I have to advise the Select Committee that the Chairman is unavoidably detained, and in the circumstances, we must elect a temporary chairman. May I have nominations, please?
Election of Chairman.
Clerk to the Select Committee
I propose Deputy McCormack.
Deputy McCormack took the Chair.
Finance Bill, 1996: Committee Stage (Resumed).
Section 49 agreed to.
NEW SECTION.
I move amendment No. 62:
In page 75, before section 50, to insert the following new section:
50.—(1) Section 26 of the Capital Gains Tax Act, 1975, is hereby amended in subsection (6)(a) by the insertion in the definition of ‘family company' of the following proviso:
‘Provided that where a company which is a holding company, would not, but for this proviso, be an individual's family company, but would be such a company if the individual had not at any time on or after the 6th day of April, 1987, and before the 6th day of April, 1990, disposed of shares in the company to a child (within the meaning of section 27) of the individual, the company shall be deemed to be the individuals family company;.
(2) This section shall apply and have effect as on and from the 23rd day of April, 1996..
The purpose of this amendment is to amend section 26 of the Capital Gains Tax Act, 1975. This section provides relief known as retirement relief for individuals who are aged 55 and over who wish to dispose of a business or shares in the same or in a farm. Under the 1990 Finance Act, the availability of retirement relief was extended to include the transfer of shares in a family holding company. However, to qualify for the relief scheme the individual must, at the time of disposal, have controlled 25 per cent of the voting rights in the family company or not less than 10 per cent where the family controls not less than 75 per cent of the company in question. It has been brought to my attention that a situation can arise where an individual who disposed of shares in a family holding company prior to the 1990 change, to the extent that they now no longer retain control of 25 per cent of the voting rights or 10 per cent if the family controls less than 75 per cent, would not qualify for the retirement relief if he or she disposed of the remaining shares to a child. This position is undesirable and serves to discourage individuals from passing on their shares in a family business to a child.
To improve the position, I have decided to introduce this amendment which will assist individuals who, in the three years prior to 1990, reduced their shareholdings in their family companies by transfer to a child with the result that the company could no longer qualify as a family company. This amendment will deem in these circumstances that such a company will be a family company for the purposes of the retirement relief. I recommend it to the committee.
The reliefs in capital gains tax, capital acquisitions tax, gift tax and inheritance tax in relation to transfers of family businesses, farms, etc. over the past number of years have been welcome. The Minister is moving in the right direction.
A number of similar refinements in different guises will come through and we have moved the figure from 50 per cent to 75 per cent with more stringent qualifications. This issue has been raised by a number of people. In my first budget speech I talked about ensuring that family businesses could pass safely from one generation to another. The amount of money we get from capital acquisitions tax is small, yet the amount of tax planning in which family businesses must engage to avoid being hit is substantial. If the founding father is old, the quality of management is declining and he is slow to release managerial control, the company becomes vulnerable. Approximately 50 per cent of family businesses do not get through successfully to the second generation. Without dislodging the equity base of the taxation system, we need to ensure that our capital gains tax and capital acquisitions tax does not impose a burden on a family business at the point of transfer from one generation to another. These amendments seek to do that.
We are talking about capital gains tax. What are the Minister's views on lowering the rate of capital gains tax or does he think the current rate is sufficient? He talked earlier about lowering the rates of income tax.
I want to maximise the amount of tax paid to reduce our overall deficit. However, in principle, where a capital gain has been made and the proceeds are being reinvested, I would be disposed to having the lowest level of capital gains tax, commensurate with the other constraints under which a Minister for Finance must operate. If somebody is making a once-off killing on a short term investment, then the rate of capital gains should be relatively high. Over a longer period of time it should be reduced, but we can discuss that on the relevant sections.
Amendment agreed to.
Section 50 agreed to.