Budget 2012
Following on from the success of our Budget commentary in previous years, and in line with our drive to continue to provide a superior service, that is timely and informative to our clients, we have summarised the main features of this budget.
We hope it will prove informative and we continue with our feature “Positive Developments” which outlines some positive benefits and opportunities that may provide impetus to your business in 2012.
As we enter the final days of 2011, the Minister for Finance, in the face of negligible growth and further recapitalisation of the banking sector, has highlighted the requirement for further tough decisions which will through the next series of budgets remove the significant gap between public revenue and expenditure.
In a new departure the Minister has staged the budget over two days, the first focussing on governmental spending cuts, and the second proposing the strategy with which the government shall raise further revenues from its taxation base.
The following is not intended to be an exhaustive guide to all tax changes to be implemented, as these will only become apparent when the Finance Bill is published and subsequently enacted in early 2012.
Social Issues
Social Protection
Child Benefit
It was announced that there will be a reduction in Child Benefit for the third child and subsequent children. The payment is cut to €148 per month, with fourth and subsequent children down to €160 per month. It is estimated this will produce a saving of €45m in 2012
One Parent Family
Major changes to the one-parent family payment are being introduced so that, in 2012, a new claimant's youngest child must not be older than 12 years old.
That limit is to be further reduced to 10 years old in 2013 and just 7 years old in 2014. There is also a reduction in the amount a claimant can earn from paid work weekly before losing the welfare payment. The amount is being cut from €146.50 to €130 weekly for both new and existing recipients from January.
The temporary half-rate one-parent family payment is being abolished in the case of new claimants where the claimant has earnings from paid work of more than €425 per week. It will continue for the full six months for current recipients.
New claimants for the one-parent family payment will also be automatically excluded from claiming the half-rate jobseekers benefit for which some of them qualify.
Family Income Supplement
Low-income families who receive the family income supplement will no longer be able to exclude income from weekly carer's payments when being means-tested
Fuel Allowance
The Fuel Allowance season has been reduced from 32 weeks to 26, saving €30m in 2012.Back to School Allowance
The allowance for two and three-year-olds has been abolished. The estimated saving is €30m in 2012Social Welfare Benefit Rates
The minister announced that there will be no reduction in the weekly welfare payments, however Jobseekers Benefit will be based on a five-day week instead of six. This will impact individuals on benefit currently working at least one day a week.
Redundancy Rebates
Previously when an employee was made redundant the employer was entitled to claim 60% of the statutory redundancy back from the Department of Jobs, Enterprise and Innovation. This rebate for employers has been reduced to 15%. The entitlement for the employee to statutory redundancy has not been changed.
Health
The health sector comprises around one-third of all public service employment. Staff numbers will be reduced and pay costs contained to save €145m
Prescriptions
The Drug Payments Scheme threshold limits the amount that individuals have to pay for prescriptions. Under the payment scheme the individual was responsible for the first €120 per month and thereafter there was no charge. This threshold has increased to €132 per month.
Measures will be introduced to reduce the price of drugs, such as reference pricing and generic drugs.
Education
Education accounts for 17% of current expenditure for 2012.
The minister announced a 2% reduction in Capitation Grants to schools and a 2% reduction in core funding for higher education.
Third level student registration fees will rise by €250. This will produce an estimated saving of €18.5m
Other Areas
The three key areas – social protection, health and education - contain measures that will yield savings of over €1 billion in 2012.
Most other Departments will also experience reductions. Selected measures include:
- The Department of Agriculture, the Marine and Food – measures amounting to savings of €105 million;
- The Department of Transport, Tourism and Sport – measures amounting to €45 million; and
- The Department of the Environment, Community and Local Government – measures amounting to €34 million.
Of course, other Departments are also making a contribution to lower spending.
Corporate & Capital Taxes
Corporation Tax
The Corporation Tax rate of 12.5% has been maintained.
3 Year Tax Relief for Start Up Companies
The scheme which provides relief from Corporation Tax for trading income of certain companies has been extended for start-ups whose first year of trading is 2012, 2013 or 2014.Research & Development Credit
The first €100,000 of qualifying R&D expenditure will benefit from the 25% R&D tax credit on a volume basis. The credit attached to incremental expenditure will continue to apply as compared to the base year of 2003.
At present sub-contracted R&D costs are eligible where they do not exceed 10% of total costs or 5% in the case of sub-contracting to third level institutions. This limit can disproportionately affect smaller companies who may have greater need to outsource R&D work than larger multinationals with greater internal resources. The outsourcing limits for sub-contracted R&D costs are being increased to the greater of 5% or 10% as appropriate or €100,000. This will provide a targeted benefit to SMEs.
