Creating a plan for the future
EVERYONE is only too well aware of the economic backdrop to which Finance Bill 2012 was published. Business confidence is being tested, credit continues to be a hugely challenging issue and unemployment is stubbornly high, all at a time when the need to “drive on” and continue to tackle the budget deficit has never been greater.
It is true Ireland is starting to repair the damage done to its international reputation by making tough budgetary decisions, but the overall plan for Ireland’s recovery will only ever be successful if the Government can deliver on the absolutely critical objective of creating jobs.
In general, the bill was a pro-business document and one which we hope, need and expect will be built on in the difficult years ahead. The bill itself contained few surprises from that announced as part of the budget in December — it was more of the “meat on the bones” variety — with many of the measures flagged previously set out in detail.
There were a number of targeted supports for employment for both the foreign direct investment (FDI) and Irish indigenous sectors. In particular, the Government introduced some welcome enhancements to the research and development& tax credit regime.
It will allow the first €100,000 of qualifying research& to benefit from the R&D regime on a “volume” rather than an incremental basis. This will extend the existing amount of subcontracted research& which qualifies for the credit, but notably allows companies the option of “surrendering” a portion of the credit tax free (subject to a limit) to key employees involved in R&D.
Also worth noting is the new special assignee relief programme, which will exempt 30% of income between €75,000 and €500,000 from income tax for a minimum period of 12 months. This is a concerted effort by the Government to attract key employers to Ireland, so as to create more jobs and facilitate development expansion of business here. It is also designed to help Ireland to be competitive for FDI in an international context. For outbound assignees, a new foreign earnings deduction is being introduced (maximum reduction in income tax of €35,000) to assist Irish companies expanding into emerging markets.
The bill also contained 21 measures designed to support the international financial services industry to meet the ambitious target of creating 10,000 jobs over the next five years.
THE property sector saw some welcome changes, with a capital gains tax exemption introduced for certain gains on property purchased from midnight on budget night until the end of 2013 and held for seven years.
However, this must be balanced with the fact that from Jan 1, 2015, investors in accelerated capital allowance schemes will no longer be able to use any capital allowances beyond the tax life of the particular scheme where that tax life ends after that date.
Those with income over €100,000, and where specified property reliefs were utilised, must now pay a 5% universal social charge on the income sheltered by these reliefs.
There were no changes to income tax rates, bands or credits and an increase in the social charge exemption threshold, meaning 330,000 people are exempt.
There is an increase to 30% in the relief for first-time buyers who took out their mortgage in the period 2004 to 2008. Relief will be available at the rate of 25% for first-time buyers who purchase this year and at 15% for non-first time buyers.
Retirement relief for capital gains tax purposes was also restricted for individuals who sell their businesses or pass it onto the next generation after they reach the age of 66. There is a time lag before these restrictions are introduced in 2014.
In short, whilst the Finance Bill introduced tax raising measures to balance the books, the main driver behind it is creating jobs from very limited resources. With this limitation, the Government seems to have achieved this although as with all good plans, time will tell.
* Eugene O’Riordan is tax director of PwC Cork
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