CREDIT SYSTEM:A MAJOR overhaul of the tax credit system was outlined yesterday.
The Government had indicated for some time that tax credits – which provide tax reliefs to hundreds of thousands of workers – would be targeted for cuts, arguing that they cost the exchequer more than €11 billion annually.
In addition, an array of property-related tax reliefs, which have been winding down since 2006, are to be abolished within four years.
Ten tax reliefs – technically known as “tax expenditures” – are to be abolished next year. These are the tax exemption on patent royalties, and income tax relief on private rented accommodation, trade union subscriptions, age credit and age exemptions. The final two of these will be phased out over four years.
The remainder are investment allowance for machinery, plant and exploration expenditure; the approved share option scheme; benefit-in-kind exemption on employer-provided childcare; the accelerated allowance for capital expenditure on farm buildings for pollution control, and tax exemptions for payments to the National Co-operative Farm Relief Services.
An additional six tax expenditures will be curtailed, most notably the artists’ tax exemption, which will be limited to earnings of €40,000.
Levies on approved profit-sharing schemes, approved save-as-you-earn schemes, unapproved share options and share awards will also be restricted, while ex-gratia termination or lump-sum pension payments in excess of €200,000 will be taxed.
Brian Keegan, of Chartered Accountants Ireland, said many discretionary reliefs, which are available to a few taxpayers, are being abolished as a form of redress to the entire taxpaying population, which is affected by the general reduction in tax credits.
“A notable aspect is that some reliefs are being removed, not because of their cost to the exchequer, but simply because they are there,” he said. “For example, the exchequer cost of maintaining marginal relief for the over-65s or the cost of not levying a benefit in kind on childcare is very low.”
Yesterday’s plans also spelled the end of various property- related tax reliefs. Investors who had been able to claim hundreds of millions of euro of reliefs through the property boom will now see these reliefs disappearing over the next four years.
The winding down of tax relief schemes such as those for building hotels, car parks, clinics and student accommodation was first announced as far back as 2006. However, the wind-down period was extended in many cases, creating a legacy cost.
The Government now says it intends to eliminate all these reliefs over the next four years. These “legacy costs”, worth €400 million, will be phased out over the period of the National Recovery Plan.
Among the reliefs that were abolished in 2006 and will now be terminated by 2014 are capital allowances on hotels, holiday cottages, student accommodation and third-level educational buildings.
Commenting on the winding down of legacy reliefs, a spokesman for the the Society of Chartered Surveyors (SCS) said it was a confirmation of a process that had already begun, and in some cases it was essentially a case of pulling the guillotine down a little bit faster.
Marie Hunt of CB Richard Ellis said the Government’s announcement on tax reliefs was “no surprise” but she assumed the Government would honour commitments made to investors while phasing out the reliefs.
Roland O’Connell, vice-president of the Irish Auctioneers Valuers Institute, said if the intention was to stop people claiming these tax reliefs in the future, that was understandable.
However, removing allowances from people who had legitimately borrowed on the basis of the tax reliefs would be unfair and unprecedented.
“It doesn’t mean that granting those incentives in the first place was the right thing to do,” he said.