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| Budget 2012 – mixed provisions with some surprises - Russell Brennan Keane |
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By
Mairead O’Grady, Russell Brennan Keane
Dec 6, 2011 |
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Budget 2012 Analysis from Mairead O’Grady, Tax Partner, Russell Brennan Keane.
Budget 2012 is unique in that the proposed expenditure cuts were announced a day ahead of the tax changes and also many of its provisions were well flagged ahead of Budget Day. The financial adjustment was set at €3.8bn with €2.2bn coming from expenditure cuts and €1.6bn coming from increased taxation. Despite all the advance leaks and speculation the Minister managed to keep a number of the changes secret until the Budget Speech especially in the area of incentives to business and measures to kick start the property market.
Commenting on the tax changes in Budget 2012 Mairead O’Grady, Taxation Partner of Russell Brennan Keane said that “the Minister has repeated his stated policy of not increasing the rates of income tax but instead he focused on indirect taxes and on broadening the tax base. He was very reassuring in terms of maintaining the 12.5% corporation tax rate. He surprised many with the changes designed to help companies to export; the special assignee relief and the measures to try to assist the property market. The expected increases in Vat (but no further increases during the term of the Government) and the increased rate of 30% on capital taxes were confirmed.”
A summary of the major changes introduced by the Minister are as follows;
- The first €100,000 of R&D expenditure of all companies will be allowed on a volume basis for the purpose of the R&D Tax Credit;
- The outsourcing arrangements for R&D purposes to be improved;
- There will be an option to use some portion of the R&D credit to reward key employees who have been involved in the development of R&D;
- The corporate tax exemption for new start up companies is being extended for the next three years;
- The introduction of a Special Assignee Relief Programme;
- Smaller companies will also be able to avail of the planned foreign earnings deduction where they plan to expand their export markets into the BRICs countries (Brazil, Russia, India and China);
- No change in the 12.5% Corporate Tax Rate;
- No changes in the rates; credits or allowances for income tax;
- IFSC - new package of incentives to be introduced;
- First time buyers will get mortgage interest relief at a rate of 25% with non-first time buyers will benefit from relief at 15%;
- A surcharge of 5% (essentially a higher rate of USC) to apply from 1 January 2012 to income in excess of €100,000. This will only apply to individuals and to income which has been sheltered by property reliefs;
- Investors in accelerated schemes will no longer be able to use any allowances beyond the tax life of the scheme where the tax life ends after 1 Jan 2015;
- Stamp duty on commercial property reduced to 2% with effect from 6th Dec 2012;
- The household charge to be introduced for 2012 with some limited exemptions;
- Capital Acquisitions Tax increased to 30% and exempt threasholds reduced from €332,084 to €250,000 and proportionate reductions in other threshold exemptions;
- Capital Gains Tax rate to increase from 25% to 30% from 6th Dec 2011;
- There will be a special new exemption from capital gains tax (CGT) on properties bought from the 6th Dec 2011 to the end of 2013. Where such properties are held for seven years the gains accrued in that period will not attract CGT;
- Deposit Interest Retention Tax (DIRT) to increase to 30%;
- Vat to increase from 21% to 23% effect from the 1st Jan 2012;
- New incentives to encourage the transfer of businesses and farms earlier;
- The Government have seemed to abandon the proposed legislation on the upward only rent reviews and instead NAMA will provide certain reliefs for the properties that it controls.
The Minister said that Budget changes the economic strategy to put a much greater focus on growth and employment. It balances the need to restore confidence in Ireland's fiscal position with the key objective of supporting economic growth that delivers jobs.
Commenting further on these measures Mairead O’Grady said “the changes to the property reliefs signaled in last year’s Budget have effectively been abandoned by the Minister and the current position will remain unchanged until 2014. This is to be welcomed as those who are in negative equity will have time to assess the impact for them and plan accordingly. The incentives to export orientated companies; the changes to encourage earlier transfer of businesses and confirmation that there will be no further changes to Vat are also to be welcomed. However it will be some time before we can assess whether the efforts of the Minster are enough to bring about growth leading to increases in employment”.
Mairead O’Grady
Russell Brennan Keane,
96 Lower Baggot Street,
Dublin 2
Tel: (01) 6440100 or
Tel: 090 6480600 or
Web: www.rbk.ie
Email: mogrady@rbk.ie
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