Russellbrennankeane-budgetbriefing

Supplementary Budget 2009 Tax Planning in the Current Environment

What a difference 6 months can make…

Leadership & Vision …

The Rumours… • Income levy increase • Income tax rates increase

X

• New high tax rate

X

• Reduce tax credits

X

• Pension changes

X

• Increase in the rate of CGT / CAT • Residential property tax • Reduce VAT rates

X X

Dublin Chamber of Commerce Budget Submission • • • • • •

Retain Corporate rate at 12.5% No increase in Employers PRSI Reduce 13.5% VAT rate to 10% Reduce excise on alcohol Introduce residential property tax Introduce wealth tax

X X X X

Objectives 6 Steps to Economic Revival 1.

Stabilise public finances

2.

Restore damaged banking system

3.

Regain lost competitiveness

4.

Protect jobs and retrain unemployed

5.

Stimulate economic confidence

6.

Restore reputation internationally

Fairness is Cornerstone Principle: Everyone must give according to means

Personal Tax

Rates No change

Income Levy • Rates doubled • Entry points reduced

Income Levy Current Position €0 to €100,100 €100,100 - €250,120 €250,120 + Effective 1 Jan 2009

Yesterdays Budget 1% 2% 3%

€0 - €75,036 €75,037 - €174,980 €174,980 + Effective 1 May 2009?

Husband and wife separately assessed

2% 4% 6%

Income Levy • Not due if: – Income < €15,028 pa – Entitled to medical card – If over 65 and income < €20k pa

• On gross income before capital allowances, losses, pension contributions • On “exempt” income such as patent, forestry, artists exemption • Trading and rental income net of expenses • Deposit interest exempt

Income Levy Example John, single Self employed net profit Less: Pension AVC Less: Capital allowances Taxable Income Annual impact of levy: Pre Budget

€ 90,000 (15,000) (18,000) 57,000 €75,036 @ 2% = €1,501 €14,964 @ 4% = €599 €90,000 €2,100 €900

Preliminary Tax Impact Preliminary Tax 2009 due on lower of : 90% of tax for 2009 Or 100% of 2008 tax plus income levy on 2008 income € John’s 2008 tax liability 13,896 Plus income levy 2,100 Revised 2008 liability for PT purposes 15,996

Employee PRSI & Health Levy Employees PRSI - Employees PRSI Ceiling (4%) from €52,000 to €75,036

Yesterdays Budget

Current Position Health Levy €0 to €100,100 €100,100 +

2% 2.5%

€0 - €75,036 €75,036 +

Effective 1 May 2009

4% 5%

New Marginal Tax Rate On income over €175,000 Top rate of income tax Income levy Health levy

41% 6% 5% 52%

What does this mean for Employees? Salary

Annual Decrease

€

€

Single person

40,000

1,200

Married one working

80,000

3,470

Married both working

100,000

3,000

Married both working

200,000

9,341

Mortgage Interest Relief • Ceases for loans over 7 years

Residential Rental Property • Tax deduction for interest reduced to 75% • Potential effect - 13% additional tax

DIRT • Increase to 25% on ordinary deposit accounts • Increase to 28% on other savings products (life assurance / investment funds • Effective 8 April 2009

Pensions • Clear signal – changes to tax free lump sum in 2010 Budget • Public service early retirement scheme • No standard rating of pension contributions

Childcare Benefits • Early childcare supplement – 50% from 1 May 2009 – Abolished from 31/12/2009

• Free pre-school year • Child benefit allowance will be reviewed in 2010 Budget

Capital Allowances • Termination of allowances on private hospitals and nursing homes • Transitional arrangements • Child care and palliative care facilities – relief still available

Business Taxation

n a l Ire

c n I d

Business Taxation • 12.5% corporation tax rate unchanged Reminder: • “Manufacturing” tax rate of 10% ceases on 31 December 2010 • Employer PRSI unchanged at: – 8.5% on salary ≤ €18,512 pa – 10.75% on higher salaries

Incentive to Protect Employment • Enterprise stabilisation fund – €100 m fund = €50m 2009: €50m 2010 – Assist indigenous companies in difficult business environment – Particular focus SME and exports • Not in financial difficulty at 1 July ’08 • Remain financially viable

