The Deputy refers specifically to a figure of ‘almost €100 million in relief carried forward’ which he suggests could be offset against tax in future. I assume the Deputy is referring to the information provided in Row 47 of Table 3 of the 2016 Revenue report entitled ‘Analysis of High Income Individuals’, specifically with regard to the 346 cases where excess relief was carried forward under section 485F of the Taxes Consolidation Act, totalling €97,808,596. It should be noted that this table refers to the actual amounts of specified reliefs, including excess relief, that were used in 2016 by those affected by the restriction, not relief which is due to be carried forward in the future.
The High Income Individuals’ Restriction, was announced in Budget 2006 and came into effect from 1 January 2007. The aim of the measure is to limit the use of certain tax reliefs and exemptions, known as ‘specified reliefs’, by those on high incomes. Prior to the introduction of this restriction, such individuals, by means of the cumulative use of various tax incentive reliefs, had been able to reduce their tax liability to very low levels or to zero. The restriction works by limiting the total amount of "specified reliefs" that a high income individual can use to reduce his or her tax liability in any one tax year.
The restriction, as originally introduced, was designed to ensure that individuals with adjusted income exceeding €500,000 paid an effective rate of tax of approximately 20% on that income. Where adjusted income was between €250,000 and €500,000, a tapering system ensured that there was a graduated introduction of the restriction, with the effective rate of tax increasing towards 20% as adjusted income increased towards €500,000.
In Budget 2010, changes to the restriction from the 2010 tax year were announced. Those individuals with adjusted income exceeding €400,000, as a result, now pay an effective income tax rate of approximately 30% on that income, while individuals now become subject to the restriction and the associated taper, where adjusted income is €125,000 or greater and where they claim €80,000 or more in specified reliefs.
The policy intention of the restriction is to seek to improve the balance between promoting tax equity in relation to those on high incomes, while at the same time maintaining the incentive effect of the various tax reliefs which were introduced to achieve a particular public good.
In his question, the Deputy makes reference to the provision under section 485F of the restriction, which allows for the carry-forward of the total amount of relief not used in a particular year as a result of the restriction. This is known as ‘excess relief’.
Section 485F provides that excess relief can be carried forward to the following year (or years) and used as a deduction from the individual’s total income in arriving at his or her taxable income for that year. Other relief to which the individual is entitled, including other specified reliefs for the particular year, is given priority to the excess relief carried forward.
Reliefs carried forward as excess relief lose their character in that they are pooled together in a single amount and the pooled amount is then treated as a separate tax relief in its own right.
It should be noted that the pooled excess relief is treated as a ‘specified relief’ in the year in which it is used for the purposes of deciding whether the restriction applies in that year. As such, the ability to carry-over excess relief does not affect the policy intent of the High Income Individuals’ Restriction, which is to ensure that high income individuals are subject to a certain minimum effective rate of income tax year-on-year. On that basis, I do not propose to amend the restriction as proposed by the Deputy.
