Finance Act 2013 contains the legislative provisions for a number of changes to the Irish tax system under all the main tax heads including Income Tax, Corporation Tax, Capital Gains Tax, Excise, Value Added Tax, Stamp Duty and Capital Acquisitions Tax.
Due to the amount of changes it is not possible to detail each individual provision so I decided to focus on a cross section of amendments to give a general overview. The legislative provisions I have selected will have an affect on most if not all Irish individuals whether resident and domiciled or resident and non-domiciled; employed or unemployed; retired or still working; self employed or PAYE workers; corporate structures or individuals, etc. This is a ten-part Worldwide Tax Blog Series:
2. THE REMITTANCE BASIS FOR INCOME TAX
This legislative amendment was introduced as an anti-avoidance measure to ensure that an individual who is resident and/or ordinarily resident in Ireland but non-domiciled cannot avoid paying the correct tax on the remittance of income into Ireland.
Under the remittance basis an individual is only liable to Irish Tax on income he/she brings into Ireland. If the income is from an “earned” source then Income Tax, Universal Social Charge and PRSI are levied.
The changes to the Taxes Consolidation Act are most easily explained in an example:
• Sean Murphy is Irish resident for the past three years but is U.S. domiciled.
• He earned €200,000 rental income from his investment properties located in the U.S. over a two year period.
• He did not remit any of this income into Ireland.
• Instead he invested this €200,000 in a property in Spain.
• In January 2013 he gave the Spanish property to his wife Mary, as a gift while on holiday there.
• Mary is also Irish resident but U.S. domiciled.
• On 1st March 2013 Mary sold the property for €250,000.
• On 1st May she lodged the proceeds into her Irish bank account which was opened in her sole name.
• The lodgement of €250,000 by Mary into her own bank account is treated as a remittance by Sean because it occurred after 13th February 2013.
• John is liable to pay Income Tax on the remittance, being the lodgement of funds into Mary’s Irish bank account.
• Mary will also be liable to Capital Gains Tax on €50,000, being the gain in value on the Spanish property because she remitted the gain into Ireland in May 2013.
Summary of the main points
Where there is an application of income from foreign securities or possessions by an Irish resident or ordinarily resident individual who is non-domiciled who then:
a) makes a loan to his/her spouse or civil partner or
b) transfers money to his/her spouse or civil partner or
c) acquires property that is subsequently transferred to his/her spouse or civil partner
It will be deemed to be a taxable remittance for Income Tax purposes for that Irish resident, non-domiciled individual where the sums are received in the state on or after 13th February 2013 from any of the following sources:a) Remittances payable in the state b) Property imported c) Money or value arising from property not imported d) Money or value received on credit or account in relation to such remittances, property, money or value.