Speech by Minister Donohoe on the Finance Bill 2017
Speech by Minister for Finance and Public Expenditure & Reform, Paschal Donohoe TD on the Finance Bill 2017
24th October 2017
Check Against Delivery
I move that this Bill be read a second time.
When I made my Budget statement in this House two weeks ago I said that this was a Budget to safeguard our national finances and to help rebalance our economy.
It was a Budget to promote fairness and provide for modest but sustainable improvements in people’s lives.
Many of the measures to help us achieve those goals are contained in the Finance Bill 2017, which we will begin to discuss today.
This Bill is the means by which we will legislate to ensure these changes happen.
Before I go through its section in detail, I would like to look at some of the overarching themes contained therein.
FINANCE BILL THEMES
USC and Income Tax
In Budget 2018 I am continuing to fulfil the Government’s commitment to make steady and sustainable progress in reducing the income tax burden, with a particular focus on low and middle income earners.
I have been very clear that my intention is to preserve a broad and stable income tax base.
Therefore, in order to ensure that I do not narrow the tax base, the USC measures to be introduced in this Finance Bill focus on reductions to USC rates, while maintaining the current entry threshold to USC of €13,000.
I am also establishing a working group to plan, over the coming year, the process of amalgamating USC and PRSI over the medium term.
It is my intention that, throughout this process, the income threshold of €13,000 will be maintained as the general point of entry to the new amalgamated charge.
A key objective of this group, and of mine as Minister for Finance, is that this process does not narrow the tax base but ensures that our personal taxation system is both competitive and resilient in the future.
In this Finance Bill I am reducing the 2.5% USC rate to 2%.
I am also reducing the 5% rate of USC to 4.75%, with the result that the top marginal rate of tax on income up to €70,044 will fall to 48.75%. This is the fourth Budget in succession in which this marginal rate has been reduced.
And I am introducing a small but important increase to the ceiling of the second USC rate band, from €18,772 to €19,372.
This will ensure that the salary of a full-time worker on the increased minimum wage of €9.55 per hour will remain outside the higher rates of USC.
Finally, I have also extended, for a further 2 years, the relief from the higher rates of USC which is available to medical card holders with income up to €60,000.
The point at which an income earner enters into the higher 40% rate of income tax will rise next year by €750 per annum.
This will increase the entry point for single taxpayers from €33,800 to €34,550, and for married-one-earner families from €42,800 to €43,550.
Encouraging small enterprise
I am conscious of the challenges facing small and growing businesses around the country due to the changing international environment.
I am introducing two measures in this Finance Bill to support this vital and vibrant sector of our economy.
Firstly, building on the progress made in the last two Budgets, I am providing for a €200 increase in the Earned Income Credit, bringing it to €1,150 per year from 2018.
This increase will be of benefit to over 147,000 self-employed individuals generating economic activity across the country.
Secondly, research has shown that Employee Financial Participation can be effective in increasing competitiveness and helping companies to attract and retain staff in a competitive labour market.
Therefore this Bill provides the details of the new Key Employee Engagement Programme announced in Budget 2018, which will support small to medium enterprises in their efforts to attract and retain key employees in a competitive international labour market.
This scheme will facilitate small to medium enterprises in providing key employees with a financial incentive, in the form of share options, linked to the success of the company.
Public Health and the Environment
In support of the climate action strategy set out in Ireland’s National Mitigation Plan, the Bill provides for a 0% rate of benefit-in-kind on electric vehicles.
While this relief is provided for an initial period of one year, it is my intention that the zero rate will remain in place for a period of time, a minimum of three to five years, sufficient to incentivise the uptake of electric vehicles or EVs.
A comprehensive review of benefit-in-kind on vehicles will take place in 2018 and it is expected that this review will set out proposals for longer term benefit-in-kind relief for electric vehicles as well as informing decisions for Budget 2019 more broadly.
To further support this measure I am exempting electricity used in the workplace for charging vehicles from benefit-in-kind.
I am also introducing a number of measures in support of public health.
As announced in the Budget I am introducing a tax on sugar-sweetened drinks in April of next year, subject to approval from the European Commission, to coincide with the introduction of a similar tax in the UK.
