Finance Bill, 2001: Report Stage (Resumed) and Final Stage.

Debate resumed on amendment No. 88.
In page 137, line 20, after "relates," to insert "or lets the licence,".

Must inheritance or probate tax be paid before the value can be accepted?

In many cases relating to inheritance tax a submission is made to Revenue and a value put on it but the tax would not have been paid. However, in most cases probate tax would have been paid because the threshold is much lower.

If probate or capital acquisitions tax is paid then the value in the schedule of the Revenue affidavit will be the figure used for the capital allowance wear and tear purposes.

Prior to the introduction of probate tax when inheritance tax was not paid. There could be circumstances were people filled out a Revenue affidavit, put a value on their plate, did not pay tax but the value was nonetheless not accepted. I acknowledge there will not be many such cases but there are bound to be some.

If there are, the rule is that the tax must have been paid.

The Minister is digging in on this.

Amendment agreed to.

I move amendment No. 89:

In page 137, line 25, after "vehicle" to insert "or of that licence".

Amendment agreed to.
Bill recommitted in respect of amendment No. 90.

I move amendment No. 90:

In page 138, between lines 11 and 12, to insert the following:

"51.–(1) Section 284(3A) of the Principal Act is amended–

(a) by the substitution in paragraph (a) of ‘6 years' for ‘3 years',

(b) by the substitution in paragraph (b) of ‘paragraph (ba) and subsection (4)' for ‘subsection (4)',

(c) by the insertion after paragraph (b) of the following:

‘(ba) Notwithstanding subsection (2), but subject to subsection (4), wear and tear allowances to be made to any person in respect of machinery or plant to which this subsection applies, and in respect of which capital expenditure is incurred on or after the date of the coming into operation of section 51 of the Finance Act, 2001, shall be made during a writing-down period of 6 years beginning with the first chargeable period or its basis period at the end of which the machinery or plant belongs to that person and is in use for the purposes of that person's trade, and shall be of an amount equal to–

(i) as respects the first year of the writing-down period, 50 per cent of the actual cost of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on that machinery or plant by means of renewal, improvement or reinstatement, and

(ii) as respects the next 5 years of the writing-down period, 20 per cent of the balance of that actual cost after the deduction of any allowance made by virtue of subparagraph (i).',

and

(d) by the insertion in paragraph (c) of ‘or in subparagraph (i) or (ii), as may be appropriate, of paragraph (ba),' after ‘paragraph (b),'.

(2) Section 403(5A) of the Principal Act is amended by the substitution in paragraph (b)(ii) of ‘6 years' for ‘3 years'.

(3) This section shall come into operation on such day as the Minister for Finance may by order appoint.".

The amendment proposes to insert a new section 51 in the Bill. The new section amends section 284(3A) of the Taxes Consolidation Act, 1997, which provides an enhanced regime of capital allowances in respect of capital expenditure incurred on certain sea fishing boats in the white fish fleet. The regime involves granting capital allowances over an eight year period. An allowance equal to 50% of qualifying expenditure is available in year one with the balance of the expenditure written off for tax purposes at the rate of 15% a year in years two to seven and a rate of 10% in year eight. This regime applies only in respect of capital expenditure incurred in the period of three years commencing on 4 September 1998. In other words, the scheme is due to expire on 3 September 2001.

I propose in the new section 51 to provide for a three year extension of the scheme to 3 September 2004. Furthermore, I intend that the enhanced capital allowance regime that will apply will involve a six year writing-down period. A 50% allowance will be available in year one. For each of the remaining five years the balance of the qualifying expenditure will be written off for tax purposes at a rate of 20%.

The new section will extend the current exemption for corporate lessors of qualifying fishing boats for a further three years. Normally capital allowances in respect of leased plant and machinery may only be set off against leasing income. Section 403(5A) of the Taxes Consolidation Act, 1997, proves an exemption from this rule for corporate lessors of qualifying fishing boats. Where expenditure is incurred within the three years ending on 3 September 2001 the capital allowances claimed by corporate lessors in respect of such boats can be set against other income, that is, the allowances are not confined to a set off against leasing income. The new section provides for a three year extension of this exemption to 3 September 2004.

In line with the introduction of the original scheme for the white fish fleet the new section 51 will come into operation by way of a commencement order, following approval of the enhanced scheme by the EU Commission. Once approval has been secured, I will make the necessary commencement order for section 51. I commend the amendment to the House.

I congratulate Deputies McGinley and Sheehan for getting the Minister to accept this amendment.

And the Minister for the Marine and Natural Resources.

I support the amendment and know that this has been a very successful scheme in the past two to three years. Its continuation is clearly warranted.

This afternoon the Minister for the Marine and Natural Resources stated that he would shortly announce details of a new scheme which I understood would be something of the variety described in the Bill. Is this what he is talking about or is there a further new scheme up the Minister's sleeve about which we should know?

No, this is the only tax scheme proposed. I am sorry, there is the whitefish and national development programmes. The Government's whitefish renewal programme was launched in 1998 and is supporting an investment of £70 million in the sector. To date support has been provided for the introduction of 29 new fishing vessels and 12 modern second-hand vessels. Over 5,000 lifesaving devices have been provided for skippers and crews of almost 600 vessels. A further 299 vessels have been authorised under the Operational Programme for Fisheries, 1994-99, which includes the whitefish renewal programme.

We do not know the number who availed of the tax break I am now extending. Representations were made to me to extend it beyond 3 September 2001, including representations from the Minister for the Marine and Natural Resources and others. I decided to extend it as I intend it to allow further development to take place in this area.

What is unfortunate is that EU approval must be secured again, but that will be applied for by the Department of the Marine and Natural Resources. If one can be sure of anything to do with the European Commission, it does not anticipate major difficulties. We have to wait and see, however, because it is only an extension of an existing scheme for which we received approval.

I repeat the point I made on Committee Stage. We have to work out a means by which we can work out if these capital allowances and schemes are working. I am aware that in this case we can tell if a number of ships have come on stream in the last three or four years and it is likely that that can be attributed to the scheme. There has to be a method, however, by which Revenue and policy makers can assess the success of schemes. I urge the Minister and Revenue to develop such a means.