Companies in receipt of the R&D credit will have the option to use a portion of the credit to reward key employees who have been involved in the development of R&D. It is envisaged that there would be no additional cost to the Exchequer as the bonus comes from the R&D credit already received by the company and the employee still pays the full tax liability on their other income. This change will be monitored closely.
Renewable energy generation
The qualifying period for the scheme of tax relief for corporate investment in certain renewable energy projects is being extended from 31 December 2011 to 31 December 2014.
The purpose of the scheme is to encourage investment in renewable energy projects and to facilitate the growth of electricity generation capacity using these sources.
To qualify for the relief the energy project must be approved by the Minister for Communications, Energy and Natural Resources and be in one of the following categories of technology:
- Solar
- Wind
- Hydro (including ocean, wave or tidal energy)
- Biomass
Employers PRSI on Pension Contributions
The current relief of 50% of employer PRSI for employee contributions to occupational pension schemes and other pension arrangements is being removed from 1 January 2012. The change will be legislated for in the Social Welfare Bill.
Capital Acquisition Tax
Capital Acquisitions Tax applies to gifts or inheritances. The CAT rate has increased from 25% to 30%. This applies as of 7th December 2011.
The gift / inheritance Class A threshold has been reduced to €250,000. The applicable thresholds are as follows:
| Group | 2012 | 2011 |
|---|---|---|
| Class A | €250,000 | €332,084 |
| Class B | €33,208 | €33,208 |
| Class C | €16,604 | €16,604 |
Class B – Parent* / Brother / Sister / Niece / Nephew / Grandchild
Class C – Relationship other than A or B
* In certain circumstances a parent taking an inheritance from a child can qualify for Group A threshold
Capital Gains Tax
The Capital Gains Tax rate has increased from 25% to 30%.
Capital Gains Tax Incentive
A Capital Gains Tax incentive was announced whereby if a property is acquired between 7th December 2011 and 31st December 2013 and the property is held for more than 7 years the gains accrued in that period will not attract Capital Gains Tax
Retirement Relief
Intra-Family Transfer - Full retirement relief from CGT for intra-family transfers will be maintained for individuals aged 55 to 66. An upper limit of €3m on retirement relief for business and farming assets disposed of within the family is introduced where the individual transferring the assets is aged over 66 years. This will incentivise earlier transfer of farms and businesses.
Third Party Transfers - The current upper limit of €750,000 for assets transferred outside the family for individuals aged between 55 and 66 years will be maintained. The upper limit for retirement relief for business and farming assets transferred outside the family is reduced from €750,000 to €500,000 for individuals aged over 66 years.
Income Tax, PRSI & Levies
Rates & Bands
There will be no change in income tax rates or bands.
Universal Social Charge
The exemption limit from the universal social charge has been increased from €4,004 to €10,036. Individuals earning less than €10,036 will now be exempt from the USC.
Mortgage Interest Relief
Mortgage Interest Relief has been increased to 30% for first time buyers who bought in the boom years 2004 - 2008
Current Rates of Mortgage Interest Relief will be extended to First Time Buyers and Non-First Time Buyers in 2012. The First Time Buyer relief will be granted at 25% and Non-First Time Buyers are granted relief at 15% if they purchase in 2012. Subsequent purchases will receive no relief.
Foreign Earnings Deduction
A relief has been introduced for temporary assignments to BRICS countries i.e. Brazil, Russia, India, China and South Africa. The relief applies where the annual assignment is at least 60 days.
Special Assignee Relief Programme
The introduction of a Special Assignee Relief Programme was announced with details to follow
Household Charge
A household charge of €100 is being introduced in 2012. The charge, which will raise circa €160m per annum is an interim measure pending design and implementation of a full property tax.
DIRT
Deposit Interest Retention Tax will increase from 27% to 30% with effect from 1st January 2012.
Domicile Levy
The "citizenship" condition for payment of the levy is being removed in an attempt to make it more difficult to avoid and to target "tax exiles".
Property Based Legacy Reliefs
A surcharge will be introduced effective from 1 January 2012 on individuals with gross incomes over €100,000. The surcharge will apply at a rate of 5% on the amount of income sheltered by property reliefs in a given year. Residential owner-occupier relief is unaffected by these changes
Investors in accelerated capital allowance schemes will no longer be able to use any capital allowances beyond the tax life of the particular scheme where that tax life ends after 1 January 2015. Where the tax life of a scheme has ended before 1 January 2015 no carry forward of allowances into 2015 will be allowed.
