Dáil Éireann Debate, Thursday - 2 October 2014
29. Deputy Dara Calleary asked the Minister for Finance his views on the way capital taxes may be reformed to distinguish between passive and active investment; and if he will make a statement on the matter. [37061/14]
View answerI assume from the Deputy's references to capital taxes and investment that his question relates to capital gains tax (CGT).
The rate of CGT is currently 33% and has been increased four times since 2008 when it stood at 20%. These rate increases were necessary to protect the yield from CGT in the context of the rebalancing of the public finances. An increase in the taxation of capital is preferable from the point of view of its impact on the economy as compared to an increase in employment taxes such as income tax.
In common with all taxes, CGT is subject to on-going review and all reliefs and exemptions are carefully considered. In the circumstances in which we have found ourselves in recent years, and as opposed to embedding major long-term changes to the tax system which might prove controversial, divisive or unworkable, the approach (particularly in CGT) has increasingly been to introduce changes which are targeted and which apply for short-term periods to achieve focused outcomes.
For example, a CGT relief was introduced in Budget and Finance Act 2012 to incentivise the purchase of property between 7 December 2011 and the end of 2013 with the intention of stimulating activity in the property market. The incentive was subsequently extended to property purchased to the end of 2014. I stated recently that this relief will not be extended further as it has served its purpose.
The incentive applies to industrial, farmland, commercial and residential (buy-to-let) property (land and buildings) purchased to the end of this year. If the property is held for more than 7 years, the capital gains attributable to those 7 years will be exempt from CGT on a proportionate basis relative to the period of ownership. Property sold within the 7 year period subsequent to purchase will not qualify for relief.
Relief for farm restructuring was introduced in Finance Act 2013 on disposals of farm land for the purpose of farm restructuring or consolidation. The relief applies to a sale, purchase or exchange of agricultural land in the period from 1 January 2013 to 31 December 2015 where Teagasc has certified that a sale and purchase or an exchange of agricultural land was made for farm restructuring purposes.
Section 45 of Finance (No 2) Act of 2013 provides for a CGT relief for entrepreneurs who reinvest the proceeds from the disposal of assets made on or after 1 January 2010 in certain chargeable business assets. Commencement of the legislative provisions is subject to EU state-aid approval. Discussions with the EU Commission about State Aid clearance are ongoing. I hope that these will result in a positive outcome in the near future. Notwithstanding that the legislative provisions have yet to be commenced, the CGT relief will only apply, among other conditions, where new chargeable business assets acquired after 1 January 2014 and up to end- December 2018 are disposed of having been held for a minimum period of 3 years after acquisition in that period.
Over the years other reliefs that had been in place for a number of years were reviewed and abolished or restricted. These included roll-over relief and indexation relief. The relevance of these reliefs had to be weighed against what they were achieving, the cost of the reliefs and the opportunities for providing other more relevant relieving measures.
In the context of this year's Budget and Finance Bill process, I will again consider what changes can be made to the CGT regime in order to encourage and facilitate investment in our improving economic environment.