At least two, if not three, Finance Bills ago I promised the House that the review of the success of the seaside resorts scheme was being undertaken by the Department of Tourism, Sport and Recreation. We have made some tentative estimates in my Department, with the help of the Revenue Commissioners, of the amount of tax loss forgone. In a written answer to a parliamentary question I estimated the amount of tax forgone, thereby implying the amount of investment.

I agree with Deputy McDowell. It would be far better if we had some mechanism whereby we could readily assess this. Regarding the capital allowance breaks, they are only assessed from individuals' tax returns, usually self-employed returns, and it is a matter of putting all the information together. We do not have a mechanism which can indicate at any one point what taxpayer is applying for what. I am not sure if it would ever be possible to devolve a scheme which would give such instantaneous results. My Department and the Revenue Commissioners will apply our brains to the matter to determine what we can do, but it is not for lack of trying by the Revenue; it is just that it is difficult to assess all the figures at any one time. It would be far more satisfactory if we had the figures available.

How does the Minister assess tax forgone? It is illusory. If one says: "If we charged that at 20% instead of 10%, we would have got twice the amount, whereas if we charged twice the amount, we would not have got it?"

That is a good point regarding changes in taxation such as the change in the tax rate from 44% to 42% or the change in capital gains tax from 40% to 20%. I remember on the day of the first budget regarding capital gains tax that I included a figure of £19 million for the possibility of a tax loss; it is in the budgetary figures. I covered myself by saying that it was in the interests of prudence and that I was advised to do so by my officials, though I did not believe it would be that particular figure.

The Deputy is right in relation to assessing the figure, but it is easy to assess when it comes to capital allowances and breaks such as mortgage interest. One extrapolates from the figures. One works out what the person's tax rate was and one has the tax break. If we looked at Deputy Mitchell's tax return, we would be able to assess the value of interest relief to him.

But there will be increased activity as a result.

Yes, the figure is easy to work out in areas like that. In areas such as capital allowances, the tax forgone would be the capital allowance breaks at the person's rate of tax. When one mentions increased activity to do with a reduction in taxation such as capital gains tax or otherwise, it is a little airy-fairy. I share the Deputy's views in that regard.

There is, probably, greater activity, but it is traditional to assess it in this way. I am not sure if I am right to describe this as a static basis, but it should be easy enough to assess tax forgone in cases such as capital allowances for the whitefish programme, hotels, seaside resort schemes, mortgage interest and the VHI. It is different in other areas. Sometimes we use figures and I wonder if it is really tax forgone at all. We would be able to work out what the actual tax forgone is because it is a matter of a simple calculation. If the person did not receive the tax break, they would not be paying that amount of tax.

Many of these breaks are given to investors. The Deputy's point is that as it is treated in other areas of activity, we should calculate it there also. I accept that is a legitimate viewpoint.

Amendment agreed to.
Bill reported with amendment.

Amendment No. 91 in the names of Deputies Mitchell and McGrath arises out of Committee proceedings and amendments Nos. 92 and 94 are related. Amendments Nos. 91, 92 and 94 may be discussed together by agreement.

I move amendment No. 91:

In page 139, line 11, to delete "20" and substitute "0".

We raised this matter on Committee Stage when we sought not so much to eliminate DIRT as to zero rate it. That means one at least would keep the mechanics in place in order that one would have the option of increasing it should interest rates move in a particular way. This would be a more tangible savings mechanism than that proposed by the Minister and a more tangible cost. It is ridiculous that we are taxing interest on savings when the rate of inflation is higher than the savings return; effectively we are discouraging savings by taxing negative income. This allows us, however, to raise international developments on the interest rate front in recent days and speculation on what may happen in the euro zone. There is zero rating of interest rates in Japan and a proposed reduction of 0.5% in the United States. Would the Minister care to speculate on what the trend will be for interest rates for the rest of this year, not necessarily in the immediate future? That has a bearing on the amendments because if interest rates go lower than inflation, it adds to the argument for the elimination of DIRT, at least on a temporary basis.

Regarding my speculations on future interest rate trends, I do not speculate either about future interest rate trends or on the value of the currency. That is a long-held principle of mine and was developed when I was in Opposition and long before I became a spokesperson on finance. The best advice I could give Ministers for Finance throughout the globe, prospective Ministers for Finance or anybody else is to keep their mouths shut about what they think of currencies and everything else. That is what the markets love. I had the opportunity to practice this as Minister for Finance for a considerable period before we joined the euro and fixed the central point of our rate.

I do not speculate about interest rates. However, I note with interest what has happened in Japan and the United States. In another aside yesterday, to prove the point I have always made that economics is not an exact science, I alluded to the fact that while Deputy Mitchell and I agree that savings are a good thing, particularly in the Irish economy, Japan is trying to encourage people away from saving. For a long time Japan has tried to encourage its people to spend money but the Japanese steadfastly refuse to do so.

A classmate of mine who now lives in Japan told me two and a half years ago that the largest sales in Japan were in money boxes. People were actually taking money out of the Japanese equivalent of the credit union and storing it. Despite the best efforts of the Japanese Government to stimulate the economy, it has failed and now the interest rate is zero. I note, however, from today's teletext that there was a jump in the Nikkei index in the past 24 hours. A Minister for Finance would be wise not to speculate on what will happen either to currencies or interest rates.

Amendments Nos. 91 and 92 relate to section 53 of the Bill while amendment No. 94 relates to section 55. The technical effect of these amendments would be to reduce the rate of DIRT on deposit interest to nil in relation to existing special savings accounts and the new special term accounts, as provided for in section 55. I under stand from our discussions in the select committee that the Deputies' intention is that DIRT should be zero rated for all savings.

Apart from the loss of revenue which would result from acceptance of this proposal, it is difficult to justify this amendment as it favours savings by way of deposit accounts. There are many personal savings vehicles, other than deposit accounts, into which taxpayers put their savings, for example, unit trusts, life assurance policies and equities. While I recognise and accept the intention behind these amendments, I have already decided to go a different route. My proposals in relation to special savings incentive accounts give significant incentives in relation to savings, particularly to those on low to medium incomes. These accounts also provide significant flexibility as savings may be made by way of deposit accounts, equities, Government securities, unit trusts and life policies.

I note from the Fine Gael proposals prior to the budget that it was that party's intention to exempt the first £5,000 of savings from DIRT to assist those on fixed incomes on the basis that their savings were being eroded. Under section 55 of the Bill, I have provided that interest on medium and long-term deposits will be exempt on the first £375 and £500 respectively of deposit interest received. These exemptions have the effect of exempting deposit interest on up to twice the amount of savings which was originally proposed by Fine Gael.

