Dáil Éireann Debate, Tuesday - 28 January 2014
200. Deputy Michael Creed asked the Minister for Finance the way an entrepreneur can avail of a new capital gains tax incentive, having disposed of an asset to put towards financing of a new business; and if he will make a statement on the matter. [3836/14]
View answerI announced in Budget 2014 a capital gains tax relief for entrepreneurs who reinvest the proceeds from the disposal of assets made on or after 1 January 2010 in certain chargeable business assets. The necessary legislation governing this relief is included in Section 45 of Finance (No 2) Act of 2013. Commencement of the relief is subject to EU state-aid approval.
Subject to EU approval, the relief will apply from 1 January 2014 to individual entrepreneurs:
- Who have made disposals of assets since 1 January 2010 on which they have paid capital gains tax;
- Who invest at least €10,000, in the period from 1 January 2014 to 31 December 2018, in acquiring chargeable business assets that will be used in a new business and
- Who subsequently (after a minimum period of 3 years) dispose of those chargeable business assets at a gain giving rise to a capital gains tax liability.
The relief will be given on the tax due on any chargeable gain arising on the subsequent disposal of the chargeable assets after a minimum period of 3 years and will amount to the lower of:
- the full amount of capital gains tax paid on the initial disposal made since 1 January 2010 or
- 50% of the CGT payable on the disposal of the new chargeable business assets.
If an entrepreneur reinvests the proceeds of that subsequent disposal in a further new business, the relief can also apply on a subsequent disposal of the chargeable business assets of that further new business. Where less than the full proceeds of a disposal on which capital gains tax has been paid are reinvested, only that proportion of the capital gains tax relative to the amount reinvested will qualify for relief. The relief will be given in the form of a tax credit equal to the lower of the capital gains tax paid on the disposal of assets made on or after 1 January 2010 or 50% of the capital gains tax on any gain from the future disposal of the chargeable business assets. Subject to the legislation governing the entrepreneur relief coming into operation, I am informed by the Revenue Commissioners that, where an individual makes a disposal of a chargeable business asset that qualifies for the relief, details of the disposal and chargeable gain made should be included on the individual's tax return for the year in which they occur. The tax return will also include a facility to claim the appropriate entrepreneur relief. The following additional definitions and notes are relevant to the relief:
"Chargeable business assets" for the purposes of this relief mean: assets used wholly for the purposes of a new business carried on by an individual, or new ordinary shares issued on or after 1 January 2014 in a qualifying company over which the shareholder has control and in which the shareholder is a full-time working director.
Chargeable business assets exclude assets that are held as passive investments.
- "Full-time working director" is defined as meaning a director who is required to devote substantially the whole of his or her time to the service of the company in a managerial or technical capacity.
A "qualifying company" is defined as meaning a company which is a micro, small or medium-sized enterprise as defined in Article 2 of the Annex to European Commission Recommendation of 6 May 2003 essentially one which employs fewer than 250 persons and which has an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.
"New business" must be a business carrying on relevant trading activities which comprise
- activities which come within the scope of the Employment and Investment Incentive Scheme that is, activities carried on in the course of a trade the profits or gains of which are charged to tax under Case I of Schedule D (subject to the exclusions described in the next paragraph) or
- farming of farm land in the State wholly or mainly occupied for the purposes of husbandry, other than market gardening and that were not previously carried on by the entrepreneur or by anyone connected with the entrepreneur.
The trading activities that are excluded from the relief are:
- Dealing in commodities or futures or in shares, securities or other financial assets,
- Financing activities,
- Dealing in or developing land,
- Occupation of commercially managed woodlands in the State,
- Operation or managing hotels, guest houses, self catering accommodation or comparable establishments or managing property used as an hotel, guest house, self catering accommodation or comparable establishment, to the extent that they are not "tourist traffic undertakings",
- Operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home,
- Operations carried on in the coal industry or in steel and shipbuilding sectors,
- Film production,
- The provision of professional and similar-type services or facilities by closely controlled companies whose income from such activities, if they had no other sources of income, would be subject to surcharge if not distributed,
- Occasional or once-off activities which, although technically trades for the purposes of assessment of any profits arising from them, would not be regarded as trades in the common sense of the term.
Tourist traffic undertakings means the operation of tourist accommodation facilities for which Fáilte Ireland (the National Tourism Development Authority ) maintains a register, the operation of such other classes of facilities as may be approved of for the purpose of the Employment and Investment Incentive Scheme by the Minister for Finance, in consultation with the Minister for Tourism, Culture and Sport, on the recommendation of Fáilte Ireland, or the promotion outside the State of any of the foregoing facilities.