The tax will apply to non-alcoholic, water-based and juice-based drinks which have an added sugar content of 5 grams per 100 millilitres and above.
Sugar-sweetened drinks with less than 5 grams of sugar per 100ml will be outside the scope of the tax.
If the sugar content is 5 grams or more but less than 8 grams per 100ml a tax of 20c per litre will apply and for sugar-sweetened drinks with a sugar content of 8 grams or more the rate will be 30c per litre.
The introduction of a tax on sugar sweetened drinks will contribute to the broader public health strategy to tackle obesity levels in Ireland, particularly among younger people.
Since the announcement of the tax in Budget 2017 there are indications that manufacturers of sugar sweetened drinks are reformulating their products to avoid the tax.
This is to be welcomed and is a sign that this measure is having a positive effect even before its introduction.
I have also increased the VAT rate on sunbed sessions from 13.5% to 23% in line with the Government’s National Cancer Strategy and in recognition of the clear evidence of a link between sunbeds and skin cancer.
In 2011, Stamp Duty was reduced on non-residential property to 2 per cent to encourage investment in the non-residential sector.
It was successful and with the commercial property market in particular performing strongly again it was opportune to increase the rate in order to encourage the construction industry to focus resources elsewhere.
For Budget 2018, I announced an increase in the stamp duty rate for all non-residential property transactions, including agricultural land, from 2% to 6%.
To encourage the development of residential homes, a refund scheme will be introduced where certain criteria are met and I will provide full details of this measure at Committee stage.
I am mindful that non-residential property includes agricultural land and how this measure impacts on the farming community, particularly families.
The Bill provides for certain measures the address this.
Firstly as announced on Budget Day, I am extending consanguinity relief for another 3 years and fixing the stamp duty rate applying under that scheme at 1%.
In addition I have decided the age rule for the consanguinity relief will be removed. The question of an age limit will be revisited when the measure itself comes up for review towards the end of 2020.
This means that it will be possible for all gifts and sales of farmlands to closely related family members, who do not qualify for the 100% exemption available under the Young Trained Farmer scheme, to benefit from consanguinity relief at a stamp duty rate of 1% thereby protecting the position of succession within farm families.
FINANCE BILL 2017 – SECTION BY SECTION
I will now take you through the Finance Bill but Deputies will appreciate that in the limited time available to me I cannot describe every single section in as much detail as I might like.
Part 1 of the Bill deals with Universal Social Charge, Income Tax, Corporation Tax and Capital Gains Tax.
Sections 2, 3, 4 and 5 provide for the Income Tax and USC changes that I have already outlined, in addition to the €100 increase in the home carer tax credit to €1,200 per annum.
Section 6 provides for the tapered extension of Mortgage Interest Relief for existing recipients for three years.
Section 7 provides for the introduction of a 0% rate of benefit-in-kind on electric vehicles and also provides for a tax exemption from benefit-in-kind when vehicles are charged in the workplace, as I have already set out.
Section 8 inserts a new section, section 112AA, into the Taxes Consolidation Act 1997 (or TCA as it is usually known).
This section provides that where an employee of a health or dental insurer, or of a tied health insurance agent, receives a health or dental insurance policy in the course of their employment, any discount received on the policy shall be a taxable emolument for the employee.
Section 10 provides for the introduction of a new relief, the Key Employee Engagement Programme (KEEP), which I have already described.
Section 11 relates to the scheme for accelerated capital allowances for energy efficient equipment.
The Accelerated Capital Allowance scheme is designed to improve energy efficiency among Irish companies and sole-traders and assist Ireland in meeting our national targets and both binding and non-binding EU targets on energy savings.
On foot of a review performed by my Department, I am extending the end date of the scheme to 31 December 2020.
Section 12 provides that pre-letting expenses incurred on a residential premises that was vacant for 12 months or more may be allowed as a deduction against rental income from that premises.
This is a time-limited relief and the relief will be clawed back if the property ceases to be let within 4 years.
Section 14 makes two amendments to the tax treatment of life assurance funds.
The first amendment provides that where the life policy is assigned to a Section 110 company which has acquired the mortgage, it will not trigger an exit tax charge.
This change mirrors the treatment of the assignment of a life policy as security for a debt to a financial institution.
