Finance Act 2010: Capital taxes
| Capital acquisitions tax | Capital gains tax | Stamp duty | Mandatory disclosure of certain transactions |
The Bill introduces changes in relation to CAT, CGT and Stamp Duty, including:
- A package of reforms relating to Capital Acquisitions Tax to modernise and simplify the CAT regime, while delivering immediate and significant benefits to taxpayers, their legal advisers and the Revenue Commissioners
- A change to the date of disposal where land is sold under CPO arrangements
- Some changes to the way stamp duty is charged on the transfer of shares in a company and to certain insurance transactions
Agricultural relief
This relief operates to reduce the market value of agricultural property received by a qualifying farmer by 90%. One of the conditions of the relief is that the income from the sale or compulsory acquisition of certain types of agricultural property, acquired within the previous six years, must be reinvested in other agricultural property within one year of the disposal.
The legislation has been amended to counteract a situation whereby an individual transferred other agricultural property to their spouse prior to the sale or compulsory acquisition and seeks to reinvest the proceeds from this disposal in the agricultural property owned by their spouse. The transfer of agricultural property to a spouse prior to the sale of the agricultural property, on which the agricultural relief had been claimed, will not give rise to a CAT charge and thus would have been an ideal way of ensuring that the proceeds could be reinvested in agricultural property and thus ensuring that the agricultural relief from CAT previously granted is not clawed back.
The introduction of this section is surprising as it had been widely speculated that the level of relief available on the gift or inheritance of agricultural or business property would be reduced or capped. Indeed this was the only change introduced to CAT reliefs and we welcome the fact that the government chose not to implement the tough recommendations set out in the Commission on Taxation Report in this area.
Administration
A number of changes have been made to the administration of CAT. These changes are designed to bring the tax more in line with the self assessment system. The most important changes are as follows:
- The payment and filing dates have now been changed to 31 October similar to CGT and income tax. Where a valuation date falls in the period 01 January to 31 August, the tax will have to be paid and a return filed by 31 October in that year. Where the valuation date falls in the period 01 September to 31 December, the tax will have to be paid and a return filed by 31 October in the following year
This raises some concerns in relation to the timeframe for the payment of tax where the valuation date arises between 1 January and 31 August. This concern would primarily arise in the context of inheritances. For example, where a beneficiary takes an interest in joint property or is in possession of an asset from the date of death, the valuation date will be the date of death. Accordingly, if the disponer died on say 29 August, then the tax must be paid and the return filed by 31 October, which is only some two months from the date of death. In the circumstances, it may not be practical for a beneficiary to raise funds to fund the tax in such a short timeframe. Similarly, where a grant of probate issues close to the 31 August deadline, the beneficiaries will have a very short timeframe to arrange for the tax to be paid. This amendment will only come into effect on the passing of a Ministerial Order – thus there is still an opportunity to reconsider the practical implications
- Secondary accountability for the payment of CAT no longer applies. Therefore liability will rest solely with the beneficiaries. The disponer or the personal representatives of the disponer will no longer have liability for unpaid CAT. This is a welcome change as the previous position placed an unfair burden on disponers and in particular their personal representatives in the distribution of an estate
- CAT will no longer be a charge on the property for 12 years following the gift or inheritance. This will mean that purchasers of property will no longer have to seek a certificate of clearance from CAT where a property has been gifted within the previous 12 years
Your Country, Your Call
The Bill proposes that a receipt from the “your country, your call” competition will not be within the charge to CAT.
Compulsory acquisitions
A welcome amendment has been introduced to the deadline for payment of CGT on the disposal of land on foot of a compulsory purchase order. Previously, CGT on such disposals was payable in certain circumstances before the receipt of any consideration.
This has now been changed so that the CGT on disposals of land compulsorily acquired will only become payable on either the date on which the proceeds of sale are received or if a person dies before receiving the payment the disposal will be deemed to become payable immediately before death (otherwise the disposal could potentially have fallen outside the charge to tax).
Such amendment is long overdue and will mean that people who are required to sell their land to authorities with compulsory purchase powers will not be required to get funding to discharge a CGT liability once they agree on the price. This was often necessitated as, in practice, agreement around the price to be paid could be reached a number of years before the proceeds were actually paid to the vendor.
Extension of retirement relief on the disposal of shares in a family company
There is a relief from capital gains tax available on the disposal of certain trading assets by an individual over the age of 55. The legislation has been amended to ensure that the relief will apply if the conditions are satisfied, to shares purchased or redeemed by the Company. The relief is restricted once the consideration exceeds €750,000. Any payments received by an individual from such a redemption will be taken into account in terms of determining the level of available relief in the future.
