The Finance Bill 2011 was published today, giving effect to the measures announced by the Minister on Budget day and introducing some previously unannounced measures.
The tax highlights............
No change to 12.5% rate of corporation tax. Confirmation of the changes announced in the Budget in relation to income tax, Universal Social Charge and PRSI. Changes to the Section 110 taxation regime, including both a broadening of the definition of qualifying assets and a restriction on the deductibility of certain interest payments. Changes to preliminary tax payment dates for income tax and capital acquisitions tax. Changes to interest deductibility provisions for certain intra group transactions. Property based capital allowances restrictions subject to Commencement Order following the preparation of an economic impact assessment. The Bill introduces legislation to give effect to the previously announced Employment and Investment Incentive scheme. Provisions to give effect in the tax system to the Civil Partnership legislation and the tax treatment of bank bonuses to follow in later stages of the Bill. Taxation of individuals
Many of the Finance Bill measures copper-fasten the announcements previously made in the Budget. However, some notable new legislation is proposed which had not previously been announced.
Change to pay & file deadline for self-assessed taxpayers
The pay and file deadline for self-assessed taxpayers of 31 October has been brought forward to 30 September for the 2011 year of assessment onwards. Self-assessed taxpayers must now pay preliminary tax due for 2011 by 30 September 2011, and 2011 tax returns must be filed with any 2011 balance of tax payable by 30 September 2012. The 14 day extension granted in recent years to taxpayers who pay and file using Revenue's On-line System (ROS) will continue to apply.
Student contribution charge
The current third level Student Services Charge of €1,500 is being replaced with a new Student Contribution Charge of €2,000. However, existing tax relief for thirdlevel tuition is being amended to provide that the first €2,000 in fees will not qualify for tax relief for students in full-time education. For part-time students, the first €1,000 in fees will not qualify. Where families have two or more children in third level education on a full-time basis and where both are liable to the Student Contribution Charge, tax relief at 20% will be available on the aggregate paid above €2,000.
The Minister also confirmed that the changes required in the tax system to give effect to the Civil Partnership legislation, as well as the tax treatment of bank bonuses in relevant financial institutions will be considered at later stages in the process of passing the Bill.
It is also anticipated that further announcements will be made regarding the collection mechanism to be applied for PRSI charges on share option gains.
Recap on measures announced in the Budget
The Finance Bill copper-fastens many of the changes announced in last December's Budget including those which were the subject of financial resolutions passed into law in December.
The most significant of those measures now consolidated with the Bill are:
Universal Social Charge: The new Universal Social Charge (USC) will replace both the health and income levies. The highest USC rate of 7% will apply on all income over €16,016. PRSI: The employee PRSI earning ceiling of €75,076 has been removed. Furthermore, PRSI relief on employee pension contributions has been abolished and a 50% restriction will now apply to employer PRSI relief on those same contributions. Tax credits and reliefs: As expected following both the National Recovery Plan and the Budget, the standard rate bands and main credits have been reduced by 10% for 2011. A number of credits have also been curtailed. Ex-gratia termination payments: The Finance Bill confirms a cap of €200,000 on tax free ex-gratia termination payments made on or after 1 January 2011. Share awards: PAYE withholdings will be required for shares awards, which are also now within the charge to PRSI and USC; PRSI and USC charges will apply to Revenue approved profit sharing schemes and SAYE schemes; Approved Share Option Schemes were abolished with effect from 24 November 2010; Relief for new shares purchased on issue by employees after 7 December 2010 has been abolished. Pensions
The Bill gives legislative effect to pension measures that were announced in the Budget and to some financial resolutions that had issued shortly thereafter.
Reduction of the Standard Fund Threshold
The upper limit for tax relieved pension funds for individuals, the Standard Fund Threshold, is now €2.3m. A penal rate of tax applies to the excess above the limit.
Individuals have until 7 June 2011 to agree a higher Personal Fund Threshold with the Revenue Commissioners if the value of their pension benefits already exceeds the €2.3m limit at 7 December 2010.
Individuals that had already agreed higher Personal Fund Thresholds (above €5m) under the original legislation of 2005 can still use that higher limit.
In valuing Defined Benefit pension plans for the purposes of this legislation the Bill provides that the same multiplier must be used, both to value the pension for threshold purposes and also to value the pension at retirement.
The standard multiplier is to be 20 times the annual pension promise.
Restriction of pension tax free lump sum
Where the rules of a Revenue approved pension scheme permit a portion of the pension to be taken as a lump sum the following will be the tax treatment of that allowable lump sum:
The first €200,000 will be exempt from tax The next €375,000 will be liable at 20% and this amount will be ring fenced so that personal allowances/ deductions/ charges etc cannot be used to reduce the tax Sums above €575,000 (25% of the €2.3m threshold above) will be treated as emoluments of the individual and be liable to marginal rate Income Tax etc. Approved Retirement Fund (ARF) rules
From the passing of the Bill the ARF options will, in addition to those individuals who already qualify, now become available to all members of Defined Contribution (DC) pension schemes. This will include DC members who had already retired but who had chosen the option to temporarily defer the purchase of their annuity under an initiative of December 2008. Individuals who elect for the ARF options must satisfy the lower of the following new minimum set aside rules:
Invest the first €120,000 or so in a Minimum Retirement Fund or Have other annual pension income of around €18,000 already in payment. If the €18,000 pension test can be satisfied after the retirement but before age 75 the Minimum Retirement Fund can then be used as an ARF. There are certain transitional measures on Minimum Retirement Funds rules for those who availed of the option to defer the purchase of annuity or for those who retire before the passing of the Bill. The Bill confirms the increase in the imputed distribution that must be made from ARFs. The rate of annual imputed distribution from 31 December 2010 will be 5% of the value of the ARF at the end of each year.
Reduction in the annual...