The second amendment provides that where the life company incurs foreign tax in respect of its policy holder business, the life company may not claim double tax relief for that tax against the Irish tax arising on its non-policy holder business.
Section 15 provides for Investment Undertakings to supply financial statements annually to the Revenue Commissioners.
It is proposed to require for the financial statements to be in iXBRL, which is a computer language that allows the presentation of financial information in a computer readable format and which allows for more effective risk analysis by Revenue.
This is in line with the format that most companies are required to use.
The obligation to provide the iXBRL financial statements will be brought in on a phased basis through regulations made by the Revenue Commissioners, with my consent.
Section 16 makes a number of technical amendments to the Irish Real Estate Fund or IREF regime, introduced by Finance Act 2016.
In line with the treatment to other pension funds, this section provides that IREFs need not operate withholding tax on payments to Approved Retirement Funds, Approved Minimum Retirement Funds and vested Personal Retirement Savings Accounts.
I would also like to flag to the House that I intend to bring forward amendments at Committee Stage regarding the 5-year CGT exemption for IREFs.
The amendments also clarify that sub-funds may make a declaration in respect of unit-holdings in other sub-funds of the same umbrella scheme and provides for advance clearance procedures to deal with a situation where a full refund of any tax withheld would be made.
The section also provides for Markets in Financial Instruments Directive or MiFID regulated intermediaries to make a declaration on behalf of pension funds, charities and credit unions.
Section 17 makes a minor amendment to section 110 of the Taxes Consolidation Act 1997 – or TCA- to include shares that derive their value from Irish land in the definition of specified mortgages.
The ability of companies which are taxed in accordance with section 110 to deduct interest against their Irish property profits was restricted in Finance Act 2016.
This section expands the type of Irish property profits to which that restriction applies.
Section 18 is a technical amendment to the loss relief provisions that apply where a company has claimed relief under the Knowledge Development Box, or KDB.
It ensures that the amount of relief that can be claimed for a loss incurred in the KDB trade cannot be greater than the loss itself.
At present, the legislation restricts the amount of loss which can be offset against other income, it fails to reduce the amount of the loss which can then be carried forward.
A technical amendment is required to repair this unintended consequence.
Section 19 makes a number of amendments to section 76A of the TCA relating to the replacement of former Irish GAAP with current Irish GAAP accounting standards.
Section 20 amends section 247 of the TCA to provide for relief for interest on a loan used to acquire, or in certain circumstances lend to, a holding company that indirectly holds ordinary shares in a trading company through one or more intermediate holding companies.
Section 247 of the TCA currently provides relief for interest where the loan is applied in acquiring or lending to a holding company that holds shares directly in a trading company.
The changes introduced by this section have been operated administratively by the Revenue Commissioners.
The changes reflect and clarify the extent to which the administrative practice has been operated.
As a result of the changes to section 247, consequential changes have been made to sections 243 and 249 also.
The changes to section 249 ensure that an investing company will be deemed to recover capital where, subject to exceptions, an intermediate holding company recovers capital from another company.
Section 21 provides for the Budget Day announcement regarding an 80% limit on the quantum of relevant income against which capital allowances for intangible assets and any related interest expense may be deducted in a tax year.
This will ensure some smoothing of corporation tax receipts over time.
Sections 22, 23 and 24 provide respectively for amendments to be made to sections 29, 626B and 980 of the TCA.
These sections are being amended to address certain Capital Gains Tax and Corporation Tax avoidance practices that Revenue have identified and which are being addressed in the Bill.
Section 25 proposes an amendment to section 604B of the TCA – “Relief for farm restructuring”.
The European Commission has introduced requirements for the publication on a central website of details of any State aid granted on or after 1 July 2016, if it exceeds certain thresholds.
Currently, Revenue is not in a position to publish this information in the case of the CGT farm restructuring relief, as the existing legislation does not require the necessary information to be collected as part of tax returns in order to have it supplied to the Commission.
This is being corrected by these proposed amendments to 604B.
Section 26 provides for an amendment to extend the availability of capital gains tax group relief to companies in countries with which Ireland has a double tax agreement.
This amendment puts capital gains tax groups on an equal footing with loss groups and will legislate for existing Revenue practice.