While I accept the intention behind the proposals, I regret I am unable to accept the amendments.

Deputy Mitchell pointed out earlier that people who have savings invested in various places at present are getting low rates of interest and are then paying DIRT on that interest. Many of them resent that. The DIRT yield is decreasing; it is down to approximately £130 million at present and continues to fall.

On the one hand, in the case of existing savings, the Minister is taking 20% in DIRT from the interest received by people who have savings in deposit accounts. At the same time he is encouraging people to invest in savings and is giving them a 25% return on savings of up to £200 per month. Does the Minister not see a contradiction in that? By taxing the interest on savings the Minister is discouraging people from saving but, on the other hand, he is encouraging people to open other accounts and collect money from the Revenue by virtue of so doing. Over the five year period people could shift their savings from the accounts in which they are currently gaining a small amount of interest, from which the Minister is getting a small return of 20%, into these savings accounts. That will cost the Revenue money. Does the Minister see the contradiction between the two approaches and, on that basis, can he not see the logic of what we propose?

Interest rates are low and inflation is rising. Last week the inflation rate increased again; it is now at 5.3% for this year despite the Minister's forecast. I was interested to hear him say he does not make forecasts but he did forecast in the budget—

I said I do not comment on interest rate developments in the ECB or the value of the currency. I do make other predictions.

The Minister forecast that inflation would be 4.5% for this year but the rate increased last month from a projected 5.2% to 5.3%. However, interest rates are so low that people are losing money by leaving it on deposit and subjecting it to this terrible DIRT.

I remember canvassing a certain cleric's house in 1986 when DIRT had been reintroduced. I got a huge berating at the door. He really resented the DIRT, how it was working and the effect it would have. In fact, I do not believe he voted for us anyway. He continued to vote as he always had. At the time, however, he lashed out at the tax and that reaction has not changed. DIRT is resented. Perhaps the Minister would look at this again and see the contradiction that exists between the savings scheme and the DIRT.

I seek information from the Minister. The total take from DIRT has been falling and is now at approximately £130 million.

It is less.

What does that tell us about the deposit base, the amount of moneys on deposit in banks that is subject to DIRT? What do we know about the customer profile in that regard and the number of accounts? Do we have such information?

I am sure there is some information.

There is information.

Over the years the Minister has persuaded me to agree with his view in relation to commenting on interest rates and speculating about the currency. I previously held the view that these were legitimate matters of public discussion where there should be a good degree of accountability. However, having seen what happened to the unfortunate Oscar Lafontaine and Wim Duisenberg and the over shooting of the markets following what appeared to be tame comments, I have come to the same view as the Minister that the least said, the better.

We discussed this issue extensively on Committee Stage. Deputy McGrath's and Deputy Mitchell's objective is to encourage people to save. Whatever the effect of my scheme will be – there might be an element of switching – it does provide an incentive for new savings. The abolition of DIRT on existing savings is a pure dead weight cost. People who have saved those amounts of money will keep the money in those financial institutions and the abolition of DIRT would not encourage them to save extra. Deputy Mitchell might contend that the abolition of DIRT might encourage more people to save but I believe that would be marginal. The scheme I put forward is far more attractive in encouraging people to save. There will be no DIRT levied in the period of the five years; it will be levied at the end.

DIRT has come in for much criticism in recent years and there has been great debate about it as a result of the Committee of Public Accounts inquiry. The tax was not introduced by me but by Deputy Dukes. However, I liked the concept of DIRT even then.

The Minister never said that.

I did, strange as that might appear. The change that was made subsequently to make it a final liability was an extremely far thinking step. Prior to the introduction of DIRT, there were massive numbers of people evading tax. Nobody was returning it, a bit like the credit unions. We will not mention the nice people in the credit unions. Deputy Mitchell will notice how reformed I am since he became spokesperson. Very few people returned it and it led to all kinds of confusion. There used to be a central register in the Revenue and the banks would send in anyone with more than £70. Then in one unfortunate budget around 1982 it was reduced on budget night to £50 thereby preventing people from whipping their money out and reducing it below £500. The interest was always about £52 on these little £500 accounts and they got returned to the Revenue Commissioners. Then everybody started getting letters asking for their RSI number and that led to all kind of difficulties.

What Deputy Dukes did as Minister was to introduce a system where tax was deducted at source and the Exchequer got more money. Then when the change was made to make it a final liability it was even better as people did not have to return it at all. It was a far better way for collecting the money. The DIRT now gives less benefit to the Exchequer than it did in earlier years but it was an efficient way of changing the system. I do not go along with the proposals of Deputies McGrath and Mitchell for reducing the DIRT to zero. My savings incentive scheme is more attractive.

Question, "that the figure proposed to be deleted stand", put and declared carried.
Amendment declared lost.
Amendment No. 92 not moved.

I move amendment No. 93:

In page 141, to delete lines 20 to 23, and substitute the following:

"54.–Section 838 of the Principal Act is amended–

(a) in subsection (1)–

(i) in the definition of ‘special portfolio investment account' by the substitution for ‘on or after the 1st day of February, 1993' of ‘on or after the 1st day of February 1993 and before 6 April 2001', and

(ii) by the deletion of the definition of ‘relevant period',

and

(b) in subsection (2)–

(i)by the deletion of paragraph (c), and

(ii)in paragraph (g) by the substitution for ‘on or after the 1st day of February, 1996' of ‘on or after 1 February 1996 and before 31 December 2000'.”.

This amendment is to section 54 which relates to special portfolio investment accounts. Special portfolio investment accounts were introduced in the Finance Act, 1993 along with other savings products with the objective of keeping money in the country in the light of capital liberalisation. All of these products, at that time, had a favourable 10 per cent tax rate. This product involves investment in a basket of equities managed by a stockbroker with a focus on investment in Irish equities. As there is now no tax advantage attached to these products, I have decided to allow no new ones to be taken out and to remove some of the conditions attaching to existing products, as they are no longer necessary. This amendment does three things: first it provides that no new special portfolio investment accounts can be opened after 5 April next; second that the targeting of investment in Irish equities be removed; and finally that the condition that the value of individuals' investments be reduced to £75,000 every five years has been removed. I commend this amendment to the House.

