A number of changes were introduced to Relevant Contracts Tax (RCT) in the Finance Act 2006. Foreign Operators carrying out operations under a relevant contract in Ireland will be subject to the RCT system here regardless of whether or not parties to the contract are non-resident in the State or are not liable to tax in the State in respect of those operations. This applies even if the contract is executed outside the State or payments under the contract are made outside the State. Also if Revenue suspects that a subcontractor will not be tax compliant in the future Revenue may not grant a C2. It remains to be seen how this power will be implemented in practice. This will be of importance in relation to the “look through” procedures in relation to persons connected to the applicant for a C2. Revenue has been applying a Payment limit and this practice is now being put on a statutory basis. Where payments to the Subcontractor exceed that limit, the principal must deduct RCT from such excess payments as if the subcontractor were an uncertified subcontractor. A four year time limit on making claims for refunds of RCT is also being introduced in line with other taxes.

Amendments to the Tax Treatment of Pension Products:
Age based tax relief for pension contributions is being increased from 30% to 35% for individuals aged 55 to 60 years and 40% for individuals aged 60 years and over.
The cap, currently €254,000, on which pension contributions can be based, will be adjusted annually from 2007 in line with an earnings index declared by the Government.

SSIA
SSIA4: During 2006 and 2007, a form SSIA4 will be required to be completed, signed and sent by each SSIA holder to his/her financial institution. SSIA’s that commenced in August 2001 will mature on 31 August 2006. The latest date on which forms SSIA4 can be returned to financial institutions for such accounts is technically 31 August 2006.
Reinvestment: The Finance Act contains an incentive for SSIA holders on lower incomes to invest some or all of the SSIA funds into a pension product when their SSIA matures. The main features of this new incentive are as follows:

The incentive is available to those individuals who in the year before the year in which their SSIA matures-
• Had a gross income of €50,000 or less (total income before all allowances & deductions) and
• Did not pay any tax at the 42% rate

The incentive has two aspects. The first is that the Exchequer will add €1 to every €3 of SSIA Funds that an eligible person invests in a pension product. This exchequer addition is subject to a maximum of €2,500.
The investment in a pension product can be by way of :-

• An AVC
• A contribution to a standard PRSA or
• A premium in respect of an RAC

The second aspect of the initiative is that the Exchequer will also add to the pension product a proportion of the exit tax deducted when the SSIA matured. The amount of the refunded tax is in proportion to the amount of the person’s SSIA funds that are invested in the pension product.
The pension contribution must be made within three month of the SSIA maturing. No tax credit is given for these pension contributions. Therefore the contribution does not affect the investors pension contribution limits that are eligible for tax relief.

Capital Acquisitions Tax
A lifetime gift of an asset can attract capital gains tax and gift tax. Gift tax and Capital Gains Tax which arise on the same transfer can be offset against each other leaving the net cost equal to the higher of the two taxes. Where both capital gains tax and capital acquisitions tax (either on a gift or inheritance) are chargeable on the same property in connection with the same event, the capital gains tax paid is allowable as a credit against the CAT.
For gifts or inheritances taken on or after 21 February 2006, this “same event” credit will be clawed back where the beneficiary disposes of the property transferred within two years of the date of the gift or inheritance. This will clearly limit the availability of the same event credit where property is in the process of being sold to a third party and increase the total tax cost.

Requirement to register tenancies with the Private Residential Tenancies Board
Section 11 of the Finance Act 2006 introduced registration of tenancies with the Private Residential Tenancies Board as a precondition for obtaining relief for interest paid on loans used for the purchase, improvement or repair of a rented residential property. This change applies to interest paid by individuals during the year of assessment 2006 and subsequent years and by companies for accounting periods beginning on or after 1 January 2006.

Foreign Employments
PAYE Implications: With effect from 1 January 2006, employers who do not have a base in Ireland must still register as an employer and deduct PAYE in respect of any employees working in Ireland. Foreign employment income attributable to duties exercised in Ireland will be taxed under Schedule E. Where a foreign employment is only partly exercised in the State it is necessary to distinguish the part of the income attributable to duties performed in the State and those performed outside of the State. Unless a Revenue direction is given setting out the proportion to which PAYE must be applied it will be operated on all earnings. It is not necessary however to operate PAYE where the duties of the employment are performed in Ireland for not more than 60 days and certain criteria are fulfilled. 
PRSI Obligations: Prior to 1 January 2006 PRSI contributions were collected through the Special Collection System. However from 1 January 2006 both employer and employee PRSI are collected via the PAYE system and employer and employee PRSI is charged on total earnings. The Health Contribution will potentially apply to total earnings derived from the foreign employment and should also be collected through the PAYE system.
For further information on these topics please contact: bernadette.neville@hlbnathans.com

 

There is an extension to the Pay and File deadline for individuals that submit their 2005 personal tax returns online and pay the balance of tax due for 2005 together with Preliminary Tax for 2006.
The date for making the return and the date of payment will be extended from 31st October to 16th November 2006, where the return is submitted and payment is made online.
The deadline of 31st October 2006 applies to all other taxpayers.
The 31st October is also due date for capital gains tax due on disposals in the 2006 initial period, that is gains arising between the 1st January and 30th September 2006. For further information this topic please contact: padraig.odonoghue@hlbnathans.com

Revenue has issued a new declaration form to try and eliminate compliant tax payers from further enquiries in this investigation. Initially investigations will be focused on investments since 1989 which on aggregate were greater than €50,000. This may be reduced in further investigations. Revenue Declarations together with letters from the Insurance companies will issue to these policyholders from mid-August 2006. The declaration will cover the period from 1 January 1990 to 31 December 2003. It is important to note that completion of the new Revenue declaration form is not mandatory; therefore declarations can be made to Revenue by letter.
Revenue have confirmed that if a taxpayer comes forward now as part of this SPIP investigation and does so before the end of October 2006 then a Revenue assurance of non-prosecution will be given. In terms of penalty mitigation, “Co-operation” mitigation of 25% should be available in line with previous investigation settlement arrangements.
For further information on this topic please contact: michael.mullins@hlbnathans.com

 

Subject to EU approval, Finance Act 2006 extended the completion deadline (for full tax relief) from 31 July 2006 to 31 December 2006 in relation to expenditure incurred on certain properties including Holiday Cottages, Hotels and Holiday Camps (where planning requirements have been satisfied). This extension is subject to a binding contract having been in place on or before 31 July 2006.
There are a number of tax incentive properties available at present in the following areas that we can recommend to our clients:

• Holiday Homes
• Nursing Homes
• Student Accommodation

For further information on these topics please contact: padraig.odonoghue@hlbnathans.com
In addition, details of Strength & Honour, a Film Investment qualifying for relief under s481 TCA 1997 can be obtained from Mark Barrett at mark.barrett@hlbnathans.com or Trevor Leacy at trevor.leacy@hlbnathans.com in our Cork Office.