Section 27 provides exemptions from Capital Gains Tax for those availing of compensation under the 2017 Voluntary Homeowner Relocation Scheme administered by the OPW.
The amendment applies to compensation received on or after 19 October 2017.
Section 28 provides for changes to section 604A of the TCA, known as the 7-year CGT relief.
As I announced in Budget 2018, I propose that, subject to this amendment, any eligible asset purchased in the qualifying period, which ran from 7 December 2011 to 31 December 2014, can be sold at any time between the fourth and seventh anniversary of its purchase and enjoy a full relief from CGT.
Sales made before the fourth anniversary will receive no relief, whilst sales made after the seventh anniversary will continue to enjoy the tapering relief previously provided for.
I believe this measure will contribute to a freeing up of development land and residential properties purchased in the qualifying period, the sale of which might otherwise have been delayed until the seventh anniversary of their purchase.
Sections 29 and 64 address my Budget announcement that I intend to allow the leasing of agricultural land for solar panels to be classified as qualifying agricultural activity for the purposes of specific Capital Acquisitions Tax and Capital Gains Tax reliefs with certain conditions.
Agricultural Relief from Capital Acquisitions Tax and Retirement Relief from Capital Gains Tax will be amended to allow solar panels on agricultural land to be considered qualifying assets for these reliefs.
The amount of farmland that could be used for solar panels will be restricted to 50 per cent of the total farm holding.
This condition is to ensure that genuine agricultural activity will continue to be carried out on the farm maintaining the overall objective of agricultural relief in particular.
Part 2 of the Bill deals with Excise.
Sections 30 to 42 and Schedule 4 give effect to the Budget Day announcement of the introduction of a tax on sugar sweetened beverages, which I have already described.
Section 44 gives effect to the increase in the rates of Tobacco Products Tax, which came into effect on Budget night.
This measure is expected to raise €64 million in a full year.
Section 46 will make two minor amendments to substitute fuels legislation introduced in the Finance Act 2016 to ensure consistency and protect the revenue base by clarifying that a relevant product is “a substitute fuel or an additive”.
Section 47 amends the Diesel Rebate Scheme to ensure that a qualifying road transport operator, who is regarded as an undertaking in difficulty, is not eligible for the tax refund.
This measure is to ensure compatibility with State aid guidelines.
Section 48 will amend the definition of a Category A and B vehicle and insert a new bodywork code definition so that the preferential rate intended for commercial vehicles will be restricted to those vehicles that are genuinely used for commercial purposes.
Section 49 will ensure that the amount of VRT repaid under the Export Repayment Scheme cannot exceed the amount of VRT originally paid on the vehicle at import.
Part 3 of the Bill deals with Value-Added Tax.
Section 51 increases the VAT rate on sunbed services from 13.5% to 23% from 1 January 2018, in recognition of their link to skin cancer.
Section 52 updates the VAT exemption on education services to ensure that all bona fide vocational training and retraining continues to be exempt from VAT.
Part 4 of the Bill deals with Stamp Duties.
Section 55 amends Schedule 1 to the Stamp Duties Consolidation Act 1999 to give effect to a number of measures.
The rate of stamp duty applicable to conveyances and transfers of non-residential property is increased from 2% to 6% as of 11th October 2017.
Transitional provisions apply for purchasers with binding contracts in place before Budget day 11th October and where the instruments for the transfers are executed before 1 January 2018.
The end date for consanguinity relief is extended for another 3 years to 1 January 2021 while the upper age limit of 67 years for availing of this relief is removed and the rate of stamp duty where consanguinity relief applies is being fixed at 1%.
In relation to residential leases, the threshold above which leases are chargeable to stamp duty is increased from the current €30,000 to €40,000 per annum.
This higher threshold should ensure that the vast majority of renters will not be liable to stamp duty.
Section 56 makes a number of technical amendments to the Stamp Duties Consolidation Act 1999 to align that act with the other tax acts in relation to the delegation of functions to Revenue officials.
Section 57 provides that the Housing Agency will be exempt from stamp duty on land or buildings purchased or leased.
This is important in the context of the Housing Agency’s role under “Rebuilding Ireland” in the delivery of housing and housing services.