Will the Minister explain about 6 April 2001. Does that mean new accounts can be opened up to 6 April?

Yes, but no new accounts have been opened since last year. Before I became Minister for Finance the rate had been moved up to 15%. I rationalised all those areas and brought all the tax rates up to 20%. Now, since the standard rate of income tax has come down to 20% there is no advantage and I understand the amount of money invested in these investment accounts over the past year or so has been practically nil.

Amendment agreed to.
Amendment No. 94 not moved.

I move amendment No. 95:

In page 169, line 9, after "September 2000," to insert "or in any further circular of that Department amending paragraph 6 of the first-mentioned circular for the purposes of increasing the aggregate length of street allowable,".

Amendment No. 95 relates to section 58 which introduces a new living over the shop incentive scheme, the aim of which is to provide residential accommodation in vacant space over commercial premises in the five cities of Cork, Dublin, Galway, Limerick and Waterford. The aims, objectives and criteria for the scheme are contained in a Circular dated 13 September 2000 (ref: UR 43A) from the Department of the Environment and Local Government to the manager of each relevant local authority. The aggregate length of street allowable for each county borough is contained in paragraph 6 of the circular. This amendment allows the Department of the Environment and Local Government to issue a further circular amending paragraph 6 of circular UR 43A, dated 13 September 2000, for the purposes of increasing the aggregate length of street allowable. I commend this amendment to the House.

Why should there be any restriction if our aim is to encourage?

One of the amendments I brought forward was to allow an increase in the allowable street length of these county boroughs. This amendment was deemed necessary because apparently I need an amendment in the Finance Act to allow the Department of the Environment to issue a new circular. I do not know why that is but apparently it is necessary.

I would like to probe that. Surely there should not be any restrictions.

Local authorities wanted this restriction in order to be able to target a small number of streets. It is not a Department of Finance idea but was suggested by the local authorities to the Department of the Environment and we have done it in the Finance Bill.

What length are we talking about?

In Dublin it is 7,200 metres but it is smaller in the other county boroughs.

I do not understand why there should be restrictions. Surely, if there are vacant residences over shops in any part of the five cities, this is one area on which we should not have any restriction given the demand for and the cost of housing. We should encourage these to be occupied as they are in many other countries.

This idea was introduced in 1994 and was a singular failure except in the Cork area. Then we dropped the whole idea. Now local authorities feel there would be a chance of success and I am reintroducing the living over the shop scheme making it slightly more attractive. It will be better sold on this occasion and county boroughs are more ready to encourage it. I agree with Deputy Mitchell. We should target it. We are reintroducing the scheme because it may be a success now.

It is a terribly urgent and important issue. People are walking the streets and yet there are so many unoccupied residences. The previous scheme was a failure because it was a half measure. Deputy McGrath and I proposed amendments on Committee Stage which if they were taken on board together with abandonment of restrictions, could be a great success and could help to significantly reduce part of the current housing waiting lists. We have a chronic problem attracting labour to the country mainly because of the difficulty of acquiring housing. Will the Minister look at this again, together with our proposal regarding exempting from capital gains tax, land which is proposed to be compulsorily acquired? Both proposals are urgent from an economic point of view. Will he consider those points? We would certainly accommodate any such Finance Bill.

I will. I promised it on Committee Stage. The KPMG report on urban renewal said there were major insurance, security, parking, fire and safety and planning problems with the scheme.

That is correct, but other countries got over those problems. Why can we not follow the United Kingdom's example? During my much heralded visit to Argentina, I saw beautiful apartments over every shop.

We will see what happens with the scheme this year; if further improvements are required, I will be happy to make them.

The accommodation issue is an urgent one, especially in cities. I urge the Minister not to wait until next year. We would facilitate a second Finance Bill to deal with the issue and the economic infrastructure proposal.

Did the Deputy notice everybody getting very pale at the mention of a second Finance Bill?

Amendment agreed to.

I move amendment No. 96:

In page 173, line 1, to delete "£21,585.55" and substitute "21,585.55".

This amendment relates to section 59 of the Bill which amends Part II of the Taxes Consolidation Act, 1997, in order to increase the capital value thresholds used to determine capital allowances and deductions for running expenses and simplify the calculation of allowable running expenses. This is a technical amendment which corrects a drafting error in section 59. It substitutes "21,585.55" for "£21,585.55" in subsection (1)(b)(ii)(III) of the section. I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 97:

In page 173, to delete lines 24 to 27 and substitute the following:

"(a) in section 405–

(i) in subsection (1)—

(I) by the substitution of ‘Subject to subsections (2) and (3)' for ‘Subject to subsection (2)', and

(II) by the substitution of the following for paragraph (a):

"(a) sections 305(1)(b), 308(4) and 420(2) shall not apply as respects that allowance, and”,

and

(ii) by the insertion after subsection (2) of the following:

‘(3) This section shall not apply to a building or structure which is in use as a holiday cottage and comprised in premises first registered on or after 6 April 2001 in a register of approved holiday cottages established by Bord Fáilte Éireann under Part III of the Tourist Traffic Act, 1939, where, prior to such premises becoming so registered–

(a) the building or structure was a qualifying premises within the meaning of section 353, by virtue of being in use for the purposes of the operation of a tourist accommodation facility specified in a list published under section 9 of the Tourist Traffic Act, 1957, and

(b) the provisions of section 355(4) did not apply to expenditure incurred on the acquisition, construction or refurbishment of that building or structure, by virtue of the provisions of section 355(5).'.”.

This amendment relates to section 60 of the Bill which amends section 405 of the Taxes Consolidation Act, 1997, which restricts the offset of capital allowances for holiday cottages against non-rental income. The amendment will amend section 405 in order that its provisions will not apply to certain registered holiday cottages, qualifying under the seaside resort scheme, currently listed under section 9 of the Tourist Traffic Act, 1957. I have received a representation in the past two years from operators of self-catering holiday cottage schemes in certain resort areas to whom I spoke on this issue last July on the occasion of opening the Pebble Beach holiday complex in Tramore. They expressed concern at the additional cost involved in listing holiday cottages as opposed to registering them with Bord Fáilte.