Anti avoidance legislation
S. 590 of the Taxes Consolidation Act 1997 attributes capital gains made by foreign entities to Irish resident persons in certain circumstances. There is an existing exception to such attribution where the gain accrues in respect of the disposal of assets used by a company for the purposes of the trade. The exception has been extended to include disposals by a foreign company of assets which are used by another company within the same corporate group for trading purposes outside the state. This will apply to all such disposals made by the non trading foreign company as of 4 February 2010.
New legislation has been introduced to deny the availability of capital losses where such losses were created to shelter existing capital gains, resulting in the taxpayer not having to pay any CGT. This new provision states that a capital loss will not be allowable if the main purpose, or one of the main purposes, of it is to secure a tax advantage. Further, it is irrelevant whether the loss is created when there is an existing gain against which to offset it and also regardless of whether the advantage is for the benefit of the person to whom the loss accrues. In addition, losses created through the use of Irish gilts will no longer be available to offset against chargeable gains. In essence, tax planning structures which were devised to create such losses will no longer be effective for disposals made on or after 4 February 2010.
Stamp duty
There have been no changes to stamp duty rates in the Finance Bill. Some changes have been made to the way stamp duty is charged on the transfer of shares in a company and to certain insurance transactions as follows:
Transfers of shares
There shares in a company are transferred and the transferee procures either directly or indirectly for any debt of the company (or any related company) to be repaid, this debt will now be regarded as consideration for the transfer and stamp duty shall be payable accordingly. This change has been introduced to prevent a situation whereby debt is used to artificially reduce the value of the shares transferring and in turn the amount of stamp duty payable.
Levy on life assurance premiums
Some changes have been made to the annual 1% levy on life assurance premiums which was introduced last year. Pensions and reinsurance businesses will no longer have to pay this levy and this change is to be welcomed. In addition the payment dates have been brought forward for each quarter by 5/6 days.
Health insurance levy
The levy introduced by the Health Insurance (Miscellaneous Provisions) Act 2009 in relation to health insurance contracts has been increased from €53 to €55 in respect of minors and from €160 to €185 in respect of adults. This change will apply to any new contracts entered into after 1 January 2010 and any renewals of existing contracts from that date. Given the level of health insurance premiums generally, this change can only have a negative impact on consumers.
Mandatory disclosure of certain transactions
In what is described as an anti-avoidance measure the Minister for Finance introduced a very late amendment to the Finance Bill 2010 at committee stage providing for the mandatory reporting of certain transactions.
Broadly speaking the proposed amendment provides that either promoters (which will include accountants, tax advisors and banks) or tax payers contemplating or implementing certain transactions will be obliged to provide details of those transactions to Revenue. The transactions are described as disclosable transactions and are broadly defined as any transaction or any proposal for a transaction which might result in the obtaining of a tax advantage for any person.
Apart from broad policy concerns mentioned below in relation to the proposed legislation an unsatisfactory feature of the amendment as presented is that it is vague on precisely what type of transactions will require to be reported to Revenue and when they must be reported. This detail is to be contained in regulations made by the Revenue Commissioners with the consent of the Minister for Finance. Among the matters to be contained in the regulations are:
- The type of transactions which are to be “disclosable transactions”
- The type of information to be provided to the Revenue Commissioners in relation to disclosable transactions
- The time period within which information must be provided to the Revenue Commissioners
Therefore, while clearly signalling that there will be compulsory reporting of certain transactions, the draft legislation does not set out precisely what those transactions will be, how they are to be reported to Revenue or when. Given that the provisions if enacted will apply to transactions falling after the date of the passing of the Act, which is likely to be before the publication of the detailed regulations, there will be a period of uncertainty during which persons contemplating transactions will not know whether those transactions will be included as “disclosable transactions” when the detailed regulations are published. This is most unsatisfactory.
The Minister has stated that his officials and officials of the Revenue Commissioners will engage in a consultative process with practitioners and other interested parties in the drawing up of the detailed regulations. In these difficult economic times the regulations when drafted must ensure:
- Certainty for tax payers engaging in normal commercial transactions
- The regulations are clear on what transactions are reportable, what information is to be provided and when
- Compliance with regulations must not lead to burdensome tax administration impositions and compliance costs
The manner in which this very significant amendment was introduced by the Minister without consultation is to be regretted. The vagueness of the legislation creates uncertainty at a time when business needs it least. Hopefully the consultative process which the Minister has promised leading to the detailed regulations will remove any uncertainties.