Section 58 makes two amendments to stamp duty reliefs for young trained farmers which are designed to take account of EU State Aid requirements.
The first amendment places on a statutory footing the conditions that a young trained farmer must submit a business plan to Teagasc and must come within the EU Commission definition of “micro, small and medium enterprises.”
The second amendment allows Revenue to provide information to the Minister for Agriculture, Food and the Marine in relation to an exemption from stamp duty to leases on farmland.
This information is required for compliance with EU Regulations.
The Companies Act 2014, which came into effect on 1 June 2015, consolidated and amended existing company law statutes.
The main changes affecting the Taxes Consolidation Act 1997, the Stamp Duty Consolidation Act 1999 and the Capital Acquisitions Tax Consolidation Act 2003 related to company structures and the new streamlined procedures for the merger and division of companies.
The Finance Bill also provides for updating the referencing in the Taxes Acts and the insertion of provisions in the Taxes Acts to ensure that the intended tax consequences of a merger or division in Companies Act 2014 are provided for and do not have an unintended impact.
This is addressed by means of Sections 59, 60, 73, 74 and 75.
Part 5 of the Bill deals with Capital Acquisitions Tax, or CAT.
Section 62 provides for an amendment to section 85 of the Capital Acquisitions Tax Consolidation Act 2003.
That section of that Act already provides for a CAT exemption on the inheritance of certain retirement funds to prevent a double tax charge on the same event – i.e. income tax and CAT where the inheritance is taken by a child who is over 21 years of age.
Section 85 now needs to be amended to remove the potential for such a double charge in the case of Personal Retirement Savings Accounts and Retirement Annuity Accounts that were not vested on the death of the disponer after the age of 75.
Section 63 makes a number of minor amendments to the dwelling house exemption from Capital Acquisitions Tax.
The changes clarify that, firstly, a liability to inheritance tax will not be triggered where a donor dies within two years of making a gift to a dependent relative and, secondly, in the case of both gifts and inheritances, in order to qualify for the exemption, a property transferring to a dependent relative does not need to be the principal private residence of the disposer.
This is line with policy changes made to the operation of the dwelling house exemption in last year’s Finance Act.
I have already described Section 64 with Section 29.
Part 6 of the Bill deals with miscellaneous matters.
Section 66 makes a technical amendment to section 122 of the TCA to ensure the provision operates as intended and to prevent certain tax avoidance opportunities in relation to employer-provided loans.
Section 67 and Schedule 3 make minor amendments to a number of appeals-related provisions in the TCA.
Section 69 provides for a number of largely technical changes relating to the PAYE Modernisation project.
It is the most significant review of the PAYE system since its introduction in the 1960s and will result in a move to a real-time PAYE system from January 2019.
Section 71 introduces two amendments to the domicile levy legislation found in section 531AA of the Taxes Consolidation Act 1997.
The amendments proposed ensure, firstly, that capital allowances and losses are not allowed as a deduction for the purpose of the world-wide income test.
Secondly, there is a technical amendment to delete the term “final decision” from Section 531AA as it conflicts with section 531AC of that Act – “Credit for income tax paid”.
These amendments will strengthen the legislation, thus reducing the number of domicile levy appeals and improving compliance, as well as serving to protect tax revenue.
Section 72 is the first step in the legislative procedure required to give effect in Irish law to the OECD BEPS Multilateral Instrument.
Ireland signed the Multilateral Instrument on 7 June 2017 along with over 60 other countries.
The Instrument provides a mechanism for countries to transpose recommendations made by the OECD BEPS project into existing bilateral tax treaties.
Further legal steps will be needed before Ireland’s ratification of the Multilateral Instrument is completed and these steps can begin once this Bill is enacted.
There are still a small number of matters under consideration that I may bring forward at Committee Stage.
I will, of course, also give consideration to the suggestions put forward during our debate here over the next few days and in the context of the Finance Bill process and discussions generally.
Check Against Delivery
Deborah Sweeney, Press Adviser to Minister Donohoe – 086 858 6878
Aidan Murphy [Press Officer, Department of Finance] – 085 886 6667
Press Office, Department of Finance email@example.com – 01 676 0336