In order to qualify for relief under the seaside resort scheme, owners of self-catering cottages must either register their cottages in a register of approved holiday cottages established by Bord Fáilte under Part III of the Tourist Traffic Act, 1939, or have them included in a list published under section 9 of the Tourist Traffic Act, 1957. I have looked at this issue in the past two years and was surprised at the extra costs involved in having self-catering cottages listed in comparison with the cost involved with registering. In the case of cottages registered under the Tourist Traffic Act, 1939, the initial registration fee is £115.50 while the annual renewal fee is only £22. On the other hand, the initial fee for having a cottage listed under the Tourist Traffic Act, 1957, is £220 and the annual renewal fee is £135 per unit. Some owners of holiday cottages in group schemes in the 15 resort areas are not in a position to use the less expensive option of having their cottages registered with Bord Fáilte without such a course of action adversely affecting their entitlements to having the capital allowances under the seaside resort scheme offset against their income from all sources. I have decided, therefore, to respond to the concerns of the tourism sector expressed to me regarding this issue by allowing owners of schemes of self-catering cottages in the 15 designated resorts the flexibility and degree of choice as to how they wish to promote and advertise their accommodation. I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 98:

In page 181, to delete lines 31 to 41, and substitute the following:

"(a) (i) it is occupied as a dwelling by any person connected with the person entitled, in relation to the expenditure incurred on the refurbishment of the house, to a deduction under section 380H(2), and

(ii) the terms of the qualifying lease in relation to the house are not such as might have been expected to be included in the lease if the negotiations for the lease had been at arm's length,

or".

This amendment proposes to amend section 61 of the Bill which provides for relief for refurbished rented residential accommodation. The section provides for 100% capital allowances over seven years against rental income in respect of capital expenditure incurred on the refurbishment of rented residential property. The amendment amends the conditions for a house becoming a qualifying premises for the purposes of the section. It clarifies that if a house does not satisfy certain housing standards as set down by the various housing regulations, it cannot qualify for the relief. It does this by linking the current paragraphs (a) and (b) together into one paragraph (a) with two subparagraphs (i) and (ii). The current paragraph (c), which is now renumbered paragraph (b), is separate and not connected to paragraphs (a)(i) and (ii). I commend the amendment to the House.

I assume standards must be met following the refurbishment as opposed to prior to refurbishment.

I understand that in order for a premises to become a qualifying premises for the purpose of the section, it must satisfy certain housing standards set down by the various housing regulations following the refurbishment. Premises will not qualify for relief if those standards are not met.

Amendment agreed to.

Recommittal is necessary in respect of amendments Nos. 99 and 100 as they involve a charge on the people. The amendments are related and may be discussed together by agreement.

Bill recommitted in respect of amendments Nos. 99 and 100:

I move amendment No. 99:

In page 187, to delete lines 23 to 33 and substitute the following:

"(a) in subsection (1)–

(i) by the deletion in paragraph (c)(ii) of ‘,on or after the 20th day of May, 1993',

(ii) by the insertion after paragraph (c)(ii) of the following subparagraphs:

‘(iii) Subsection (2) shall apply as if section 573(2)(b) had not been enacted.

(iv) For the purposes of subsection (2)–

(I) there shall be a disposal of or of an interest in the rights of a policy of assurance, where benefits are payable under the policy, and

(II) where at any time, a policy of assurance, or an interest therein, gives rise to benefits in respect of death or disability, either on or before maturity of the policy, the amount or value of such benefits which shall be taken into account for the purposes of determining the amount of a gain under that subsection shall be the excess of the value of the policy or, as the case may be, the interest therein, immediately before that time, over the value of the policy or, as the case may be, the interest therein, immediately after that time.

(v) For the purposes of subparagraph (iv), the value of a policy or of an interest therein at any time means–

(I) in the case of a policy which has a surrender value, the surrender value of the policy or, as the case may be, of the interest therein, at that time, and,

(II) in the case of a policy which does not have a surrender value, the market value of the rights or other benefits conferred by the policy or, as the case may be, the interest therein, at that time. ',

and

(iii) by the insertion after paragraph (f) of the following:

‘(g) Where a policy was issued or a contract made before 20 May 1993, only so much of the gain on disposal as accrued on or after 20 March 2001 shall be a chargeable gain.',

(b) by the deletion of subsection (3), and

(c) in subsection (4) by the substitution for paragraph (a) of the following:

‘(a) in this subsection, “reinsurance contract” means any contract or other agreement for reassurance or reinsurance in respect of–

(i) any policy of assurance on the life of any person, or

(ii)any class of such policies,

not being new basis business within the meaning of section 730A.'.".

Amendments Nos. 99 and 100 are to section 64 of the Bill. These amendments, with other amendments, to which we will come later, address the taxation of life assurance policies in order that, in so far as possible, there is a consistent regime for both domestic and foreign polices. It should be remembered that, nowadays, life assurance products are often just another form of investment, not just a contract which pays out on death. The amendments to section 64 ensure, where payment is made under a foreign life policy, on death or disability, the investment return from a policy is taxed, but not the amount payable in respect of the actual risk of death or disability. This is what is being provided for in respect of domestic policies. The amendments also ensure foreign life policies taken out prior to the introduction of a tax on such policies, in 1993, will from now on be liable to tax. I commend the amendments to the House.

Amendment agreed to.

I move amendment No. 100:

In page 187, to delete lines 36 to 41 and substitute the following:

(b) This section–

(i) as respects paragraph (a), shall apply as on and from 20 March 2001,

(ii) as respects paragraph (b), shall apply in respect of any chargeable period commencing on or after 15 February 2001, and

(iii) as respects paragraph (c), shall be deemed to have applied as on and from 1 January 2001.”.

Amendment agreed to.
Bill reported with amendments.

Amendments Nos. 101, 102 and 103 are related and may be discussed together by agreement.

I move amendment No. 101:

In page 189, to delete lines 19 to 27 and substitute the following:

"(c) details of a disposal shall be correctly included in a return made by a person, only where details of the disposal are included in a return of income made by the person or, where the person has died, his or her executor or administrator, on or before the specified return date for the chargeable period in which the disposal is made.”.

