I move: "That the Bill be now read a Second Time."
As I said in my 2017 Budget Statement, the country has overcome significant challenges which many thought were insurmountable. The lessons of this challenging period must not be forgotten. There is a need to manage the public finances effectively and fairly for the benefit of all. In the programme for Government we decided to favour investment in services over tax changes on a two to one basis in favour of public services. We have also listened to the need for reform of how we do our business. This Finance Bill is focused primarily on implementing the main tax changes announced on budget day. As there are limited resources available for taxation changes, we have sought to make progress, where possible. The budget made changes to USC rates and this is another step in bringing us nearer to phasing out this charge. The changes to the capital acquisitions tax, CAT, thresholds and capital gains tax, CGT, entrepreneur relief are a step forward in moving towards the programme for Government commitments. The Bill, for the most part, reflects the objectives set out in the budget. I am conscious of the need to support the wider business sector, given its importance in terms of employment creation and investment. These budget measures are a good start in how we will help business to deal with Brexit. They are only a start and we recognise that we will have to do more in the future.
First, the Government has retained the reduced VAT rate for the tourism and hospitality sector. Other measures are included in the Bill to extend the special assignee relief programme and the foreign earnings deduction until the end of 2020; to extend the start-your-own business scheme for a further two years; and to improve the revised entrepreneur relief I introduced in budget 2016 by reducing the 20% rate of capital gains tax to 10% on disposals of qualifying assets up to a limit of €1 million in chargeable gains. The Bill also provides for an increase in the earned income credit from €550 to €950 per year. This credit is available to self-employed individuals who do not have access to the PAYE credit and provides support for entrepreneurs and small business owners generating employment and economic activity across the country.
The universal social charge was introduced in 2011 as a measure to broaden the tax base to address the fiscal crisis. Since that time, significant progress has been made in broadening the income tax base in other ways through the curtailment or abolition of reliefs and exemptions. This allowed me to begin to reduce the USC in the last two budgets and now allows me to continue that process in this Bill which provides for the reductions in the three lowest rates of USC announced in the budget.
A Programme for a Partnership Government acknowledges that higher personal tax rates discourage work and jobs. For the third year in a row, the measures introduced in this Finance Bill will reduce the top marginal rate of tax on incomes up to €70,044 per year. Subject to the passing of the Bill, this marginal rate will stand at 49% from January 2017.
From 1 January next year, the Bill will reduce the three lowest rates of USC by 0.5% each. The 1% rate will fall to 0.5%; the 3% rate to 2.5%; and the 5.5% rate to 5%. This will decrease the rate of USC applying on all incomes up to €70,044 in a year, fulfilling our programme for Government commitment to focus tax reductions on low and middle income earners. The Bill also makes a small increase in the ceiling of the band on which the reduced 2.5% rate of USC will be payable to €18,772. This will ensure the salary of a full-time worker on the minimum wage will remain outside the top rates of USC following the increase in the national minimum wage from €9.15 to €9.25 per hour. I am maintaining the threshold for entry into the USC at €13,000. This will maintain the breadth of the income tax base and ensure over two thirds of income earners will continue to contribute towards the provision of public services and social supports for all citizens.
The Bill also provides for an increase in the home carer tax credit to €1,100 per annum to support families where one spouse works primarily in the home to care for children or other dependants. This credit is of benefit to over 80,000 families annually.
The help-to-buy initiative included in the Bill aims to assist first-time buyers of new homes to fund the deposit required under the Central Bank's macro-prudential rules. It takes the form of a rebate of income tax paid in the previous four tax years as a contribution to the deposit needed to fund the purchase of a new home. The amount rebated will be up to a maximum of 5% of the purchase price of a new home up to a value of €400,000, while no rebate will be available for new purchases costing more than €600,000. The amount of rebate available to an applicant is calculated based on his or her total income tax paid in the previous four years. To qualify, the property must be a new build and purchased or self-built as the applicant's principal private residence. By restricting the initiative solely to new builds and new self-builds, it is anticipated that the resulting increase in demand should encourage the construction of such properties.
The help-to-buy scheme as announced on budget day limited it to persons who had mortgages with a minimum 80% loan-to-value ratio. The Central Bank has indicated to the Department of Finance that a sizeable number of first-time buyers take out a mortgage with a loan-to-value ratio of less than 80%. I have, therefore, decided to amend the scheme in order that first-time buyers do not feel compelled to borrow larger amounts in order to qualify. I have set a minimum loan-to-value ratio for the scheme at 70% in the Bill.
