I am very pleased to be in the Seanad today for the Second Stage debate on the Finance Bill 2014. We find ourselves today in a different economic place than we were in when we debated previous Finance Bills. We can now have a debate in the context of a growing economy where thankfully many more people are at work. The strong Exchequer figures which we published on Tuesday are yet one more sign that significant progress is being made. That is not to say that all the challenges within the economy are over. There are still far too many people without a job, but the context and background to this Finance Bill are better than the economic context of Finance Bills in recent years.
When the Government took office, the country was faced with unsustainably high deficits and increasing debt levels. This necessitated a considerable consolidation effort on behalf of the people in recent years. As the Minister for Finance, Deputy Michael Noonan, noted when introducing the Finance Bill in the Dáil, budget 2015 marked the end of that consolidation and confirmed that the public finances have been set on a path to long-term sustainability. Now that our economy has returned to growth, fiscal policy must be implemented to maintain sustainable growth without returning to the boom and bust scenario. A fair, efficient, competitive income tax system is essential for economic growth and job creation. It is the Government’s belief the burden of the income tax system in Ireland is simply too high and is acting as a disincentive to work and to further investment in the country. The income tax measures which form one of the main themes of this Bill are the first stage in a three-year plan to reduce the marginal tax rate progressively on low and middle income earners in a manner that maintains the highly progressive nature of the tax system. The Department of Finance estimates a three-year reform plan along these lines could boost employment levels by as much as 15,000 jobs when the full impact of the changes has taken effect in the economy. I am conscious that we throw a lot of figures around about jobs and sometimes they are large. It is important that when we say 15,000 jobs, we recognise that 15,000 families could potentially benefit from an income package.
The second main theme is the package of measures designed to support the Minister’s budget announcement of several changes to corporation tax as part of our strategy to play fair and play to win.
These changes were not made lightly. The Department consulted widely with all interested parties. This included a broad public consultation process which was launched in May and which fed into the strategy. In terms of playing to win, the Government's commitment to the 12.5% rate of corporation tax was reaffirmed in the Budget Statement. A roadmap for Ireland's tax competitiveness was also published. This roadmap includes measures to enhance Ireland's offering for the development of intangible assets, research and development and income tax and these are being implemented in the Bill before the House. The measures in question were particularly well received by the business community and other drivers of job creation. I hope Senators will agree that we are making significant progress. However, we must sustain and build further on our success in this area to date.
The Finance Bill 2014, as passed by Dáil Éireann, comprises 101 sections and runs to 140 pages. I will now comment on some of those sections. Senators will understand time does not permit me to cover all of them. However, I am sure we will have an opportunity discuss them in more detail as the debate on the Bill proceeds.
Part 1 deals with the universal social charge, USC, income tax, corporation tax and capital gains tax. The Bill provides for a reduction in the top rate of income tax from 41% to 40%. It also extends the standard rate band on which income tax is chargeable at the lower 20% rate by €1,000. Together with the accompanying reductions in the two lower rates of USC and the extension to the threshold at which the latter becomes payable, the budget announcements provided for in the Bill will ensure that all those who currently pay income tax and/or USC, will see a reduction in their tax bill next year. The legislation also provides for the retention of the exemption from the top rates of USC for medical card holders with incomes that do not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%. This reduced rate will also apply to those over 70 years of age whose incomes do not exceed €60,000. Sections 2 and 3 provide for the income tax and USC changes I have just outlined.
Section 6 will insert a new section 204B into the Taxes Consolidation Act 1997 to provide for an exemption from income tax in respect of compensation for living kidney donors. Section 9 increases the threshold for exempt income under the rent-a-room scheme from €10,000 to 12,000 per annum for 2015 and subsequent years.