Amendments Nos. 101, 102 and 103 are to section 65 of the Bill which provides for a new taxation regime for foreign life polices issued from other European Union member states, the members states of the EEA and OECD countries with which we have a double taxation treaty. This new regime provides that where a holder of such a policy makes full disclosure of any profits to Revenue, they will be eligible to be taxed at the same rate as applies to a domestic policy, namely, 23%. If they do not make full disclosure and are found out by audit or otherwise, they will be liable to a 40% tax rate. The amendments also introduce some technical refinements to this regime to mirror changes being made to the domestic life policy taxation regime for payments made on the occasion of the death or disability of the policy holder. On the occasion of death or disability, it is only the investment profit which will be taxed, not the payments made in respect of the risk assured against.

Whereas the taxable profits from these foreign policies are made subject to income tax, it is provided that losses arising from a different source of the policy holder cannot be set off against such profits. This levels the playing field with domestic life companies which operate an exit tax on payment to policy holders. It is provided that the income from a foreign life policy charged to income tax will not be subject to the health levy and that tax paid on payment from a policy on death can be set off against any capital acquisition tax arising from the same event. I commend the amendments to the House.

Amendment agreed to.

I move amendment No. 102:

In page 190, to delete lines 50 to 53 and in page 191, to delete lines 1 to 5 and substitute the following:

"(2) The amount of the gain accruing on a disposal referred to in subsection (1) is the amount of the relevant gain (within the meaning of section 594(2)) which would be computed if the gain accruing on the disposal were computed for the purposes of that section.".

Amendment agreed to.

I move amendment No. 103:

In page 191, to delete line 13 and substitute the following:

"as accruing on such disposal.

(4) Where, as a result of a disposal by a person, an amount of income is chargeable to tax under Case IV of Schedule D in accordance with subsection (1), that amount shall not be reduced by a claim made by the person–

(a) where the person is not a company, under section 381 or 383, or

(b) where the person is a company, under section 396 or 399.

(5) Where an individual is chargeable to tax in accordance with subsection (1) in respect of an amount of income–

(a) the tax thereby payable, in so far as it is paid, shall be treated as an amount of capital gains tax paid for the purposes of section 63 of the Finance Act, 1985, and

(b) that amount of income shall not be included in reckonable income (within the meaning of the Health Contributions Regulations, 1979 (S.I. No. 107 of 1979)) for the purposes of those Regulations.'.”.

Amendment agreed to.

I move amendment No. 104:

In page 191, to delete lines 16 to 25, and substitute the following:

"66.–(1) Section 723 of the Principal Act is amended–

(a) by the deletion in subsection (1) of the definition of ‘relevant period',

(b) by the substitution in subsection (2) for paragraph (g) of the following paragraph:

‘(g) the aggregate of consideration given for shares which are, at any time on or after 1 February 1996 and before 31 December 2000, assets of the fund shall not be less than–

(i) as respects qualifying shares, 55 per cent, and

(ii) as respects specified qualifying shares, 10 per cent,

of the aggregate of the consideration given for the assets which are assets of the fund at that time,',

and

(c) in subsection (3) by the deletion of paragraph (c).”.

This amendment is to section 66 of the Bill which relates to special investment policies. Special investment policies are a class of life assurance policy introduced in Finance Act, 1993, with other savings products, and have a focus on investment in Irish equities. They were introduced with the objective of keeping money in the country in the light of capital liberalisation. All these products, at that time, had a favourable 10% tax rate. As there is now no tax advantage attached to this product, I provided in last year's Finance Act that no new investment could be made in them from 1 January last. The amendment provides for two further changes. First, the investment focus on Irish equities has been removed and, second, the condition that the value of the individual's investment be reduced to £75,000 every five years has also been removed.

Amendment agreed to.

I move amendment No. 105:

In page 194, to delete lines 9 to 23 and substitute the following:

"(i) the maturity of the life policy (including where payments are made on death or disability, which payments result in the termination of the life policy),

(ii) the surrender in whole or in part of the rights conferred by the life policy (including where payments are made on death or disability, which payments do not result in the termination of the life policy),".

I will take amendments Nos. 105, 110 and 111 together, all of which relate to the taxation on death of a policy holder of a domestic life assurance policy. Amendments Nos. 105 and 110 provide for how payments on death or disability are to be taxed. Life assurance policies are often another method of investment with a monetary payment for death or disability included in the contract. What these two amendments provide for is that only the investment return will be subject to tax, not the payment in respect of the risk of death or disability which the life company assures. Amendment No. 111 ensures that where tax applies to a payment on death, such tax can be set off against any capital acquisition tax arising on the same event.

I wish to indicate two drafting errors that appear on page 199 of the Bill which I request the Clerk to correct under the directions of the Ceann Comhairle pursuant to Standing Order 126. The first is in line 7 where the reference to section 730G1 should be to section 730G7. The second is in line 11 where the reference to section 730H should be to section 730GA and the reference to section 730I inserted by amendment No. 111 should be a reference to section 730GB. I commend the amendments to the House.

I am not clear on that matter. If I understood the Minister correctly, he was suggesting that if there was a CAT charge at the same time as the exit tax from the assurance policy, one would be written off against the other. That is my understanding.

Yes. There is an agreement since 1985 to allow CAT and CGT to be set off against one another if they arise on the same event. This mirrors that change.

Amendment agreed to.

Amendments Nos. 107 to 109, inclusive, are related to amendment Nos. 106 and may be discussed together by agreement.

I move amendment No. 106:

In page 194, lines 44 to 46 to delete "who at the time of such assignment were living together".

I note that amendments Nos. 106 and 109 are in my name and that of Deputy McDowell. All these amendments are to section 68 of the Bill which relates to the taxation regime for domestic life assurance policies. The amendments tidy up the drafting of section 68 and are all to section 730C(2) of the Taxes Consolidation Act, 1997, which provides that the assignment of a life assurance policy will not trigger a tax charge in certain situations.

Amendment No. 106 removes the requirement that a husband and wife who assign a policy must be living together to avoid a tax charge. As the assurance industry has rightly indicated, how would it know? In any case, such a requirement is not necessary in this context. Amendments Nos. 107 and 108 acknowledge that a couple who are divorced are no longer spouses, but rather former spouses. Amendment No. 109 corrects a drafting error to ensure the same relief from a tax charge applies on the assignment of a life policy between spouses or former spouses following either a foreign or an Irish judicial separation. I commend the amendments to the House.

Amendment agreed to.

I move amendment No. 107:

In page 194, line 47, to delete "between the spouses concerned" and substitute "between the spouses or former spouses concerned (as the case may be)".

