FINANCE BILL 2009
Sean O'Donnell, Manager of IFAC Accountants office in Cahir, Co. Tipperary for over 20 years highlighted the contents of the recently published Finance Bill and its implications for farmers.
Current Account Penalty Surcharge
Bank current account penalty surcharges vary from 6 to 12% and are in addition to the normal interest on overdraft balances. This means if you do not comply with the fundamental current account rule you will be severely penalised.
INCOME LEVY
Despite strong representations from IFA the Finance Bill makes no provision to allow a deduction for capital expenditure in calculating the levy.
The Budget provides that effective from 1st May 2009 the now notorious Income Levy will be doubled and the entry point at which one becomes liable has been reduced as follows:
| Existing | Proposed | |
| Income Levy | € | € |
| Exemption Threshold (under 65) | 18,304 | 15,028 |
| Middle Rate Threshold - in excess | 100,100 | 75,036 |
| Higher Rate Threshold - in excess | 250,120 | 174,980 |
| Lower Rate | 1% | 2% |
| Middle Rate | 2% | 4% |
| Higher rate | 3% | 6% |
There are now two income levy years in 2009 and the Finance Bill gives effect to a new annualized rate which will apply for 2009 as follows:
- 1.67% on the first €75,036
- 3% on the next €25,064
- 3.3% on the next €74,880
- 4.67% on the next €75,140
- 5% on the balance
Confusion
There is confusion among farmers as to the income to be subjected to the levy. Some farmers understand the levy will apply to their gross sales and there has been considerable debate about whether the Single Farm Payment is liable to the levy.
The following simple farm trading and profit & loss account may aid one's understanding of what is liable:
Farm Trading and Profit & Loss Account
| Income | € | € |
| Sales: Livestock | 35,000 | |
| Crops | 60,000 | |
| Milk | 75,000 | |
| Income Support: Single Farm Payment (Note 1) | 20,000 | |
| Tax Exempt Leasing Income (Note 2) | 10,000 | |
| Forestry Premium (Note 2) | 10,000 | |
| 210,000 | ||
| Less Operating Expenses | ||
| Contractor payments | 26,000 | |
| Land Rent | 24,000 | |
| Seed, Feed & Fertilizer | 26,000 | |
| Veterinary & Medicines | 4,000 | |
| Machinery running costs | 8,200 | |
| Family Wages | 8,800 | |
| Farm Motor Running Costs | 4,800 | |
| Commissions & Discounts | 1,000 | |
| Farm Insurance | 1,600 | |
| Farm Light & Power | 3,300 | |
| Farm Telephone & Fax | 1,200 | |
| Repairs & Maintenance | 8,800 | |
| Office running costs | 1,100 | |
| Accountancy | 800 | |
| Bank interest & charges | 18,000 | |
| Sundry expenses | 2,000 | |
| Depreciation: Buildings (Note 3) | 10,000 | |
| Depreciation: Farm Equipment (Note 3) | 5,000 | (155,000) |
| Accounts Profit | 55,000 |
The income liable to the new levy is as follows:
| Accounts Profit | - | €55,000 |
| Disallow buildings depreciation | - | €10,000 |
| Disallow farm equipment depreciation | - | €5,000 |
| Assessable to income levy | - | €70,000 |
Note 1 - Single Farm Payment
The annual Single Farm Payment is treated the same as ordinary livestock, crop, and milk sales from which you may deduct the normal farm operating expenses.
Note 2 - Forestry Premia and Tax Exempt Rental Income
Certain income which is exempt from income tax is subjected to the new Gross Income Levy and includes tax exempt income from the leasing of farmland and forestry premia.
Note 3 - Capital Expenditure
Expenditure on capital items such as buildings, farm equipment, roadways etc is disregarded - no deduction is allowed. This is discriminatory in that it places farmers at a further disadvantage to PAYE workers who do not have to invest money in machinery and buildings in order to create their incomes.
Certain classes of income are excluded from the levy:
Example of Exclusions:
- Farm Retirement Pension paid by the Dept. of Agriculture, Food & Fisheries.
- Deposit interest received from banks which has been subjected to Deposit Interest Retention Tax (DIRT).
- Dividend payments by Credit Unions which are subjected to Deposit Interest Retention Tax (DIRT).
- Life Policy returns.
- Social Welfare and similar payments.
Individuals Exempted
The following individuals are exempted from the Income Levy:
- Holders of a full medical card
- Individuals over 65 whose income does not exceed €20,000
- Married couples where one of them was 65 or over during the tax year and their income does not exceed €40,000 where they are jointly assessed to income tax.
Farmers with Employees
Employers will have responsibilities for the collection and payment of the income levy to the Collector General as follows:
- Required to identify "gross income" per week as defined
- Obliged to deduct the levy from this income at the appropriate rates
- Remit the total amount of the income levy deducted from employee/s to the Collector General - the income levy amount is to be included with the figure for PAYE on Form P.30.
- At the end of the year give details of the income levy deducted on Form P.35L
- Where an employee ceases employment the employer is obliged to furnish an "Income Levy Certificate" even when the employee had a nil income levy deduction during their employment.
