Click for Finfacts Tax Guide 2007

2005
EURO

3,160

3,040

1,980

1,270

205

410

2,000

1,000

800

1,600

1,600

508

1,016

1,016

The Minister for Finance has introduced :

• a new childcare supplement for children under the age of six 

• an increase in Maternity Benefit and extension to Maternity  Leave

•  measures to increase the supply of childcare places.

In addition child benefit has been increased by €8.40 per month for each of the first and second qualifying children (to €150 per month) and by €7.70 per month for each of the third and subsequent qualifying children (to €185 per month).

The new rates are effective from April 2006.

This will be an additional new payment separate from the existing Child Benefit scheme. This new Early Childcare Supplement and the existing Child Benefit will bring the amount a family will receive next year, for each of the first two children under six years, to €2,800 per year, equivalent to over €50 per week in direct financial support.

A new childminding relief is being introduced. Where an individual minds up to three children in the minder’s own home, no tax will be payable on the childminding earnings received, provided the amount is less than €10,000 per annum. Following the “Rent-a-Room” scheme model, if childminding income exceeds this, the total amount will be taxable, as normal, under self-assessment. An individual will be obliged to return their childminding income in their annual tax return and also to notify their County Childcare Committee that    they are providing a childminding service. Full details of the scheme will be set out in the Finance Bill.

All parents of children under the age of 6, regardless of their employment status. are entitled to a  direct payment of  €1,000 per year for each child (payable in quarterly instalments).

The first payment, covering the second quarter of 2006, will be    made in mid-2006. 

€10,000 per annum

Private Use of Employer Van

The charge to BIK for the private use of an employer’s van is calculated at 5% of the ‘original market value’ of the van with effect from 1 January 2004.

From 1 January 2004 employers are obliged to operate PAYE on non cash benefits provided to employees. These benefits are also liable to PRSI and Health Levy.

The main areas of benefit involved are as follows:

• Company cars.

• Company loans.

• Tax paid vouchers.

• Expense payments on behalf of employees/directors.

An employer can provide an employee with a small benefit to a value not exceeding €250 without applying PAYE and PRSI to that benefit.

Contribution
Rate

Earnings
Ceiling 2005 Euro

Earnings
Ceiling 2006 Euro

10.75% ⁽¹⁾

No Ceiling

(First Euro127 of weekly earnings exempt)

4%

44,180

    2% ⁽²⁾

No Ceiling

6%

   3%⁽³⁾

No Ceiling

    2% ⁽²⁾

No Ceiling

5%

A small company is a company with a Corporation Tax liability of less than €50,000 in the preceding year. The first instalment is due one month before the end of the accounting period as follows:

Dave Fennell Tax Director of Ernst & Young, says that on 11November 2005, the Irish authorities entered into a protocol to the Ireland/ Portugal double taxation agreement.

The protocol primarily affects Irish Capital GainsTax (CGT) and is expected to take effect from 1 January 2006 (assuming the Portuguese authorities complete ratification formalities by the year end).

The Irish authorities sought the amendment following several high-profile media reports of Irish resident individuals moving to Portugal to avoid Irish CGTon the disposal of Irish shares.

The existing double taxation agreement provides that Portugal retains exclusive taxing rights on gains derived fromthe disposal of shares by Portuguese residents provided these shares are not held in companies whose assets consist principally of Irish property.

However, CGT is not normally payable in Portugal provided certain conditions are met, so the gain is effectively tax-free.

The protocol seeks to ensure that Ireland will retain taxing rights in certain circumstances.

These are where:

• the gain arises on the disposal of shares in, securities of, or ‘debt claims’on, an Irish resident company and such gainis not subject to tax in Portugal; and 

• the individual realising the gain was a resident of Ireland at any time during the three years immediately preceding the disposal; and

either

(i) the individual realising the gain has held, at any time, either alone or with his or her spouse or relations (by blood or marriage but otherwise not defined), directly or indirectly at least 5% of the issued share capital of a particular class of shares in that company; or

(ii) the value of the participation exceeds e500,000.

This amendment seeks to ensure that an individual cannot move to Portugal for the purpose of disposing of Irish shares shortly thereafter without incurring Irish CGT (currently imposed at 20%).

It complements existing antiavoidance measures that in certain circumstances apply an ‘exit charge’ to gains realised by individuals who are temporarily non-resident.

While the existing provision can apply if the taxpayer does not remain non-resident for at least five years before returning to Ireland, there are some doubts as to whether or not the measure is compatible with Irish international treaty obligations.

The protocol seeks to remove any doubts. Individuals contemplating a move to Portugal will need to consider their position carefully and perhaps explore possible alternatives.

The protocol also updates the existing taxing right over Irish immovable property. It will allow Ireland to tax gains realised by nonresidents on the disposal of unquoted shares or comparable interests if more than 50% of their value derives from immovable property situated in Ireland.

This seeks to put beyond doubt that Ireland can tax gains arising fromthe disposal of shares where the immovable property is held by a sub-subsidiary of the company whose shares were disposed of.

In a separate development the protocol clarifies that thenon-discrimination rules contained in the treaty cannot be used to prevent the application of (presumably Portuguese) thin-capitalisation provisions. 

Note 2
The special regime of capital allowances of 15% per annum over 7 years was terminated as and from 4 December 2002. Transitional provisions provide for the continued availability of the special regime where an application for planning permission in respect of building work has been made to the local authority on or before 31 December 2004 and the expenditure is incurred by 31 July 2006.

Certain property based tax incentive schemes are to be discontinued:

Urban, Rural and Town Renewal Schemes, Multi Storey Car Parks, Student

Accommodation, Hotels and Holiday Cottages.

Transitional arrangements will apply to pipeline projects.

Relief for Park and Ride facilities and the Living Over the Shop Scheme will be reintroduced in a more focused way.

Tax relief for investment in Childcare Facilities, Private Hospitals and Private Nursing Homes are to be continued.

There is a cap of €254,000 per annum on the amount of earnings on which tax relief may be obtained for contributions by individuals to Retirement Annuity Contracts and Personal

Retirement Savings Account. This cap also applies for employee contributions to occupational pensions schemes. The contribution level limits will be adjusted annually from the tax year 2007 in line with an earnings index.

The budget introduced a maximum allowable pension fund limit of €5m or, if higher, thevalue of the fund on 7 December 2007, both sums will be adjusted annually from the tax year 2007 in line with an earnings index.

(90% of turnover must be from the sale goods for this threshold to apply)

21%

This standard rate applies to all supplies not chargeable at other rates.

13½%

0%

20% for gifts and inheritances

Annual gift exemption €3,000 per individual.

Consideration