Today’s budget speech by the Minister For Finance, Mr Brian Lenihen has demonstrated the government’s continuing commitment to trying to address the public finance deficit.

The positive news for individuals and businesses is as follows:

• Personal and corporate tax rates have not been increased.
• Both the rate of VAT on goods and services and excise duties on alcohol products have been reduced to try and address the difficulties in the retail sector including the attractiveness of cross border shopping.
• From a non tax perspective, the introduction of an appeal mechanism for SMEs and sole traders finding it increasingly difficult to source credit from financial institutions covered by NAMA is a welcome development.

However, the Minister did state that further anti – avoidance legislation can be expected in the Finance Bill.

The remainder of this article addresses the significant changes and the retention of vital existing tax rates and allowances under each of income tax, corporate and capital taxes, and indirect taxes.

Income tax

• No changes have been made to income tax rates which remain at 20% and 41% respectively nor to the levy rates introduced in April 2009.
• A new universal social contribution will replace employee PRSI, the Health Levy and the income levy in order to try and tax individuals on a more progressive and equitable basis from 2011 onwards.
• An annual Irish domicile levy will be introduced amounting to €200,000 for high net worth non resident individuals in order that every wealthy non resident but Irish domiciled individual makes a contribution in the current times of national financial hardship. This will apply to such individuals with worldwide income of at least €1 million and Irish capital assets of at least €5 million.
• Mortgage interest relief has been extended to 2018 for those who take out mortgages before the start of July 2011.  Transitional measures will be provided for mortgages taken out between 1 July 2011 and 31 December 2013.  In order to provide assistance to those individuals who find themselves in negative equity, individuals whose relief would have expired in 2010 will continue to qualify for the relief at the existing rates for a further seven years. The intention is to abolish this relief by 31 December 2017 at the latest.
• The high earners restriction on reliefs is to be amended for 2010 to ensure that those subject to the full restriction will have an effective income tax rate of 30% plus PRSI and levies as compared to 20% previously.  The revised threshold levels for 2010 commence at adjusted income levels of €125,000 with full restriction applying at €400,000 and above.
• The government intends introducing a property tax and site valuation methodology in respect of this will commence shortly. No date has been confirmed for its introduction.
• In accordance with the recommendations of the Commission on Taxation, the first €200,000 of pension lump sums will remain tax free.  An announcement on the position in respect of the remainder of pension lump sums is expected early in the New Year.

Corporation tax and capital taxes

• The Minister was adamant that the existing 12.5% corporate tax rate on trading profits will not change describing it as an “international brand” and a “powerful expression of enterprise ethos”.
• The introduction of a 3 year exemption from taxation for profits and capital gains of new companies (other than companies involved in land dealing, petroleum and mineral activities or professional services companies) incorporated after 14 October 2008 has been extended to qualifying start up companies that commence to trade in 2010 (provided that the company’s taxable profits per annum do not exceed €320,000).
• The Innovative Task Force will be exploring the existing research and development and intellectual property tax credit regimes with a view to including improvements in the Finance Bill.
• The 100% accelerated capital allowances for companies have been extended to include three additional categories namely refrigeration and cooling equipment, and catering and hospitality equipment.
• To address climate change, a carbon tax of €15 per tonne has been introduced for fossil fuels.  This will be effective from tonight for petrol and diesel and from next May for kerosene, fuel oil and natural gas. Exemptions from the tax will only be available to participants in the EU Emissions Trading Scheme.
• There has been no change in the existing rates of capital gains tax, stamp duty, or capital acquisitions tax nor in pay and file deadlines.

Indirect taxation

• The VAT rate will revert to 21% from 1 January 2010 for all goods and services which are currently subject to the existing rate of 21.5%.
• Excise duty on alcohol has been reduced effective from midnight tonight as the Minister indicated that this is a contributory factor to the alcohol sales lost to Northern Ireland which account for 44% of cross border trade.  The VAT inclusive reductions are 12 cent for a pint of beer or cider, 14 cent for a measure of spirits, and 60 cent for a bottle of wine.
• A car scrappage scheme will be introduced at the start of 2010 for the duration of that calendar year whereby relief of up to €1,500 will be available in instances where a car which is ten years old or older is scrapped and a new car is purchased which falls within the qualifying emissions brackets.
• The existing VRT exemption for environmentally friendly electric vehicles and hybrid vehicles is being extended for a further two years until 31 December 2012.

Barr Pomeroy
Chartered Accountants
21 Herbert Place,
Dublin 2.

  
 
Phone:               (01) 676-1166         (01) 676-1166
  
 
Fax: (01) 661-8859