As I announced in the budget, the Bill will implement measures in respect of section 110 of the Taxes Consolidation Act 1997. Concerns were raised about the section 110 regime being used by investors in a manner which was never intended. I am, therefore, moving to restrict the use of the regime where transactions involve loans secured on and deriving their value from Irish property. Ireland has always protected its right to tax profits arising from property in the State, as is the international norm. This measure reinforces our taxing rights and will ensure the Irish tax base is appropriately protected, while simultaneously ensuring the section 110 regime will be maintained for bona fide securitisations. The proposed amendment to section 110 applies to profits arising from the holding of financial assets that derive their value from Irish land and property from 6 September 2016 and does not permit the section 110 companies to "mark to market" or revalue their assets at that date. The final proposal, however, does include exemptions which relate to bona fide securitisations such as collateral loan obligations, residential and commercial mortgage-backed security transactions and loan origination businesses.
In a further move to assert our taxing rights over Irish property, I am introducing a new tax regime for Irish funds holding Irish real estate.
Irish real estate funds are investment undertakings, as defined, where 25% of the value of that undertaking is made up of Irish real-estate assets. Where an Irish real estate fund holds 25% or more of its value in Irish real estate assets, the IREF must deduct a 20% withholding tax on certain property distributions to non-resident investors. The withholding tax will not apply to certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings. The proposal will ensure that the Irish tax base will be protected where Irish property transactions are taking place within collective investment vehicles. The amendment will apply to accounting periods beginning on or after 1 January 2017.
Therefore, in terms of the treatment of section 110 and of funds, I think that the changes in the Bill represent the most appropriate balance that can be achieved. I recognise that there may be issues of a technical nature, in particular with regard to Irish real estate funds, which if necessary can be addressed on Committee Stage.
I am conscious of the difficulties in the farming and the agrifood sector driven by changes in world prices, the immediate impact of a fall in the value of sterling arising from Brexit and the difficult weather. Some of the tax changes for the self-employed will also accrue to this sector. The sector will benefit from the following specific tax measures. The flat-rate addition for farmers will increase from 5.2% to 5.4%. Farm-restructuring relief is being extended to 2019. Farmers will be able to step out of income averaging and pay only the tax due on a current-year basis with any deferred tax liability becoming payable over subsequent years. The scheme of accelerated capital allowances for investment in energy-efficient equipment to sole traders is being extended to all non-incorporated businesses and will help businesses in the farming and marine sectors to invest in energy-efficient equipment and receive the full allowances in the first year. An income tax credit is being introduced for fishermen. The €1,270 annual credit will shelter income of up to €6,350, which is the equivalent value of the seafarers' exemption.
In budget 2017, I announced that I was increasing the capital acquisitions tax group A tax-free threshold which applies to gifts and inheritances from a parent to their son or daughter to €310,000. The Bill also allows for an increase in the group B threshold to €32,500 and the group C threshold to €16,250. These increased thresholds are effective from 12 October 2016 and further threshold increases will be considered in the context of the 2018 budget.
I will now go through the Finance Bill measures, but Deputies will appreciate that in the limited time available to me I cannot describe every single section in detail. Part 1 of the Bill deals with universal social charge, income tax, corporation tax and capital gains tax. Sections 2, 3 and 4 provide for the income tax and USC changes that I have just outlined. Section 5 provides for a new tax credit for fishermen to assist the viability of the fishing sector. This will allow those who spend at least 80 days fishing at sea in a tax year to claim an additional income-tax credit of €1,270 per annum.
Section 6 makes a technical amendment to the sportspersons' relief to provide that contributions to PRSAs are treated in the same manner as other pension products. The extension of the home renovation incentive for a further two years is provided for in section 7. Deputies will be aware of how successful this incentive has been to date with more than €1 billion worth of works undertaken on almost 47,000 properties so far.
Section 8 gives effect to the help-to-buy incentive scheme. Section 9 extends the special assignee relief programme until the end of 2020. This programme was due to expire at the end of 2017, but this extension is being announced now in order to provide certainty for the foreign direct investment sector in the context of Brexit.
Also in that context, section 10 provides for the extension of the foreign earnings deduction until the end of 2020. It adds Columbia and Pakistan to the list of qualifying countries and reduces the minimum period required to be spent abroad from 40 to 30 days to ensure that the scheme is more accessible to smaller businesses.
Section 11 extends the start-your-own-business tax relief for new applicants for an additional two years until the end of 2018. This scheme assists long-term unemployed individuals to start a business by giving them an exemption from income tax on profits of up to €40,000 for two years and mirrors that available for corporate start-ups.