Amendment agreed to.

I move amendment No. 108:

In page 195, line 10 to delete "between the spouses concerned" and substitute "between the spouses or former spouses concerned (as the case may be)".

Amendment agreed to.

I move amendment No. 109:

In page 195, line 14, after "(c)” to insert “or (d)”.

Amendment agreed to.

I move amendment No. 110:

In page 195, to delete lines 23 to 42 and substitute the following:

"(3)(a) Where at any time a life policy, or an interest therein, gives rise to benefits in respect of death or disability, the amount or value of such benefits which shall be taken into account for the purposes of determining the amount of a gain under section 730D shall be the excess of the value of the policy or, as the case may be, the interest therein, immediately before that time, over the value of the policy or, as the case may be, the interest therein, immediately after that time.

(b) For the purposes of paragraph (f2>a), the value of a policy or of an interest therein at a time

means

(i) in the case of a policy which has a surrender value, the surrender value of the policy or, as the case may be, of the interest therein, at that time, and,

(ii) in the case of a policy which does not have a surrender value, the market value of the rights or other benefits conferred by the policy or, as the case may be, the interest therein, at that time.

(c) In determining the amount or value of benefits payable under a life policy for the purposes of paragraphs (f2>a) or (f2>b), no account shall be taken of any amount of appropriate tax which may be required by this Chapter to be deducted from such benefits.',”.

Amendment agreed to.

I move amendment No. 111:

In page 199, to delete line 30 and substitute the following:

"111 of Schedule D.

7301.–Where appropriate tax is payable as a result of the death of a person, the amount of such tax; in so far as it has been paid, shall be treated as an amount of capital gains tax paid for the purposes of section 63 of the Finance Act, 1985.'.".

Amendment agreed to.

I move amendment No. 112:

In page 199, to delete lines 36 to 42, and substitute the following:

69.–(1) Section 731 of the Principal Act is amended in subsection (5)–

(a) by the subsection in paragraph (f2>a) for ‘all the issued units in a unit trust' of ‘all the issued units in a unit trust which neither is, nor is deemed to be, an authorised unit trust scheme (within the meaning of the Unit Trusts Act, 1990)', and

(b) by the insertion after paragraph (f2>b) of the following:

(c) Where, by virtue of paragraph (f2>a), gains accruing to a unit trust in a year of assessment are not chargeable gains, then–

(i) the unit trust shall not be chargeable to income tax for that year of assessment, and

(ii) a deposit (within the meaning of section 256(1)), which is an asset of the unit trust, shall not be a relevant deposit (within the meaning of that section) for the purposes of Chapter 4 of Part 8, for that year of assessment.'.

(2) This section shall be deemed to have applied–

(a) as respects paragraph (f2>a), as on and from 1 January 2001, and

(b) as respects paragraph (f2>b), for the year of assessment 2000-2001 and subsequent years of assessment.”.

This amendment is to section 69 of the Bill. In last year's Finance Act I introduced the "gross roll-up" tax regime for collective funds generally. There is, however, a certain class of unit trust which under tax legislation does not come within that regime. These are unit trusts, of which all the unit holders are tax exempt persons such as pension funds or charities. Since the unit holders are themselves exempt, it is provided in section 731 of the Taxes Consolidation Act, 1997, that the unit trust is also exempt from capital gains tax. To avoid an unnecessary tax imposition followed by repayment, there has been a long stand ing practice that the unit trusts are also exempt from income tax. This amendment puts that income tax exemption on a statutory basis and also gives a consequential exemption from deposit interest retention tax. I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 113:

In page 201, to delete lines 7 to 10, and substitute the following:

"(a)(i) there shall be a disposal of an asset if there would be such a disposal for the purposes of the Capital Gains Tax Acts, and

(ii) where, on the death of a person, an asset which the person was competent to dispose, is a material interest in an offshore fund to which this Chapter applies, then, notwithstanding section 573(2)(b), such material interest shall be deemed to be disposed of and reacquired by the person immediately before the death of the person for a consideration equal to its then market value,”.

This amendment is to section 70 of the Bill which relates to the taxation of investments in offshore funds. The taxation treatment of domestic life assurance policies and policies issued from certain other countries has, in so far as possible, been made broadly similar as has the taxation treatment of domestic collective funds and offshore funds based in those countries, that is, other member states of the European Union, member states of the EEA and OECD countries with which we have a double taxation agreement. The amendment makes technical corrections to section 70 of the Bill in order that tax charges can arise in respect of investments in these foreign funds, even on the death of the investor. This is the case with domestic funds. It is also provided that the tax on any income gained from investing in offshore funds cannot be reduced in setting off any losses which the investor may otherwise have available. This levels the playing field with domestic funds which impose an exit tax on payments. Any tax payable on the death of an investor may be set off against any capital acquisitions tax arising on the same event. I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 114:

In page 201, to delete lines 19 to 27, and substitute the following:

"(c) details of a disposal shall be correctly included in a return made by a person, only where details of the disposal are included in a return of income made by the person or, where the person has died his or her executor or administrator, on or before the specified return date for the chargeable period in which the disposal is made.”.

Amendment agreed to.

I move amendment No.115:

In page 203, to delete line 14 and substitute the following:

"as accruing on such disposal.

(4) Where, as a result of a disposal by a person, an amount of income is chargeable to tax under Case IV of Schedule D, that amount shall not be reduced by a claim made by the person–

(a) where the person is not a company, under section 381 or 383,

or

(b) where the person is a company, under section 396 or 399.

(5) Where an individual is chargeable to tax in accordance with subsection (1) in respect of an amount of income–

(a) the tax thereby payable, in so far as it is paid, shall be treated as an amount of capital gains tax paid, for the purposes of section 63 of the Finance Act, 1985, and

(b) that amount of income shall not be included in reckonable income (within the meaning of the Health Contributions Regulations, 1979 (S.I. No. 107 of 1979)) for the purposes of those Regulations.'.”.

Amendment agreed to.

