I move amendment No. 88:
In page 110, subsection (1)(a), line 27, to delete "bloodstock" and substitute "bloodstock,".
This is a technical amendment.
SECTION 110.
Amendment agreed to.
I move amendment No. 89:
In page 110, subsection (1), lines 32 to 47, and in page 111, lines 1 to 3, to delete paragraph (c).
This amendment deals with the value of agricultural property as it relates to capital acquisitions tax. I am trying to achieve a substantial increase in this value. While the relief has been improved, my amendment would improve it further.
I understand this amendment is concerned with agricultural relief only. It proposes to restrict the clawback to the current six year period. Deputy McCreevy also opposes section 115 of the Bill which, in effect, increase the clawback period for business relief from six to ten years. As both issues are essentially the same, I propose, subject to your agreement, Sir, to take them together.
Chairman
Is that agreed? Agreed.
The present scale of business and agricultural relief, at a flat 75 per cent rate without limit, is extremely generous. For example, a farmer or business person can pass on farming or business assets worth almost £750,000 to each child without generating any CAT liability. The whole purpose of extending business and agricultural relief is to facilitate the passing on of a genuine family business or farm and, as far as possible, to allow them to keep it within the family. Given the potential scale of the relief, I consider it entirely appropriate to extend the clawback period from six to ten years where the new 75 per cent relief applies; we already had a discussion about this matter earlier.
While the entire relief should strictly be clawed back where a sale takes place within ten years, I am mindful of the fact that new blood and capital may sometimes be needed for the good of the enterprises concerned. Deputy McCreevy will note that where a sale takes place after six years and before ten years, I am restricting the clawback to the amount of the extra relief; it is proportionate.
This is entirely reasonable in the context of a significant increase in the relief and it should meet the requirements of small businesses and family farms at the present time.
My purpose in putting down these amendments was to afford the Minister the opportunity to comment on capital acquisitions tax. There was some interest in his Second Stage speech when he said it was not his long-term intention to go down the United Kingdom route, which was the abolishing of capital acquisitions tax per se.
I often get into trouble with my party when I praise the Government. However, the Minister has gone in this and last year's budgets a considerable way towards making it easier for businesses to transfer to the next generation. The Minister said the failure rate in businesses transferred from one generation to the next has been high. With regard to agricultural property, these changes have definitely facilitated the owners' position and given a large amount or relief.
As the Minister said, the value of assets that can be transferred from father to son is generous in the Irish context. That is why I was interested to hear him say on Second Stage that having given all these reliefs, he is not prepared to go the whole hog. This indicates he is lessening the impact of this tax as it relates to family businesses. I wanted to afford him the opportunity of giving his views in this area.
It is now time for the other side to respond. We are in an unclearly defined and demarcated area. This involves many businesses, particularly relatively new Irish ones as distinct from the traditional family farm, although they are all covered by the same set of tax provisions. We are dealing with entirely different economic entities. I confess that the focus of my concern has been with the family business and modern farm as distinct from the family farm.
We have made two significant changes in two years. The present provision containing the 75 per cent relief and the clawback over ten years as against six years have been significantly relaxed. That should logically trigger some kind of response in terms of a generational transfer from one family group to another and I would like to see what happens. On one hand we have the point about equity that the Chairman has made on a number of occasions and on the other the effect on the tax base. While the volume of tax in this area is not terribly large, it has a demonstration effect in terms of equity and equal treatment.
We have responded to many of the concerns expressed by the family business constituency. There is no reason now why many businesses held in family trusts, or businesses where the owner has in the first generation decided to stay in the driving seat for a long time because he did not want to pass the business on, could not be transferred to the next generation. Many of the taxation penalties that were perceived to be there are no longer there, or have been considerably if not dramatically reduced. I have delivered substantially on my part of the equation and I would like to see the response from the market place. Therefore I do not propose to go any further.
Have you an ethical or policy position for or against capital acquisitions tax?
No. I have a distrust of inherited wealth; it is very debilitating. I have never received any.
I agree. I never inherited anything either. The only time I was in danger of inheriting anything, my benefactor wrote in her will that she had always looked after me very well, which was true.
The one constant value one can give to one's children is education.
I agree with that.
Attitude is also important. However, education is certainly an external good that one can give to one's children.
I make the distinction — I have consistently made this distinction — that there are opportunities to tax the capital wealth base of a society at certain points as part and parcel of the resource of the society that is subject to tax, just as income is taxed. Where that capital base is passive and not being used productively it should attract a taxation level. However, where that capital base is tied up in a family enterprise and is generating wealth or sustaining employment, the transfer from one generation to another should not of itself trigger off a financial penalty. In some cases such a financial penalty imposes an enormous load on the cash flow of the company, obliging the family either to go heavily into debt to pay the tax or alternatively to sell off some of the assets, some of which will be critical to the operation of the business.
I am making the clear distinction in my mind, in view of my philosophical and political background, between capital that is actively and productively utilised as distinct from passive capital, which is simply a present from one generation to another. The present is fair game for taxation, whereas active capital that is involving and employing the activities of the family, and perhaps members of the extended family or strangers who are employed by the company, is not. That enterprise should not be endangered by an onerous capital acquisitions tax regime, because we do not have enough small indigenous businesses in this country and, according to the statistics available to us, we have a fairly high attrition rate moving from one generation to another.
I wish to make two points, one of a technical nature, which I would advise the Minister and his officials to try and act on in the near future, and one of a general nature about capital acquisitions tax. This is not an area of taxation that ordinary chartered accountants in practice would be dealing with very frequently; solicitors and barristers usually deal with it.