An increase in the ceiling for tax-free income under the rent-a-room scheme from €12,000 to €14,000 is provided for in section 12. Deputies will be aware that this incentive aims to encourage homeowners to rent out additional vacant rooms, thereby providing extra residential accommodation.
Section 13 relates to personal retirement savings accounts, PRSAs. Revenue has brought to my attention certain tax-planning opportunities entailing PRSAs that were not envisaged by the legislation. The section will close off the opportunities concerned by amending the legislation to ensure that all PRSA benefits are deemed to commence on the PRSA owner's 75th birthday; it is deemed to become vested PRSAs on that date regardless of whether the benefits commence on that date or at all.
PRSAs which become vested in these circumstances will come within the imputed-distribution regime that applies to vested PRSAs, be treated as a benefit-crystallisation event for standard fund threshold purposes and, on the death of the PRSA owner, pass to a surviving spouse or civil partner under the rules applying to approved retirement funds. Where PRSA owners have, to date, maintained their PRSAs intact beyond their 75th birthday, these will be deemed, subject to transitional arrangements, to vest on the date of passing of Finance Bill 2016.
Section 14 amends the living-city initiative. These changes are being brought forward following a review completed by my officials in consultation with the city councils and others. The changes include the removal of the restriction on the maximum floor size of properties that can qualify, the removal of the requirement for the residential element of the initiative that the property must have been previously used as a dwelling and changes to the minimum amount of expenditure needed to qualify. It also extends the availability of the initiative to landlords in respect of the renovation of rental accommodation in the designated living-city areas.
Section 15 provides for the phased restoration of 100% interest deductibility for landlords of rented residential property over the next five years, the first stage of which will be an increase from 75% to 80% deductibility in the year 2017. This is one of ten housing market support measures announced in budget 2017 to complement the structural measures in the action plan for housing and homelessness.
Section 16 extends the scheme of accelerated capital allowances for energy-efficient equipment to make it available to farmers and all sole traders in addition to corporates.
An amendment to the income averaging regime that allows a farmer's taxable profits to be averaged out over a five-year period is provided for in section 17. The amendment will allow farmers to step out of income averaging in a single year of low income and will be available for the current tax year.
Section 18 and section 27 relate to fishing vessel decommissioning. The Department of Agriculture, Food and the Marine has allocated €16 million in funding under the European Maritime and Fisheries Fund for a vessel decommissioning scheme to remove excess capacity from the Irish fishing fleet. This is intended to meet the Common Fisheries Policy requirement to balance a national fishing fleet with the fishing opportunities available to that fleet.
As part of the policy to encourage decommissioning, an amendment is being introduced that will extend the terms of CGT retirement relief for those receiving compensation under this scheme and will also lengthen the time over which they can pay balancing charges for capital allowances on vessels. These amendments are subject to a commencement date.
Section 19 provides for a technical correction and amendments to the employment and investment incentive, EII, to ensure that the Revenue Commissioners may continue to publish information relating to the companies who raise investments under the incentive. It also retains EII outside the scope of the higher earners restriction. Section 20 provides for the reduction in the rates of deposit interest retention tax, DIRT, from 41% to 33% over a four year period. Section 21 deals with amending section 110 and section 22 introduces the legislation for Irish Real Estate Funds, IREF. Section 23 makes some minor technical amendments to our existing legislation on country-by-country reporting for large multinationals. Section 24 implements EU Directive No. 2015/2376, which is known as DAC 3, into Irish law. The directive extends the automatic exchange of information with other EU member states to include information about taxation rulings and advance pricing arrangements issued by tax authorities.
Section 25 relates to changes to entrepreneur relief. Section 26 seeks to bring sections 579 and 579A of the Taxes Consolidation Act 1997 into line with European Union law. These sections are anti-avoidance provisions designed to prevent the establishment of non-resident trusts for the purposes of avoiding tax. The EU Commission’s Directorate General for Taxation and Customs Union has expressed doubts about the compliance of both sections with European Union law, in that they see them as meaning that the beneficiaries of such trusts are treated less favourably than the beneficiaries of Irish trusts. Section 27 relates to fishing vessel decommissioning, which I referred to in section 18. Section 28 is concerned with farm restructuring. A capital gains tax, CGT, relief for farm restructuring was introduced in budget 2013. It is granted where a more efficient farm holding results from the sale and purchase of land. I announced in budget 2017 that I was extending the deadline for first transactions by three years from end 2016 to 31 December 2019.