HEALTH LEVY DOUBLED
The health levy rates have been doubled and the level at which the higher rate
applies has been reduced. The position is as follows:
| Existing | Proposed | |
| Health Levy | ||
| Lower Rate (entry threshold €26,000 per annum/€500 per week) | 2 | 4% |
| Higher Rate | 2.5% | 5% |
| Higher Rate Threshold (in excess of) | €100,100 | €75,036 |
These changes are not contained in the Finance Bill but in the Social Welfare Bill 2009. Because the levy was not introduced until 1st May 2009 special composite rates will apply for 2009 and they are as follows:
| First €75,036 | - | 3.333% |
| Next €25,064 | - | 4% |
| Balance | - | 4.167% |
Incomes up to €26,000
Where the yearly income is €26,000 or less no health levy is payable, but if the income exceeds these amounts, even marginally, the health levy is payable on the full income i.e. 4% on total income up to €75,036 and 5% thereafter.
Impact of Income Levy and Health Levy changes on 2009 tax bills.
Example:
Farmers A, B and C are married and have the following similar income and allowances in 2008 and 2009:
| Farmer A | Farmer B | Farmer C | ||||
| Farm Profit | 30,000 | 60,000 | 90,000 | |||
| Forestry Premia | 10,000 | 10,000 | 10,000 | |||
| Income Tax Exempt Leasing Income | 10,000 | 10,000 | 10,000 | |||
| Total Income | 50,000 | 80,000 | 110,000 | |||
| Capital Allowances | 13,000 | 23,000 | 38,000 | |||
| Pension | 2,000 | 2,000 | 2,000 | |||
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | |
| Income Tax | - | - | 3,340 | 3,340 | 7,516 | 7,516 |
| PRSI | 810 | 810 | 1,410 | 1,410 | 1,860 | 1,860 |
| Income Levy | - | 835 | - | 1,394 | - | 2,322 |
| Health Levy | - | - | 740 | 1,221 | 1,040 | 1,716 |
| Total | 810 | 1,645 | 5,490 | 7,365 | 10,416 | 13,414 |
Farmer A's tax bill has increased by €835, from €810 to €1,645 - a % increase of 103%.
Farmer B's tax bill has increased by €1,875, from €5,490 to €7,365 - a %increase of 34%.
Farmer C's tax bill has increased by €2,998, from €10,416 to €13,414 - a % increase of 29%.
2009 Preliminary Tax Payments
For the majority of farmers their 2009 profits will be less than in 2008, however, their preliminary tax payments for 2009, because of the introduction of the Income Levy and the doubling of the Health Levy, will in many cases result in higher tax bills. Farmers availing of Income Averaging will feel the impact more severely and now is a suitable time to review their continued use of Income Averaging.
CAPITAL GAINS TAX
Change in Rate of Tax
The Capital Gains Tax rate is being increased from 22% to 25% for sales of capital assets made from midnight on 7th April 2009. This follows on the increase from 20% to 22% in the October 2008 Budget. Capital Gains Tax applies to the sale or transfer of land, houses, stocks and shares etc.
GIFT & INHERITANCE TAX
Change in Rate of Tax
The rate of gift/inheritance tax is being increased from 22% to 25% for gifts and inheritances made from midnight on 7th April 2009 and follows the recent increase from 20% to 22%.
Reduction in Tax Free Thresholds
The amounts a person may receive tax-free by way of a gift/inheritance have been reduced by 20% effective from midnight on 7th April 2009 as follows:
| Threshold to 7th April 2009 | Threshold from 8th April 2009 | |
| Group A: Parent to child | €542,544 | €434,000 |
| Group B: Between related persons | €54,254 | €43,400 |
| Group C: Between non-related persons | €27,127 | €21,700 |
DEVELOPMENT LAND
The special 20% Income Tax Rate which applied to trading profits from dealing in or developing residential development land has been abolished thereby exposing such dealings to the top income tax rate i.e. 41% + levies. This change seems to be effective from 1st January 2009 i.e. a retrospective provision. The use of losses generated in dealing in or developing residential development land have also been severely restricted.
DEPOSIT INTEREST RETENTION TAX
With effect from 7th April 2009 the rate of Retention Tax to be applied to deposit interest earned has been increased from 22% to 25%.
Mid-Shannon Corridor Tourism Infrastructure Investment Scheme
This scheme was introduced in the 2007 Finance Act to encourage the development of new tourism infrastructure or the refurbishment of existing tourism infrastructure in designated areas bordering the Shannon in Clare, Galway, Tipperary, Offaly, Westmeath and Roscommon.
This relief provides for capital allowances over a 7 year period (15% per annum for 5 years, 1-6, and 10% in year 7). Areas not in the Border Midlands West (BMW) region (Clare and Tipperary) will only qualify for 80% relief. European Union approval was only received recently and the application deadline has been extended from 31st May 2009 to 31st May 2010 with the cut-off date before which expenditure must be incurred for capital allowances purposes being extended to 31st May 2013.
The Relief applies to the construction or refurbishment of buildings and
structures, the site of which is wholly within a qualifying mid-Shannon area,
in use as:
(a) a holiday camp; or
(b) one or more qualifying tourism infrastructure facilities.
Licensed premises will not qualify for relief, with the exception of a restaurant with a Wine license and gambling facilities are also denied relief.
INTEREST RELIEF ON RENTED RESIDENTIAL PREMISES
The Finance Bill provides for a restriction on the tax relief available for interest on borrowings used to purchase or improve rented residential premises where the interest is paid on/after 7th April 2009. Relief will no longer be allowed for the full amount of the interest. Instead, relief will be restricted to 75% of that amount. This change will apply to both new and existing borrowings. Interest relief on rented commercial properties will not be affected by the change.