Section 10 amends section 189A of the Taxes Consolidation Act 1997 to allow the residual funds in a trust held on behalf of individuals who are permanently incapacitated to form part of the estate of the incapacitated individual in the event of their death provided they are survived by a spouse, civil partner or child. Section 467 of the Taxes Consolidation Act provides for tax relief at the marginal rate for expenses incurred by an individual who employs a carer to take care of an incapacitated individual in their own home. In order to further assist with the preferred option of those permanently incapacitated individuals, namely, that they should be able to be cared for in their own homes, section 12 increases the maximum amount of expenditure that qualifies for the relief from €50,000 to €75,000 per annum. This measure will help to free up nursing home and acute hospital beds, as well as respecting the wishes of those who wish to remain in their own homes.
Recognising the success of the home renovation incentive in stimulating activity in the legitimate construction sector and the need to increase and improve the housing stock, section 13 extends the incentive to include rental properties whose owners are liable to income tax in order to encourage them to carry out renovations on or repairs or improvements to their rental properties.
Section 14 amends existing legislation to give effect to the Government stated policy of not allowing Ministers, Ministers of State or the Attorney General to claim the cost of local property tax or water charges as an expense in maintaining a second residence.
As part of a range of measures forming the roadmap to secure Ireland's place as the destination for the best and most successful companies in the world, section 15 extends and enhances the special assignee relief programme for a further three years until 31 December 2017. To further support SMEs and other companies to grow their businesses and diversify into new and emerging markets, the foreign earnings deduction is also being extended and enhanced for a further three years, until 31 December 2017, under section 16.
Section 20 makes a number of amendments to the tax treatment of farmers to give effect to some of the changes announced on budget day, following recommendations in the agri-taxation review. In that context, the section: increases the period of income averaging from three to five years for the years of assessment 2015 onwards; provides for averaging of farming profits where a farmer or his or her spouse carries on another trade provided that trade relates to on-farm diversification; provides for a 50% increase in the amount of income that can be exempted for the purposes of qualifying long-term leases taken out on or after 1 January 2015; introduces a fourth threshold for lease periods of 15 or more years, with income of up to €40,000 being exempted; provides for the removal of the lower age threshold of 40 years of age for eligibility for the long-term leasing tax relief; provides that a company can be an eligible lessee provided it is not connected to the lessor; adds a new third level course to the list of approved courses for eligibility by young trained farmers to claim 100% stock relief; and, following the increase in the EU limits for state aid, provides for an increase in the maximum amount of stock relief allowable for registered farm partnerships to €15,000 over three years. A number of other measures arising from the agri-taxation review are dealt with in later sections.
Section 22 inserts a new section 266A into the Taxes Consolidation Act 1997 to provide for refunds of deposit interest retention tax to first-time purchasers of houses or apartments. The relief applies to first-time purchasers where the property is purchased or self-built. An amendment to facilitate this was introduced during Committee Stage in the Dáil.
As recommended in the 2013 review of Ireland's research and development tax credit carried out by my Department, section 26 provides that the base year restriction will be removed fully for accounting periods commencing on or after 1 January 2015.
Section 27 makes a number of amendments to the legislation providing for the employment and investment incentive, EII. First, the rate of relief is being aligned with the revised income tax rates from 1 January 2015. Second, the minimum required holding period for shares is being increased from three to four years in order to give companies a year longer to utilise the investment before being obliged to make a return to the investor. Third, the limits on the amount of finance that can be raised by a company annually and in a lifetime are being increased to €5 million and €15 million respectively. Fourth, the EII is being amended to include medium-sized enterprises in non-assisted areas, the management and operation of nursing homes and internationally traded financial services, where they are certified by Enterprise Ireland. As the EII and the related seed capital scheme are approved state aids, the measures provided for in the Bill are subject to the approval of the European Commission and are thus being made subject to a commencement order to allow time for approval to be sought and obtained.
Section 31 provides for the end of the 80% rate of income tax on windfall profits attributable to certain planning decisions and to the equivalent rate of capital gains tax on gains from disposals of land also attributable to certain planning decisions. Normal rates of income tax, corporation tax or capital gains tax, as appropriate, will apply to such profits or gains from 1 January 2015.
