is in full time education or
undergoing a full time training course for a trade or profession for a minimum
of two years.
You can also receive this tax credit if you are a single
parent to a child who is permanently physically or mentally incapacitated and
has become so before reaching 21 years of age, or has become permanently
incapacitated after reaching 21 but whilst in full time education.
You do not qualify for one-parent family tax credit if:
• You are a person qualifying for the
married person's tax credit or
• You are a
person living together with another person as man and wife
Note that if you are claiming this tax credit and at a
later date move in with a partner, you are no longer entitled to this credit
and must inform Revenue.
And the tax
savings get better....
If you claim the one-parent family tax credit, you will
also receive an increase in your standard rate band. This means that the amount
you are allowed to earn at the 20% tax rate will increase. As a single person
you are entitled to earn up to €32,800 at 20%. When you claim the one-parent
family tax credit, as well as receiving the tax credit your 20% tax band will
increase from €32,800 to €36,800. This means you can earn an extra €4,000 which
is only taxed at 20% instead of 41%. This is a tax saving of €840. (Please note that this information is based
on the 2012 tax rates).
Social Welfare payments to single parents
Claiming the one-parent
family tax credit will not affect your entitlement to the One Parent Family
Payment from the Department of Social and Protection if you are in receipt of
same. However don’t forget that the One Parent Family Payment is a taxable
source of income and the tax due on this payment is collected by means of an
adjustment to your tax credit certificate. It is advisable to make sure
that Revenue is aware that you are in receipt of this payment in order that
they can adjust your tax credits accordingly. If you do not, you may find
yourself with an unexpected tax bill at a later stage when or if Revenue
contacts you about this.
How to claim this tax
credit
You can claim this tax credit by sending in Form OP1 to
Revenue. You will find a link to this form below.
Alternatively you can claim using PAYE Anytime. If you are
not registered for PAYE Anytime, you can do so here: http://www.ros.ie/paye/launchPAYEanytime_en.html
If you have any questions or need advice, don’t hesitate to
contact Fenero on info@fenero.ie or 01-6877400.
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