I will now turn to section 29. The EU Commission requires Ireland to carry out restoration works on raised bog special areas of conservation and raised bog natural heritage areas. This will require access to certain land, and compensation for this access will be paid to the landowners and the holders of turbary rights on such land. Payments under the scheme will be exempt from CGT. Compensation paid under the scheme from 1 October, 2016 will enjoy this exemption. Sections 30 to 33, inclusive, clarify the requirements for authorisation to operate as a consignor or consignee for excisable products. This section also strengthens the power of the Revenue Commissioners to refuse or revoke authorisation where certain requirements are not met. Section 34 clarifies the powers of Revenue officers to take samples of excisable products while executing search warrants in the investigation of excise offences.
Section 35 gives effect to the increase in the rates of tobacco products tax which came into effect on budget night. This measure is estimated to raise €5.7 million in 2016, and €65 million in a full year. The excise duty on a pack of 20 cigarettes has been increased by 50 cents, including VAT, with a pro rata increase for other tobacco products. This public health measure will bring the price of cigarettes in the most popular price category to €11. Section 36 is a provision for micro-breweries. I am increasing the qualifying ceiling from 30,000 hectolitres to 40,000 hectolitres. The relief remains available on the first 30,000 hectolitres released for consumption in Ireland, but the increased ceiling allows micro-breweries to grow and take advantage of export markets.
Sections 37 to 39, inclusive, set the excise rate at the minimum rate allowable under the EU energy tax directive when applied to natural gas and biogas used as a transport fuel. Sections 40 to 42 give effect to the budget announcement of providing a full carbon tax relief on fuel inputs used in combined heat and power plants to create highly efficient electricity. This section also amends the repayments periods and deadline for claiming the relief. This is subject to a commencement order. Section 43 provides for the extension of vehicle registration tax, VRT, reliefs available for electric vehicles to 31 December 2021 and for hybrid electric vehicles to 31 December 2018.
Part 3 deals with value-added tax, VAT. Section 45 updates the rules regarding VAT deductibility apportionment in relation to VAT inputs relevant to both taxable and non-taxable activities, making it more in line with the EU VAT directive. Section 46 increases the farmers’ flat-rate addition from 5.2% to 5.4% with effect from 1 January 2017, as announced in the budget. In addition, a new anti-avoidance measure is being introduced into the flat-rate farmer scheme.
Part 4 deals with stamp duties. Section 48 will provide an exemption from stamp duties on the conveyance, transfer or lease of land to the National Concert Hall in connection with its functions under the National Cultural Institutions (National Concert Hall) Act 2015. Section 49 refers to the extension of the bank levy. The levy has been in place for the years 2014 to 2016, inclusive, with an anticipated yield of €150 million in each of those years. The current levy is calculated at 35% of an institution’s liability for deposit interest retention tax, DIRT, in 2011. This ensures that the levy relates to the size of an institution’s Irish operation. I announced in my 2016 Budget Statement that I proposed to extend the levy out to 2021, subject to a review taking place of the methodology used to calculate the levy. This section provides the statutory mechanism to achieve this extension and maintain the annual yield. From 2017 the levy will be based on DIRT payments made in a base year which will change every two years. Between 2017 and 2021 the levy is expected to raise €750 million.
Part 5 deals with capital acquisitions tax, CAT. Section 51 relates to changes to CAT tax-free thresholds, which I have already described. Part 6 of the Bill deals with miscellaneous matters. Section 53 is essentially an administrative change relating to the tax treatment of jointly assessed taxpayers. I am always conscious of the need to improve Revenue powers to deal with tax evasion. Based on advice from Revenue, section 54 proposes to amend the existing legislation relating to penalty mitigation and publication so as to exclude any disclosure made in connection with relevant foreign accounts, assets or income, from being a qualifying disclosure where such disclosure is made on or after 1 May 2017. In my budget speech I also advised of my intention to introduce a new strict liability criminal offence to facilitate the prosecution of serious cases of offshore tax evasion. My officials and Revenue are consulting with the Office of the Attorney General on the best way to progress this.
Lastly, section 55 proposes a number of primarily administrative changes in respect of the publication of tax defaulters. There are still a small number of matters under consideration that I may bring forward on Committee Stage. Clearly the process of completing the Bill may be more complex this year, and I will, of course, also give consideration to the suggestions put forward during our debate here over the next few days and in the context of the Finance Bill process and discussions. I commend the Bill to the House and I thank colleagues for their attendance and kind attention.