Section 32 makes changes to the living city initiative and provides for an expenditure cap on the amount that can be claimed under the commercial element of the latter. The cap will be €1.6 million of expenditure for companies and €400,000 for individuals who invest in eligible commercial properties under the initiative. This change means that the initiative comes under EU state aid rules. There will be no expenditure cap on the residential element of the initiative.
Section 39 provides relief from corporation tax on the trading income and certain capital gains of new start-up companies in the first three years of trading. This relief was due to expire at the end of 2014 but the section provides for its extension to the end of 2015. This will allow for a review of the operation of the measure to take place next year, with a view to ensuring this measure meets its policy objective of encouraging start-up business and creating employment.
Section 43 amends Ireland's company tax residence rules to provide that all companies that are incorporated in this country will be automatically tax resident here unless otherwise determined under a bilateral tax treaty which supersedes domestic law. This change will come into effect for new companies from 1 January 2015, while a transition period will apply until the end of 2020 for existing companies. The change will bring Ireland's rules into line with the remainder of the OECD jurisdictions and should address the reputational damage arising from the use of corporate structures commonly referred to as the double Irish. The Minister for Finance has always been clear that the double Irish is not part of the Irish tax offering. It is just one example of the many international tax planning arrangements which have been designed and developed by tax and legal advisers to take advantage of mismatches between the tax rules in two or more countries. However, the reality is that Ireland's company tax residence rules have not kept pace with international developments and being associated with the double Irish is damaging Ireland's reputation. This section was amended on Committee Stage in the Dáil to ensure the transitional period to the end of 2020 will only be available to companies which have real and substantive operations in Ireland at the end of 2014 and not to any shelf companies which might endeavour to make use of it.
Section 49 extends the period within which the first transaction, that is, a sale, purchase or exchange of farmland in a farm restructuring, is to take place for the purpose of the capital gains tax relief from the end of 2015 to the end of 2016. It also amends the definition of "agricultural land" to exclude buildings on such land.
Section 50 amends capital gains tax retirement relief for farmers in a number of respects on foot of the agri-taxation review. The relevant amendments provide for an increase in the total period for which land can be let immediately prior to disposal from 15 to 25 years and, in the case of disposals of farmland outside the family, that land let under conacre arrangements and disposed of on or before 31 December 2016, or which is leased for a minimum period of five years before that date, can qualify for capital gains tax retirement relief on disposal provided the lands were farmed by the farmer for a minimum of ten years prior to letting.
Section 51 gives effect to the commitment the Minister made earlier this year to provide for an exemption from capital gains tax on any chargeable gains arising on foot of the disposal by farmers of payment entitlements under the single farm payment scheme, where these entitlements were fully leased out and the farmers concerned had no choice but to sell their payment entitlements due to changes in Common Agricultural Policy regulations.
Section 52 amends the capital gains tax entrepreneur relief which the Minister introduced in last year's budget and Finance Act and allows for the commencement of the relief from the beginning of 2014. The section also includes amendments to allow the relief to operate more effectively.
Part 2 deals with excise. Section 56 amends the mineral oil tax law under Chapter 1 of Part 2 of the Finance Act 1999 to provide for the taxation of natural gas and biogas when used as road transport fuel. These fuels, known as vehicle gas, will be subject to the minimum energy tax rates provided for under the energy tax directive. It is expected that, among other benefits, this measure will reduce Ireland's CO2 transport emissions as natural gas is a cleaner fuel than oil products, increase national competitiveness through reduced energy costs for freight companies and public transport providers, enhance security of supply by reducing Ireland's overwhelming dependence on oil in transport, and create opportunities to increase renewable energy through the development of biomethane on a more commercial basis.
