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Supplementary Budget 2009

Tax Planning in the


Current Environment
What a difference 6 months can make…
Leadership & Vision …
The Rumours…
• Income levy increase

• Income tax rates increase X

• New high tax rate X

• Reduce tax credits X

• Pension changes X

• Increase in the rate of CGT / CAT

• Residential property tax X


• Reduce VAT rates X
Dublin Chamber of Commerce
Budget Submission
• Retain Corporate rate at 12.5%
• No increase in Employers PRSI
• Reduce 13.5% VAT rate to 10% X
• Reduce excise on alcohol X
• Introduce residential property tax X
• Introduce wealth tax X
Objectives
6 Steps to Economic Revival
1. Stabilise public finances

2. Restore damaged banking system

3. Regain lost competitiveness

4. Protect jobs and retrain unemployed

5. Stimulate economic confidence

6. Restore reputation internationally


Fairness is Cornerstone

Principle:

Everyone must give according to means


Personal Tax
Rates

No change
Income Levy
• Rates doubled
• Entry points reduced
Income Levy
Current Position Yesterdays Budget
€0 to €100,100 1% €0 - €75,036 2%
€100,100 - €250,120 2% €75,037 - €174,980 4%
€250,120 + 3% €174,980 + 6%

Effective 1 Jan 2009 Effective 1 May 2009?

Husband and wife separately assessed


Income Levy
• Not due if:
– Income < €15,028 pa
– Entitled to medical card
– If over 65 and income < €20k pa

• On gross income before capital allowances, losses,


pension contributions
• On “exempt” income such as patent, forestry, artists
exemption
• Trading and rental income net of expenses
• Deposit interest exempt
Income Levy Example
John, single €
Self employed net profit 90,000
Less: Pension AVC (15,000)
Less: Capital allowances (18,000)
Taxable Income 57,000

Annual impact of levy: €75,036 @ 2% = €1,501


€14,964 @ 4% = €599
€90,000 €2,100
Pre Budget €900
Preliminary Tax Impact
Preliminary Tax 2009 due on lower of :

90% of tax for 2009


Or
100% of 2008 tax plus income levy on 2008 income

John’s 2008 tax liability 13,896
Plus income levy 2,100
Revised 2008 liability for PT purposes 15,996
Employee PRSI & Health Levy
Employees PRSI

- Employees PRSI Ceiling (4%) from €52,000 to €75,036

Current Position Yesterdays Budget


Health Levy €0 - €75,036 4%
€0 to €100,100 2%
€100,100 + 2.5% €75,036 + 5%

Effective 1 May 2009


New Marginal Tax Rate
On income over €175,000

Top rate of income tax 41%


Income levy 6%
Health levy 5%
52%
What does this mean for Employees?
Salary Annual
Decrease
€ €

Single person 40,000 1,200

Married one working 80,000 3,470

Married both working 100,000 3,000

Married both working 200,000 9,341


Mortgage Interest Relief
• Ceases for loans over 7 years
Residential Rental Property

• Tax deduction for


interest reduced to
75%
• Potential effect - 13%
additional tax
DIRT
• Increase to 25% on
ordinary deposit accounts
• Increase to 28% on other
savings products (life
assurance / investment
funds
• Effective 8 April 2009
Pensions

• Clear signal – changes to tax free lump


sum in 2010 Budget
• Public service early retirement scheme

• No standard rating of pension


contributions
Childcare Benefits
• Early childcare supplement
– 50% from 1 May 2009
– Abolished from 31/12/2009
• Free pre-school year
• Child benefit allowance will be reviewed in
2010 Budget
Capital Allowances
• Termination of allowances on private
hospitals and nursing homes
• Transitional arrangements
• Child care and palliative care facilities –
relief still available
Business Taxation

I n c
a nd
Ire l
Business Taxation
• 12.5% corporation tax rate unchanged

Reminder:

• “Manufacturing” tax rate of 10% ceases on 31


December 2010

• Employer PRSI unchanged at:


– 8.5% on salary ≤ €18,512 pa
– 10.75% on higher salaries
Incentive to Protect Employment
• Enterprise stabilisation fund
– €100 m fund = €50m 2009: €50m 2010
– Assist indigenous companies in difficult
business environment
– Particular focus SME and exports
• Not in financial difficulty at 1 July ’08
• Remain financially viable
“Smart Economy”
• Measures to support “Smart Economy”
through investment and incentives
• R & D target of 2.5% of GNP by 2013
• Tax relief on acquiring intangible assets
including intellectual property
Capital Gains Tax
Capital Gains Tax (CGT)
Current Position
• 22% since 15 October ‘08