“Smart Economy” • Measures to support “Smart Economy” through investment and incentives • R & D target of 2.5% of GNP by 2013 • Tax relief on acquiring intangible assets including intellectual property

Capital Gains Tax

Capital Gains Tax (CGT) Current Position • 22% since 15 October ‘08

Yesterdays Budget • Increase to 25% • Effective 8 April ‘09

Capital Acquisitions Tax • Rate increased from 22% to 25% • Effective from midnight 7 April • Thresholds Pre 8 April

– (Parent to Child) – (Relations) – (Strangers)

€542,544 €54,254 €27,127

8 April

€434,000 €43,400 €21,700

Property

Dealing in Residential Development Land • Special 20% rate abolished • Taxable at marginal rate for individual 2009 • Taxable at 25% for company - accounting periods from 1 January 2009 • Trading losses set off restricted – maximum value 20% – If not claimed by 7 April ‘09

Stamp Duty • “Trade-In” Scheme • No stamp duty payable on “traded in” property – As payment / part payment – In exchange for new house / apartment

• Stamp duty due when “swapped” house sold

Property - Commercial Current Position • Stamp Duty rate still 6% • Stamp duty deferral for “resting on contract” still available

VAT & Other

VAT Rates

No changes

Car Dealers • VAT Margin Scheme • Second Hand Cars Acquired from 1st July – VAT on Margin

• Second Hand Cars Acquired before 1st July – Taxed on resale price – Spread Payments if resold before 31st December

Excise • 25 cent increase on cigarettes • 5 cent increase on diesel

Future Tax Cuts to be Reviewed •

Taxation of child benefit

•

Introduce carbon tax

•

Introduce property tax

•

Review tax exempt income / reliefs

Other Possibilities • Tax mobile phone texts! • Rock concerts! • Electronic tag high worth tax exiles!

Supplementary Budget 2009

Tax Planning in the Current Environment

Current Environment • • • • •

Tax certainty rates / reliefs Next budget – due Dec ’09 Commission on Taxation Report Fundamental changes to tax regime Maximise available remaining tax reliefs – Secure tax savings – Improve cashflow

Losses • Losses arising in your company? – – – – – –

Land write downs / restricted Capital allowances claims – obsolete assets Stock provisions Bad debt provisions Inter group loans – write off / down General trading losses

– Can be carried back to prior year – Obtain a refund of tax paid – Prepare accounts and return early to get refund

Cashflow Saving Tax Tips • Preliminary tax – If profits decreasing – base on current year

• • • • •

VAT refund on bad debts Move to a cash receipts basis for VAT Review direct debits for PAYE / VAT Less frequent filing of VAT / PAYE Directors current account

Tax Opportunities for Companies • Research credits – – – – –

&

Development

tax

Qualifying R & D 25% cash refund What costs qualify? What is R & D? Sectors benefiting: • Software, pharma, food, plastics, medical devices, electronics, biotech, manufacturing etc

Tax Based Funding • Seed Capital Relief – Start ups – Tax relief on investments up to €600k – Set against Income Tax bill in prior 6 years – Refund of income tax

• Business Expansion Scheme – Tax relief of €150,000pa for individuals – Qualifying company can secure €2m – Lack of other tax incentives for individuals

Redundancy Planning • Some elements taxable, others not • Maximise after tax payments to staff

Tax Savings for New Start Ups • Taxation exemption for new companies – Commence new trades in ’09 – Profits of €960k over 3 years • Existing companies?

Opportunties with Reduction in Asset Values • Take assets out of company • Re-organise company structure • Transfer assets to children – “Inheritance Brats”

Opportunities for Family Businesses / Companies • Low valuations – opportunities to transfer assets • CAT threshold for children €433k • Significant tax reliefs remain • Retirement Relief: extract €1.5m cash tax free (if husband & wife qualify)

Company Pension Schemes • Significant pension fund can be built for company directors (5% shareholding) • Cap on employer contributions – Currently based only on size of fund needed to provide for directors retirement – Based on age, years of work and salary

• Salary cap to be introduced? • 25% tax free lump-sum likely to be reduced

Conclusion • • • •

Act before next budget Tax certainty for now Claim tax reliefs applicable Maximise savings and manage cashflow

Contact Details Jackie Masterson Taxation Partner [email protected] 090 6480600 Fiona Molloy Taxation Director [email protected] 090 6480600