Section 59 amends section 78A of Chapter 1 of Part 2 of the Finance Act 2003 which provides relief from alcohol products tax for beer brewed in small breweries. As the Minister said in his Budget Statement, micro-breweries have been a success story in recent years, expanding their market share and providing significant employment throughout the country. Some are now poised to make significant inroads overseas. However, the cap of 20,000 hectolitres presents a significant barrier to this expansion. To facilitate the growth of this sector, the proposed amendment provides for an increase in the volume of beer qualifying for relief from 20,000 to 30,000 hectolitres per annum, and for corresponding increases in the production levels determining eligibility for the relief.
Part 3 deals with value added tax. Section 67 increases the farmer's flat-rate addition from 5% to 5.2% with effect from 1 January 2015, as announced in the budget. Section 71 extends the VAT exemption to the management of defined contribution pension funds and to green fees charged by member-owned golf clubs, both changes resulting from decisions of the European Court of Justice. Section 71 also extends VAT exemption to all fostering services and extends the zero rate of VAT on unprepared tea to include herbal and fruit teas.
Part 4 deals with stamp duties. Section 74 inserts a new section 81D in the Stamp Duties Consolidation Act 1999. The section provides relief from stamp duty for a term not less than six years and not exceeding 35 years to an active farmer on a lease of land that is used exclusively for farming carried on by the lessee on a commercial basis and with a view to the realisation of profits.
Section 77 amends paragraph (5) of Schedule 1 to the Stamp Duties Consolidation Act 1999 and provides that, for a period of three years, relief will be available in respect of transfers or conveyances of farmland where the party to whom the land is transferred or conveyed is an active farmer who farms the land on a commercial basis for a period of not less than six years and with a view to the realisation of profits or leases the land to an active farmer for a period of not less than six years and which farmer farms the land on a commercial basis and with a view to the realisation of profits.
Section 78 adds an additional qualification for the purposes of the young trained farmer relief in section 81AA of the Stamp Duties Consolidation Act 1999 to the list of qualifications in paragraph 2 of Schedule 2B to that Act. The new qualification is the BSc (Hons) in sustainable agriculture.
Part 5 deals with capital acquisitions tax. Section 81 relates to the exemption from capital acquisitions tax of normal and reasonable payments made for the support, maintenance or education of children by their parents. The section restricts the exemption for payments made by living parents for these purposes to children up to the age of 25 years if in full-time education and also extends the exemption in the case of payments made from a trust set up by a deceased parent to orphaned children up to the age of 25 if in full-time education, where such payments were up to now only exempt if made to minor orphaned children. The exemption expressly applies to a child who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity.
Section 82 also arises from the agri-taxation review. It amends the definition of a farmer for the purpose of the relief from capital acquisitions tax on gifts or inheritances of agricultural property in order to target the relief at individuals who will actively farm agricultural property themselves or who will lease such property on a long-term basis to active farmers. Senators may be aware that, following concerns expressed by stakeholders and in the other House, the definition of farmer in the published Finance Bill was amended on Committee Stage, with similar amendments to stamp duty measures.
Section 83 amends the relief from capital acquisitions tax applying to the gift or inheritance of business assets which is intended to encourage the intergenerational transfer of businesses.
Part 6 deals with miscellaneous provisions. I wish to highlight one measure. Section 87 and Schedule 1 amend the general anti-avoidance legislation in the Taxes Consolidation Act 1997. As a transitional measure, it also provides that a person who entered into a tax avoidance transaction on or before 23 October 2014 and who, before 30 June 2015, makes a full disclosure and full payment of all tax due to the Revenue Commissioners will not be subject to the surcharge provided for in section 811A. Any interest payable in cases covered by the transitional measures will be capped at 80% of the interest otherwise payable.
I hope Senators have found useful this explanation of the measures in Finance Bill 2014. I look forward to the debate we are going to have on Second Stage and further Stages in this House. I commend the Bill to the Seanad.