According to my limited knowledge of it, the rules have been changed so much over a period of years that it is a minefield. It has desperate complications, almost as many as the social welfare legislation. With all the rules, you would need a compass to get around it. Perhaps the Minister could continue the process of consolidating the legislation, when he is doing so in regard to income tax, which would be a great help to everybody. A new Bill which would simplify the antiquated phrases and sentencing might be necessary and I advise the Minister to set that in train. I am sure this would be welcomed by the Revenue Commissioners and by practitioners in the area.
I take on board what the Minister says. I can see the logic of his viewpoint, his political background and his general political philosophy. Perhaps 20 years ago I would have been convinced, but I am not so convinced anymore about the principle of capital acquisitions taxation. Bearing in mind what the Chairman has said and the strictures about continuously narrowing the taxation base, I would be loathe to make any significant changes in this regard until we have widened the taxation base somewhat. This will have to be done in time to come. I do not know whether the Minister, Deputy Quinn, or I will be in Leinster House or otherwise engaged when it is done, but it will have to be faced by some Government in the near future. Other jurisdictions have had a more liberal taxation regime and it has been to the benefit of all elements of those societies. However, you have to wait for time. I am not referring to the UK in this particular instance.
I echo what the Minister said in relation to the family farm and the changes that have been made over the last few years. I have been lobbied a lot on this, particularly by Macra na Feirme people in my own area. The response from the Department of Finance has been very positive and there has been a recognition, in particular from this Minister, in that regard. I find the farming organisations somewhat frustrating at times. They are quick to tell everybody what they want but when they get something they can be slow to get the message out. A response is required within the national farming organisations themselves to recognise the changes that have been made and to recognise the benefits in getting the younger members of their families involved directly in control and development of the farms.
There is a hunger among the younger generation, coupled with a tremendous education base, which was not there before, of many levels of skills, and not just in the core farming area. They can bring a lot to the business because of their wider educational knowledge and skills. The Minister is right when he says the response is there and it is up to those who, for tax reasons or whatever, did not get the younger generation directly involved in ownership and development of their farms themselves to do so now. That must happen. I am disappointed in the farming organisations. They got into this and must now take up what has been lobbied for and what has now been given. I agree with the Minister and I hope the farming organisations take these opportunities to get the younger generation involved. Irish agriculture will benefit greatly if they respond to what has been created in the Finance Acts. I appreciate what the Minister has done.
I note what Deputy Cullen has said. Perhaps my colleagues from the Revenue Commissioners might consider — they have an excellent communications division — ways in which that information can be conveyed to farming interests and to the various outlets or points of contact that the farming community will have with the tax system. These opportunities are all too infrequent, from my point of view. It is unusual to catch a farmer paying tax, but on those occasions and in those locations where they do pay tax — I am being somewhat flippant and I have to correct myself in case I am causing offence — we should look at ways in which it can be communicated. I suspect that some people who now know that the penalty cost of transferring the farm from one generation to another is far less than it previously was may be somewhat reluctant to let go. That time will come to us all, I am told.
I accept that, but it still must happen.
It is quite amazing how these things cross one's mind during one's 40s. It did not cross my mind or Deputy Quinn's mind when we came to this House 20 years ago. Now that these things are transferring on, it somehow crosses one's mind.
In respect of stamp duty and relief for young trained farmers on gift transfers, etc., the information has been conveyed fairly effectively by the Revenue Commissioners. Maybe they might explore that proven path and continue it.
I want to say a few words on this matter because it is almost 20 years since I, as a young student, was involved in a study to evaluate and enumerate the factors involved in prohibiting farmers from transferring their family holdings.
The Deputy spent some of that time in my household.
Yes. Another McCreevy was at my arm at that particular stage.
Basically, over the last few years all Governments of whatever hue have been generous in removing the obstacles and what were perceived as inhibitions in relation to transferring the family farm, in particular, and inter-family farm transfers are certainly taking place at a greater pace than they did heretofore.
There was a deep reluctance to pass on the family farm because there was a reluctance to hand on the reins of power which was endemic in Ireland in the 1970s and early 1980's but it is certainly less of a problem now in my estimation. I agree with Deputy Cullen that if the market value of an asset is reduced by 75 per cent, it is significant and a major fillip to encourage transfers at an early age. In my area, where I undertook the study, there were a tremendous number of bachelor farmers who might have a nephew, a niece or whatever and it was the taxation implication which was a major impediment to their desire to transfer the farm. The whole matter is well tied up, because the quicker we transfer holdings from those over 55 to younger people the better. There is a very educated young farming public coming on, especially those who have done the 100 hour green certificate courses. They need that type of technical expertise now to survive in the market and farming place.
In addition, I can inform the Minister that the stamp duty inducements have been noted and acknowledged in my part of the country, but it would be important that all those matters which are of help to people involved in agriculture be put in a booklet and circulated, because they are, as Deputy McCreevy said, scattered all over the place. Trying to get one piece of information is a nightmare. It is okay for those with professional training because they can scout through the various textbooks and Acts to find information; but for ordinary people, who like to sit at home at night and make an informed decision, a small booklet, like that which the Department of Labour used have on employment rights and redundancy, would be useful. Many workers use such booklets and there is no reason that farmers and small businesses would not use this too. I encourage the Minister to proceed on that route.
For the Minister's further information, if people in the midlands have an income on which to pay tax, they pay tax.
Amendment, by leave, withdrawn.
Section 110, as amended, agreed to.