I would disagree with the Deputy that the purpose of tax reliefs is to allow anyone to avoid paying their fair share of taxes. No tax relief is introduced without a specific purpose in mind and all are reviewed on a regular basis. Where it becomes apparent that any given provision is being abused or is not working to best effect, appropriate action is taken, whether by implementation of anti-avoidance rules or legislative change.
Details of eliminations and amendments that have been carried out to various tax measures in the period specified by the Deputy are set out below.
High Earners Restriction
A restriction limiting the amount of certain reliefs which can be used by certain high income individuals was originally introduced in the Finance Act 2006, which came into effect from the 2007 tax year. Since 2011, this effectively limits the rate at which individuals, with income in excess of €125,000 per annum, can use a wide variety of tax reliefs and exemptions. This limit is graduated so that individuals with incomes in excess of €400,000 per annum will pay a minimum effective rate of income tax of at least 30%, regardless of how many reliefs they have available. This is chargeable in addition to USC and PRSI.
The following measures have been included among the reliefs that are taken into account for the purposes of the application of the restriction.
- For the tax year 2014 onwards, subject to certain conditions, the wear and tear allowance for plant and machinery available to passive lessors (Section 16 Finance (No. 2) Act 2013).
- The Foreign Earnings Deduction (Section 12 Finance Act 2012).
Relief to individuals on loans applied to acquire an interest in partnerships
Relief to individuals on loans applied to acquire an interest in partnerships was abolished for new claimants from 15 October 2013 and reduced on a sliding scale for existing claimants with total cessation from 2017 onwards. This abolition does not include farm partnerships (Section 3 Finance (No. 2) Act 2013).
Donation of heritage property
Tax relief for the donation of heritage property was amended in Section 25 of Finance Act 2013 to lower the amount of the market value of the property that qualifies for relief from 80% to 50%.
Film Relief
Prior to 1 January 2015, an individual could, by virtue of section 481 of the Taxes Consolidation Act (TCA) 1997, claim relief from taxation at his/her marginal rate on amounts not exceeding €50,000 invested in the production of qualifying films in any taxable period.
Section 24 of the Finance Act 2014 terminated this relief with effect from 1 January 2015. Support to the film industry is now provided in the form of a corporation tax credit which is payable directly to film production companies.
Income tax losses
Finance Act 2013 and Finance Act 2014 curtailed the relief which individuals could claim for certain 'trade' losses against their other income.
- Section 18 Finance Act 2013 amended section 381 TCA1997 to provide that individuals who are engaged in the trade of dealing in or developing land cannot claim loss relief against their other income if that loss arises from interest accrued but not yet paid or from the write down in land values where that land has not been sold. This restriction ensures that only losses which have actually been realised are available to reduce the tax liabilities of land developers.
- Section 11 Finance Act 2014 introduced two sections (381B and 381C) to the TCA 1997 to curtail the use of losses. Section 381B ensures that individuals can only claim limited loss relief against their other income if the loss arises from a trade which is not carried out in an active and commercial manner. Section 381C provides that where a loss arises from a tax-avoidance arrangement no loss relief is available against that individual's other income. These amendments prevent individuals from accessing tax reliefs in respect of losses arising from the carrying on of 'hobby' trades. And they also prevent the presentation of certain activities as trades for the purposes of reducing an individual's overall tax liability.
USC
From 1 January 2013 an income limit of €60,000 was introduced for access to the exemption from the top rates of USC for medical card holders and individuals aged 70 years.
Foreign Service Relief
Foreign service relief in respect of termination lump sum payments was ceased in respect of payments made on or after 27 March 2013.
Top Slicing Relief
Top Slicing Relief in respect of termination lump-sums paid on or after 1 January 2013 was restricted to the first €200,000 of the aggregate of all termination lump sums received.
Top Slicing Relief abolished entirely in respect of termination lump-sums paid on or after 1 January 2014.
Pensions
- The Standard Fund Threshold (SFT), which places a limit on the maximum allowable pension fund on retirement for tax purposes, was reduced with effect from 1 January 2014, from €2.3m to €2m. (Section 18 Finance (No. 2) Act 2013).
- A Personal Fund Threshold (PFT) which may apply instead of the SFT in certain circumstances was restricted, for new PFT applicants, to a maximum of €2.3m where the capital value of an individual's pension rights on 1 January 2014 exceeded the reduced SFT of €2m. (Section 18 Finance (No. 2) Act 2013).
- The valuation factor used for establishing the capital value of defined benefit pension rights at the point of retirement (and which accrue after 1 January 2014) for SFT/PFT purposes was increased from a factor of 20 to a range of higher age related factors that vary with the individual's age at the point at which the pension benefits are drawn down. (Section 18 Finance (No. 2) Act 2013).
- Vested PRSAs (i.e. personal retirement savings accounts in respect of which benefits have commenced) were brought within the imputed distribution regime with effect from the tax year 2012. Prior to 2012, the regime applied only to approved retirement funds (ARFs). Under the regime, both ARF and vested PRSA owners are treated as "receiving an annual payment" from their ARF and/or vested PRSA calculated as a percentage of the assets held in the funds at the annual valuation date. The rate of the imputed distribution varies with the size of the fund and is chargeable to income tax under Schedule E. (Section 18 Finance Act 2012).
- The rate of imputed distribution applying to ARFs/vested PRSAs with assets valued in excess of €2m was increased from 5% to 6% with effect from the tax year 2012. (Section 18 Finance Act 2012).
- The rate of final liability tax applying to a post-death distribution from an ARF to a child (aged 21 or over) of the deceased ARF owner was increased from 20% to 30% with effect from 31 March 2012 (date of passing of Finance Act 2012). (Section 18 Finance Act 2012).
Property Relief Surcharge
Section 531AAE provides for an increase in the Universal Social Charge (USC) in respect of income of certain individuals. It potentially only applies to those whose gross income in the year is at least €100,000 and then only to income which is sheltered by any of the property or area-based incentive reliefs in that year. This means any of the accelerated property capital allowances under any of the incentive schemes as well as the residential lessor relief commonly known as section 23-type relief. The 5% property relief surcharge is payable, in addition to any other USC which the person is obliged to pay on the income in question.
Cap on accelerated capital allowances
There have been many different property relief schemes over the years, each one tailored to address particular regional or sectoral needs, and their rules varied. Although these have all been brought to an end, capital allowances were still being claimed in respect of projects undertaken while the schemes were active.
Finance Act 2012 introduced a provision which meant that with effect from 1 January 2015, certain passive investors in accelerated capital allowance schemes would no longer be able to use any capital allowances beyond the tax life of the particular scheme where that tax life ends after 1 January 2015. Where the tax life of a scheme has ended before that date no carry forward of allowances into 2015 will be allowed. This lead-in period was intended to give individuals time to adjust to this change in advance.
This provision is restricted to passive investors only. A person who is entitled to accelerated capital allowances and who is an active trader will not be affected by this measure. In addition, residential (Section 23) and owner-occupier reliefs are unaffected by these measures.