Yesterdays Budget
• Increase to 25%
• Effective 8 April ‘09
Capital Acquisitions Tax
• Rate increased from 22% to 25%
• Effective from midnight 7 April
• Thresholds
Pre 8 April 8 April
– (Parent to Child) €542,544 €434,000
– (Relations) €54,254 €43,400
– (Strangers) €27,127 €21,700
Property
Dealing in Residential
Development Land
• Special 20% rate abolished
• Taxable at marginal rate for individual -
2009
• Taxable at 25% for company - accounting
periods from 1 January 2009
• Trading losses set off restricted –
maximum value 20%
– If not claimed by 7 April ‘09
Stamp Duty
• “Trade-In” Scheme
• No stamp duty payable on “traded in”
property
– As payment / part payment
– In exchange for new house / apartment
• Stamp duty due when “swapped” house
sold
Property - Commercial
Current Position
• Stamp Duty rate still 6%
• Stamp duty deferral for “resting on contract” still
available
VAT & Other
VAT Rates

No changes
Car Dealers
• VAT Margin Scheme
• Second Hand Cars Acquired from 1st July
– VAT on Margin
• Second Hand Cars Acquired before 1st July
– Taxed on resale price
– Spread Payments if resold before 31st December
Excise
• 25 cent increase on cigarettes
• 5 cent increase on diesel
Future Tax Cuts to be Reviewed

• Taxation of child benefit

• Introduce carbon tax

• Introduce property tax

• Review tax exempt income / reliefs


Other Possibilities

• Tax mobile phone


texts!

• Rock concerts!

• Electronic tag high


worth tax exiles!
Supplementary Budget 2009
Tax Planning
in the
Current Environment
Current Environment
• Tax certainty rates / reliefs
• Next budget – due Dec ’09
• Commission on Taxation Report
• Fundamental changes to tax regime
• Maximise available remaining tax reliefs
– Secure tax savings
– Improve cashflow
Losses
• Losses arising in your company?
– Land write downs / restricted
– Capital allowances claims – obsolete assets
– Stock provisions
– Bad debt provisions
– Inter group loans – write off / down
– General trading losses

– Can be carried back to prior year


– Obtain a refund of tax paid
– Prepare accounts and return early to get refund
Cashflow Saving Tax Tips
• Preliminary tax
– If profits decreasing – base on current year
• VAT refund on bad debts
• Move to a cash receipts basis for VAT
• Review direct debits for PAYE / VAT
• Less frequent filing of VAT / PAYE
• Directors current account
Tax Opportunities for Companies
• Research & Development tax
credits
– Qualifying R & D
– 25% cash refund
– What costs qualify?
– What is R & D?
– Sectors benefiting:
• Software, pharma, food, plastics, medical
devices, electronics, biotech,
manufacturing etc
Tax Based Funding
• Seed Capital Relief
– Start ups
– Tax relief on investments up to €600k
– Set against Income Tax bill in prior 6
years
– Refund of income tax

• Business Expansion Scheme


– Tax relief of €150,000pa for individuals
– Qualifying company can secure €2m
– Lack of other tax incentives for
individuals
Redundancy Planning
• Some elements taxable, others not
• Maximise after tax payments to staff
Tax Savings for New Start Ups
• Taxation exemption for new
companies
– Commence new trades in ’09
– Profits of €960k over 3 years

• Existing companies?
Opportunties with Reduction in
Asset Values
• Take assets out of company
• Re-organise company structure
• Transfer assets to children – “Inheritance
Brats”
Opportunities for Family
Businesses / Companies
• Low valuations – opportunities to transfer
assets
• CAT threshold for children €433k
• Significant tax reliefs remain
• Retirement Relief: extract €1.5m cash tax
free (if husband & wife qualify)
Company Pension Schemes
• Significant pension fund can be built for
company directors (5% shareholding)
• Cap on employer contributions
– Currently based only on size of fund needed to
provide for directors retirement
– Based on age, years of work and salary
• Salary cap to be introduced?
• 25% tax free lump-sum likely to be reduced
Conclusion
• Act before next budget
• Tax certainty for now
• Claim tax reliefs applicable
• Maximise savings and manage cashflow
Contact Details
Jackie Masterson
Taxation Partner
jmasterson@rbk.ie
090 6480600

Fiona Molloy
Taxation Director
fmolloy@rbk.ie
090 6480600