Commission on Taxation Report in December Budget 2009

The Report of the Commission on Taxation was published on 7th September 2009.  The Commission was set up to analyze the tax system in Ireland and to make recommendations on reforming existing taxes.

The Chairman of the seventeen member Commissin Frank Daly described the Report as "a ten year prospective that starts now".

The 550 page Report contains approximately 250 recommendations covering a wide range of tax issues and types of taxations.   The recommendations are likely to affect everyone in one form or another.  The Report on the recent cutbacks by "An Bord Sip Nua" are expected to feature strongly in draft in the next Budget, due to be announced in early December.

We have hightlighted below some key recommendations which will have a significant impact on business and individual taxpayers if introduced.  Some of the recommendations may be announced in the next Budget, therefore it is important to fully consider these recommendations.  We have also outlined some areas which we feel clients may wish to consider in advance of next Decembers Budget.

Capital Gains

• Gains on trade assets at present taxable at 25% should be subject to the 12.5% rate to encourage companies to reinvest or to build up reserves for future expansion
• Indexation should be reintroducted to ensure tax is not paid on the mere inflation of capital assets.

Children

There are a number of recommendations in relation to children:

• The capital allowances for childcare facilities should be discontinued
• The dependant relative tax credit should be discontinued
• The separate entitlement to Capital Gains Tax relief on the disposal of a principal private residence occupied by dependent relatives should be discontinued

Disposal of family business/farm

The Commission recommends that Capital Gains Tax relief for disposal of a business or a farm on retirement should continue

Capital Gains Tax

• Place a cap of 3million on the value that qualifies for retirement relief

Capital Acquisitions Tax

• Reduce the rate of relief for business property relief and agricultural relief from 90% to 75%
• Place a ceiling of €3million on the amount of relief available for business property relief and agricultural relief
• A condition of the relief should be that a farm asset is owned and operated on a farm for a period of 6 years after the transfer
• Business relief and agricultural relief should be amalgamated into a single relief

Retirement provisions

Key recommendatins include:

• €200,000 cap to be placed on tax free lump sums with the balance to be taxed at the standard rate

Annual property tax for residential property

One of the more controversial recommendations of the Report relates to the introduction of an annual tax on residential property.  The tax would impact on all homeowners if it is introduced.  It would apply to all residential housing units (principal private residences and rented accomodation) with the exception of local authority and social housing and some other limited exceptions

200 levy on second homes - the Report recommends the removal of this levy on the basis that the aforementioned property tax is introduced

Abolition of Stamp Duty on the purchase of all principal private residences

• Due to the recommendation of introducing the Property Tax, the Report recommends that Stamp Duty on residential housing units acquired as the Purchasers principal private residence be zero rated

Abolition of Stamp Duty relief and Capital Gains Tax relief on transfer of site to child

• The Report recommends the abolition of Stamp Duty exemption on a transfer of a site to a child
• There is also an exemption from Capital Gains Tax for the parent transferring the site to the child.  The Report also recommends that this be abolished.

Points to Note:

• If relevant, clients should consider transferring or trading a farming business to their child before the December Budget
• If relevant, take advantage of the current rules relation to tax free termination payments if feasible
• If considering giving a site to your child to allow them to build their principal private residence on, it may be advisable to do so before the December Budget