Farmer Taxation – Stock Relief
An enhanced 50% stock relief (100% for certain young trained farmers) for registered farm partnerships is being introduced and will run until 31 December 2015 subject to clearance with the European Commission under State Aid rules
ARFs / PRSAs
The annual deemed distribution for ARF valued in excess of €2m will increase to 6%."Vested" PRSAs are PRSAs from which retirement benefits have commenced to be taken, usually in the form of the "tax-free" retirement lump sum. The annual imputed distribution provisions which apply to ARFs will also apply on the same basis to "vested" PRSAs, where the assets are retained in the PRSA rather than being transferred to an ARF. This will include an increased deemed distribution percentage of 6% for vested PRSAs with assets in excess of €2 million. The increase will apply in respect of asset values in affected PRSAs at 31 December 2012 and future years
The rate of income tax on the transfer of an ARF to a child over the age of 21 has increased to 30%.
Positive Developments
Labour Market Activation Fund
A €20m allocation will be made for a new Labour Market Activation Fund, targeted at the long-term unemployed, delivering circa 6,500 places.
Mental Health Services
A €35m cash injection has been announced to develop community mental health services, which have been under serious pressure. The funds will also be used for a suicide crisis initiative, improved response to deliberate self-harm, and training for GPs.
Energy & Communications
Up to €30m is to be spent extending 100mb/s broadband to secondary schools. The Rural Broadband Scheme is to be rolled out to the last 1% of the country not covered.
Up to €76 million (including an additional €13m carryover from this year) is to be spent next year promoting energy efficiency as part of the Better Energy Homes Scheme. The department say this will create 4,500 direct and indirect jobs.
Loan Guarantee Scheme
The Government is to set up a micro-finance loan fund intended to generate €100m in additional lending for business. There will also be a temporary partial credit guarantee scheme, which will be in place by the first quarter of 2012. The scheme will partially guarantee loans by banks to viable businesses which are having problems gaining access to credit
Stamp Duty, Excise & Duties
Stamp Duty
The Stamp Duty rate on non-residential property has been reduced from 6% to 2%. This is effective from 7th December 2011.
Consanguinity relief on transfers of non-residential properties is to be retained for intra-family transfers to 31st December 2014 and abolished thereafter
Excise Duty
Excise Duty on a packet of 20 cigarettes is being increased by 25 cents (including VAT), with a pro-rata increase on other tobacco products.
Carbon Tax will be increased from €15 to €20 per tonne on fossil fuels. This will apply to petrol and auto-diesel with effect from midnight, 6th December 2011; and from 1st May 2012 to Kerosene, Marked Gas Oil, Liquid Petroleum Gas, Fuel Oil and Natural Gas.
The impact of this is 1.4c per litre of petrol and 1.6c per litre of Auto Diesel.
The VAT increase will apply to alcohol, but no additional excise duty was announced.
Betting Duty
It was announced that the Betting (Amendment) Bill is at an advanced stage. The bill will facilitate a betting duty of 1% to remote betting and the introduction of a “betting intermediaries” duty.
VRT & Motor Tax
Motor Tax Will Increase with effect from 1st January 2012 across all categories. A review of the Co2 bands and rates is also planned.
VAT
Rate Change
The standard rate of VAT will increase from 21% to 23%. This will take effect from 1st January 2012.
VAT on District Heating
The VAT rate on district heating will be reduced from 21% to 13.5%, bringing it in line with the majority of energy supplies.
Admissions to Open Farms
Admissions to open farms will become liable to VAT from 1st January 2012. The rate applicable on such admissions will be 9%.
VAT Relief on Wind Turbines
The existing VAT refund order, which provides for the refund of VAT paid by un-registered farmers on the construction of farm buildings, fencing, drainage and reclamation of farm land, will be amended to provide that such farmers may claim a refund on wind turbines purchased from 1 January 2012. This change is part of a series of measures aimed at assisting and promoting the farming community.
Public Services
Remuneration
A 10% reduction in overtime and 5% reduction in allowances has been introduced.
Garda Stations
31 Garda Stations around the country will close, whilst others face reduced opening hours.
Department of the Taoiseach
The Department of the Taoiseach will incur one of the biggest percentage cuts in the 2012 budget. The Department of the Taoiseach, which controls funding for the state's legal offices and the Central Statistics Office, will see its expenditure reduced to €156.4 million next year — a cut of €20.7m or 11.7%.
Defence
The Department of Defence spending has been cut by €40m, from €933m to €893m. This follows a €40m cut from 2010 to 2011. The savings will be realised through staff reduction and other non-pay reductions
Whilst every effort has been made to ensure that the information is correct and complete at time of writing no responsibility for loss occasioned to any person acting or refraining from acting as a result of any material contained or omitted from this document can be accepted by Byrne Curtin Kelly.
