31 January 2013
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Tax Planning 2013
Getting Back to Basics
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Impact of Gender Neutral Pricing on the Insurance Industry
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Tax Planning 2013
by Sean McSweeney
 

There are forces at work in the current tax policy environment that will alter the tax landscape as we know it. Effective planning will demand that you develop your own personal view of our economy and the markets, the future of taxes and tax rates that you may experience, and the Government priorities that may influence your own retirement needs.

Obviously, the current shift in tax policy and the economic environment has significantly altered tax planning advice. What was suitable in 2007 may not be relevant in 2013. It is imperative that up to date tax planning is undertaken as despite the increase in tax rates and reduction in incentives and reliefs, there is significant potential for tax savings.

Future Uncertainty

In the face of such uncertainty, it is tempting to do nothing on the grounds that it is too hard to know what course of action to follow. Of course, in tax and wealth planning, doing nothing is still a decision and can be a bad one.

Although the potentially dramatic level of the changes we see ahead creates uncertainty for individual tax and wealth planning, it also can create opportunity for those who address the uncertainty head on.

Tax Planning for 2013

Capital Gains Tax Property Exemption

Finance Act 2012 introduced an attractive Capital Gains Tax (CGT) exemption for persons in respect of property purchased between 7 December 2011 and the 31 December 2013. If a property is acquired during this period and held for at least 7 years, the capital gain related to that 7 year holding period will be fully relieved from Irish CGT. The exemption will work to time-apportion gains so that a property held for 10 years will be 7/10ths exempt from CGT, while a property held for 7 years will be entirely exempt (7/7ths). Obviously, with property at its current low levels, there is potential to avail of this relief if you are considering purchasing property.

Capital Acquisitions Tax – Low Values / Cap Value of Shares

Now may be the time to consider transferring assets to the next generation especially as the current values of land and buildings are so low. The timing of the transfer of assets can, in some cases be vitally important from a tax liability point of view. Capital acquisitions tax (“CAT”) rates have increased in recent budgets (currently 33%) however it is expected that the CAT rates could go as high as 40% in future budgets. Also certain reliefs (Business Property/Agricultural Property) may not last forever and may come under scrutiny in future budgets.

It is also a good time for owner operated companies and property companies to consider giving their children an equity stake in the company. Control of the company can be retained by the owner while still giving additional responsibility to the children. This can be done in a number of ways without giving rise to a charge to CAT, for instance by capping the value of the shares being given to the children, i.e. they will only receive a benefit if the value of the shares increase. 

Capital Gains Tax – Loss Relief

Under current legislation any losses incurred on capital disposals can be carried forward indefinitely. However it is expected that some restriction on capital losses brought forward will be introduced in future budgets. Therefore it may be worth considering crystallising capital gains now if you have losses to set against them.

Research and Development

Recent enhancements to the Research & Development (“R&D”) regime have greatly increased the attractiveness of the credit for SME’s.  Any companies who feel they may be involved in R&D should contact their tax advisor to ascertain if a claim can be made, especially considering a cash refund is now available.

Repayment of Bank Debt

One of the many difficulties facing property owners is that they have to repay the mortgage of the property from after tax profits. In most cases this would mean that the property investor would be taxed at 52% on the rental profit and then would need to repay the loan from these after tax profits.  This is proving extremely difficult in times of lower rental income and difficulties in retaining tenants. One option to reduce this burden is to transfer the property into a corporate and the profits would then be taxed at 25% instead of 52%. Where you own a trading company that is funding the repayments the tax could be reduced to 12.5% on capital repayments.

Incorporating a business

One of the many dilemmas facing sole traders is whether or not they should transfer the business into a limited company. Historically there are many advantages to this (limited liability, 12.5% tax rate, etc). However if the business was drawing down the majority of the profits every year then there was little to be saved from incorporating the business. However, due to the current restrictions in pension contributions for sole traders and the possibility for companies to make significantly higher contributions for their employees, it may now be the time to again consider whether the sole trader should transfer its business into a company.

Tax Health Checks

With the increase in Revenue audits over the last 18 months now is the time to consider having a review or “health check” of tax compliance procedures. The health check identifies weaknesses in procedures and affords an opportunity to rectify them before Revenue commence an audit. When undertaking a tax review areas may be identified where changes to procedures could result in tax savings. If a business is not fully tax compliant, it is more beneficial to identify them now rather than waiting for Revenue to do it.

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