BUDGET 2014 Commentary: Changes welcome from a tax perspective

Fiona Murphy, tax director, Russell Brennan Keane has called Budget 2014 ‘welcome from a tax perspective’.

Commenting on the tax changes in the budget, Murphy said: “the Minister has included many initiatives in order to stimulate the economy. He has specifically targeted assistance to the tourism, agriculture and construction sectors and is introducing special incentives to encourage entrepreneurs and investors to invest in new businesses. From a tax perspective, the incentives are focused on investing in businesses and stimulating the economy.”

Some of the specific incentives included in Budget 2014 were as follows:

• A new Innovation Scheme is to be introduced in 2014 and 2015 in the form of a tax credit for home renovation expenditure incurred of between €5,000 and €30,000. A tax credit of up to €4,050 will be available.
• The Living City Initiative introduced in 2012 for houses built pre 1915, in Waterford and Limerick is to be extended to Galway, Cork, Kilkenny and Dublin.
• Specific incentives to invest in and set up new businesses have been announced in the form of:

1. Encouragement to entrepreneurs to reinvest business sale proceeds into new businesses.
2. A two-year income tax exemption capped at €40,000 for Long-term unemployed (15 month plus) to be introduced.
3. Removal of EIIS from the high earners restriction.
4. The CGT exemption for the disposal of qualifying properties has been extended to those acquired in 2014.
5. To assist the cash flows of small businesses, the cash receipts basis for accounting for VAT has increased from €1.25m to €2m from May 1st 2014.
6. Some positive changes to the R&D regime targeted at small and medium sized enterprises have been introduced.

Along with a significant number of public expenditure cuts, amongst some of the tax cuts, the Minister announced the following:

• Excise duty increases for cigarettes and alcohol.
• Increase DIRT rate from 33% to 41%.
• Tax Relief on the Private Medical Insurance contributions to be restricted.
• Abolished Top Slicing Relief on Ex-Gratia termination and severance payments.
• Pension fund threshold restrictions and pension levy changes.

Overall according to Murphy: “The budget is very welcome from a tax perspective. There are some encouraging incentives and the expected increase in PRSI did not materialise. Obviously the carryover of the many dramatic taxes introduced last year, in particular the Local Property Tax (LPT), left the Minister with an easier task this year. However the Public Expenditure cuts have been dramatic which is where the real pain may be felt in the now named, Middle Ireland.”