I move amendment No. 116:

In page 203, to delete lines 17 to 28, and substitute the following:

71.–(1) Section 737 of the Principal Act is amended–

(a) by the deletion in subsection (1) by the deletion of the definition of ‘relevant period';

(b) in subsection (2) by the substitution for paragraph (a)(v) of the following paragraph:

‘(v) the aggregate of consideration given for shares which are, at any time on or after 1 February 1996 and before 31 December 2000. assets subject to any trust created under the scheme shall not be less than–

(I) as respects qualifying shares, 55 per cent, and

(II) as respects specified qualifying shares, 10 per cent, of the aggregate of the consideration given for the assets which are at that time subject to any such trust.',

and

(c) by the deletion in subsection (3)(a), by the deletion of subparagraph (iii).”.

This amendment is to section 71 of the Bill which relates to special investment schemes. These schemes were introduced in the Finance Act, 1993, along with other savings products, with the objective of keeping money in the country in light of capital liberalisation. All these products at that time had a favourable 10% tax rate. This product is a unit trust with an investment focus on Irish equities. As there is now no tax advantage attached to this product, I provided in last year's Finance Act that no new investment could be made in them from 1 January last. This amendment provides two further changes. One, the investment focus on Irish equities has been removed, and, two, the condition that the value of the individual's investment be reduced to £75,000 every five years has been removed.

As it is now 10 p.m., I am required to put the following question in accordance with an order of the Dáil of this day:

"That amendments set down by the Minister for Finance and not disposed of are hereby made to the Bill, Fourth Stage is hereby completed and the Bill is hereby passed."

Question put.
The Dáil divided: Tá, 70; Níl, 57.

    Níl

      Tellers: Tá, Deputies S. Brennan and Power; Níl, Deputies Bradford and Stagg.
      Question declared carried.
      Ahern, Michael.
      Ahern, Noel.
      Andrews, David.
      Ardagh, Seán.
      Aylward, Liam.
      Blaney, Harry.
      Brady, Johnny.
      Brady, Martin.
      Brennan, Matt.
      Brennan, Séamus.
      Briscoe, Ben.
      Browne, John (Wexford).
      Byrne, Hugh.
      Callely, Ivor.
      Carey, Pat.
      Collins, Michael.
      Coughlan, Mary.
      Cowen, Brian.
      Cullen, Martin.
      Davern, Noel.
      Dempsey, Noel.
      Dennehy, John.
      Doherty, Seán.
      Ellis, John.
      Fahey, Frank.
      Flood, Chris.
      Foley, Denis.
      Fox, Mildred.
      Gildea, Thomas.
      Hanafin, Mary.
      Haughey, Seán.
      Healy-Rae, Jackie.
      Jacob, Joe.
      Keaveney, Cecilia.
      Kelleher, Billy.
      Kenneally, Brendan.
      Killeen, Tony.
      Kirk, Séamus.
      Kitt, Michael P.
      Kitt, Tom.
      Lawlor, Liam.
      Lenihan, Brian.
      Lenihan, Conor.
      McCreevy, Charlie.
      McDaid, James.
      McGennis, Marian.
      McGuinness, John J.
      Martin, Micheál.
      Moffatt, Thomas.
      Molloy, Robert.
      Moloney, John.
      Moynihan, Michael.
      Ó Cuív, Éamon.
      O'Dea, Willie.
      O'Flynn, Noel.
      O'Hanlon, Rory.
      O'Keeffe, Batt.
      O'Kennedy, Michael.
      O'Rourke, Mary.
      Power, Seán.
      Roche, Dick.
      Smith, Brendan.
      Smith, Michael.
      Treacy, Noel.
      Wade, Eddie.
      Wallace, Dan.
      Wallace, Mary.
      Walsh, Joe.
      Woods, Michael.
      Wright, G. V.
      Allen, Bernard.
      Barrett, Seán.
      Bell, Michael.
      Belton, Louis J.
      Bradford, Paul.
      Broughan, Thomas P.
      Browne, John (Carlow-Kilkenny).
      Burke, Liam.
      Burke, Ulick.
      Carey, Donal.
      Connaughton, Paul.
      Cosgrave, Michael.
      Coveney, Simon.
      Crawford, Seymour.
      Creed, Michael.
      D'Arcy, Michael.
      Deasy, Austin.
      Deenihan, Jimmy.
      Finucane, Michael.
      Fitzgerald, Frances.
      Flanagan, Charles.
      Gilmore, Éamon.
      Gormley, John.
      Higgins, Joe.
      Higgins, Michael.
      Hogan, Philip.
      Howlin, Brendan.
      Kenny, Enda.
      McCormack, Pádraic.
      McDowell, Derek.
      McGahon, Brendan.
      McGrath, Paul.
      Mitchell, Gay.
      Mitchell, Jim.
      Mitchell, Olivia.
      Moynihan-Cronin, Breeda.
      Naughten, Denis.
      Neville, Dan.
      Níl–continuedÓ Caoláin, Caoimhghín.
      O'Keeffe, Jim.
      O'Shea, Brian.
      O'Sullivan, Jan.
      Penrose, William.
      Perry, John.
      Quinn, Ruairí.
      Rabbitte, Pat.
      Reynolds, Gerard.
      Ring, Michael.
      Ryan, Seán.
      Shatter, Alan.
      Sheehan, Patrick.
      Shortall, Róisín.
      Stagg, Emmet.
      Stanton, David.
      Timmins, Billy.
      Upton, Mary.
      Wall, Jack.

      I thank the Members of the House and particularly the Opposition spokespersons for their co-operation during the Finance Bill, Committee and Report Stages of which took a long time. I also thank the officials of my Department and the Revenue Commissioners for their assistance.

      I wish to be associated with the thanks to the officials of the Department of Finance and the Revenue Commissioners. A great deal of work goes into the production of a Finance Bill and I wish to be associated with the Minister's thanks. It is the Minister's fourth Finance Bill and he has been uniquely fortunate in being in power at a time when there were many resources to dispense. While I deplore a huge amount of what he has done, he can at least be satisfied with the knowledge that he has achieved much of what he wanted to do in politics. However, I hope it is all over now.

      The Minister is not finished yet.

      On behalf of the Fine Gael group, I also wish to be associated with the thanks to the officials of the Department of Finance and the Revenue Commissioners for bearing with us for two days this week and two days a previous week. I thank the Minister for his help and co-operation. He makes participation in these debates easy. They are light and entertaining and it is enjoyable. I am not sure whether we should look forward to his December budget or hope somebody else will be in office – the jury is out on that matter at present.

      I thank the staff in the Bills Office who worked until the early hours getting amendments ready.