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Tax Code.

Dáil Éireann Debate, Thursday - 14 October 2004

Thursday, 14 October 2004

Questions (95, 96, 97, 98, 99, 100)

Michael Ring

Question:

95 Mr. Ring asked the Minister for Finance if he will consider the exemption of capital gains tax on the disposal of assets to the extent that the proceeds are invested in full into an approved retirement fund for retirement income in the farming sector. [24935/04]

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Written answers

Capital gains tax, or CGT, is a tax on a capital gain arising on the disposal of assets. A 20% rate of CGT applies on the gains arising on the disposal of assets. As the Deputy may be aware, the rate was halved from 40% to 20% in budget 1998. Reliefs and exemptions made sense when CGT rates were 40% and above. The current position is in accordance with the overall taxation policy of widening the tax base in order to keep direct tax rates low.

The Deputy mentions investment in an approved retirement fund. He may be referring to the pension product known as an ARF. This is a post-retirement product which is an alternative to an annuity as an income source in retirement. A pension product such as a retirement annuity contract may be transferred into an ARF on retirement in certain circumstances. Generous tax relief is already available for contributions to retirement annuities in the form of marginal income tax relief. To exempt the moneys involved from capital gains tax as well would be affording relief on the double which would be excessively generous.

Michael Ring

Question:

96 Mr. Ring asked the Minister for Finance if he will introduce a special environmental protection expenditure tax allowance to give farmers the option of deducting 100% of the net grant expenditure on environmental protection facilities against income with an option to claim a lesser deduction to the extent that the total cost of the investment may be written off over a three year period. [24936/04]

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To encourage investment in environmental protection in the farming sector, a scheme of improved capital allowances in respect of expenditure incurred on buildings or structures necessary for the control of pollution was introduced for a three year period from 6 April 1997. This relief was extended for three years in the Finance Act 2000 and a further three years in the Finance Act 2004 until 31 December 2006.

The relief has been improved since its original introduction. The ceiling on the maximum amount which can be claimed in the first year was increased from €12,700 to €19,050 in the Finance Act 1998 and to €31,750 in the Finance Act 2000. A more flexible writing down arrangement was introduced in the Finance Act 2000 whereby the writing down period was reduced from eight to seven years. These writing down arrangements allow farmers, in respect of expenditure incurred on or after 6 April 2000, to elect to have allowances granted over the writing down period at 15% for the first six years and 10% in year seven. Alternatively, farmers can elect to claim the 50% year one allowance in whole or in part at any time over the seven year writing down period, subject to a cap of €31,750 on the amount which can be written down in any one year. The remaining expenditure is claimed as normal at 15% for the first six years and 10% in the final year of the writing down period. Farmers elect which of the two types of writing down arrangement they wish to avail of when they first make a claim for this relief.

I consider that this relief is already very generous in scope. However, as is customary, I can make no further comment on the intention or otherwise to make changes in taxation in the lead up to the annual budget and Finance Bill.

Michael Ring

Question:

97 Mr. Ring asked the Minister for Finance if he will introduce a significant increase in the flat VAT refund to non-VAT registered farmers from its current 4.4% level to over 5.3%. [24937/04]

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The flat rate refund for unregistered farmers is examined every year in the context of the budget. It is not customary for me to comment on any possible changes to the existing rate which may arise in the context of the forthcoming budget.

The flat rate VAT refund is a simple administrative system designed to compensate farmers who are not registered for VAT for the VAT they incur as part of their farming activities. The calculation of the flat rate is governed by EU VAT law and is based on the relevant macroeconomic data for the farming sector for the previous three years. The macroeconomic information is drawn from statistics on agricultural production, agricultural inputs and the deductible VAT content of such inputs. The flat rate is arrived at by calculating the VAT payable by unregistered farmers on agricultural inputs as a percentage of the value of agricultural sales by these farmers.

Michael Ring

Question:

98 Mr. Ring asked the Minister for Finance if he will extend the PAYE tax credit to all taxpayers through increases in personal tax credits to benefit farmers and other self employed taxpayers. [24938/04]

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The PAYE allowance, as it was then, was introduced in 1980 to improve the tax progression of PAYE taxpayers and to take account of the fact that the self employed generally then had the advantage of paying tax on a preceding year basis. The argument was also made at the time that the general scheme of allowances discriminated against employees and in favour of other taxpayers.

There have been changes since 1980 — the self employed now pay tax on a current year basis, for example. However, the PAYE allowance has become a tax credit. Moreover, given that there can be significant timing advantages in the payment of tax for the self employed, the employee credit is still perceived as necessary to ensure a balance in the system. It would be inappropriate to comment in the lead up to the annual budget and Finance Bill on tax measures which may or may not be made.

Michael Ring

Question:

99 Mr. Ring asked the Minister for Finance if he will extend the relief from stamp duty on the purchase of farm land by trained farmers to farmers below the age of 55. [24939/04]

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The stamp duty code contains full stamp duty relief for transfers of land to young trained farmers where land is transferred to them by way of gift or sale, provided they have attained relevant educational qualifications. This exemption encourages the more productive use of agricultural land. The availability of the relief was extended in budget 2003 for a further three years to 31 December 2005. The Finance Act 2004 provided for an updated list of educational qualifications and contained changes which resulted in the raising of the standards of certain of those qualifications which must be attained in order to qualify for the relief.

The relief, which is considered generous, is intended to encourage the transfer of land to young farmers who have successfully undergone training. The young trained farmer must be under 35 years of age at the date of execution of the transfer to satisfy the conditions for the stamp duty relief. The relief specifically focuses on young farmers with relevant training, and the current age limit and qualification requirements in respect of this relief are considered very reasonable. Any extension would dilute the focus of the relief.

It is not the practice to comment in the lead up to the annual budget and Finance Bill on the intention or otherwise to make changes in taxation.

Michael Ring

Question:

100 Mr. Ring asked the Minister for Finance if he will consider exempting capital gains tax on the disposal of land by committed farmers where the proceeds of the disposal are utilised to consolidate holdings and are applied in the acquisition of other farm land to achieve this within a specified period. [24940/04]

View answer

Capital gains tax, CGT, is a tax on a capital gain arising on the disposal of assets. A 20% rate of CGT applies on the gains arising on the disposal of assets, including farm land.

It was announced in the 2003 budget that no roll-over relief would be allowed for any purpose on gains arising from disposals on or after 4 December 2002. This relief was introduced when CGT rates were much higher than current levels. In effect, it was a deferral of tax to be paid, where the proceeds of disposal were re-invested into replacement assets. The taxation of these gains would take place following the eventual disposal of the new assets without their replacement.

The abolition of this relief was in accordance with the overall taxation policy of widening the tax base in order to keep direct tax rates low. Such reliefs and allowances made sense when CGT rates were 40% and above. As the Deputy may be aware, the rate was halved from 40% to 20% in budget 1998. Taxing capital gains when they are realised is the most logical time to do so, and this change brought CGT into line with other areas.

It is not the practice to comment in the lead up to the annual budget and Finance Bill on the intention or otherwise to make changes in taxation.

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