The income levy rates have doubled and the exemption threshold on which the income levy will apply will be reduced from €18,304 to €15,028.
Income Levies
The income levy rates have doubled and the exemption threshold on which the income levy will apply will be reduced from €18,304 to €15,028. This means that taxpayers with gross income over €15,028 will face the following income levies rates:
2% up to €75,036
4% from €75,037 to €174,980
6% on income over €174,980
For an earner with €75,000 gross income, the rate increase will represent a jump from €750 pa to €1,500 pa in their income levy liability.
The income levy was always the most likely weapon of choice for the Government to use to help plug the large tax revenue deficit realised in Quarter 1 of 2009. This is down to that fact that the income levy involves the least administrative problems to actually implement from 1 May onwards, with no requirement to issue an amended Certificate of Tax Credits and Rate Bands and hence no major payroll upheaval. It also takes a cut from the taxpayer's gross income before relief for any capital allowances, losses or pension contributions and therefore has the ability to yield the maximum tax revenue.
There are no details in the budget release to indicate if the income levy exemption threshold for taxpayers over 65 years of age will be affected. Under its first incarnation this year, over 65s are not liable to the income levy if income is €20,000 or less for a single individual or €40,000 or less for a married couple where at least one person is 65 years or more.
PRSI & Health Levies
From 1 May 2009, the PRSI ceiling will increase from €52,000 to €75,036 and the Health Levy rates are set to double from 2% to 4% and 2.5% to 5%. The Health Levy rate increase will have maximum punch due to the reduction in the top threshold from €100,100 to €75,036. This means earnings of €75,037 will incur health levies of 4% with the 5% Health Levy applying thereafter.
The hikes in the PRSI ceiling and health levy and threshold will certainly fulfill the Minister for Finance's objective that those "who have most will give most" but the increase will also mean that the median wage earner will see a significant cut in his/her take home pay from 1 May 09.
Mortgage Interest Relief
Mortgage interest relief will be discontinued for any mortgage over 7 years from 1 May 2009. Seven years is treated as the stage at which home owners are no longer classified as first-time buyers for the purposes of mortgage interest relief. The relief will be allowed on a pro-rata basis for the first 4 months of 2009 so there is no danger of a clawback of relief granted to date. Therefore, the home owners affected by this change will receive relief of up to €150 if single or €300 if married or widowed subject to paying sufficient mortgage interest to avail of the relief for the first four months of 2009. If a home owner with a mortgage of seven years or more takes out a new mortgage with additional borrowings used for repairs and improvements to his/her home, then the top up element will qualify at 15% for another seven years.
Taxation On Savings
In a move to treat all sources of income in a similar manner, tax on savings also made the Minister's hit list of budgetary increases. Deposit Interest Retention Tax and Taxes on Life Assurance Policies and Investment Funds are increased by 2 percentage points in each case and will now be 25% and 28% respectively. The increased rates will apply to payments, including deemed payments, made from midnight on 7 April 2009.
A new levy on life assurance is being introduced at the rate of 1% on premiums. This new levy will apply to premiums received by an insurer on or after 1 June 2009.
The current non-life insurance levy of 2% is being increased by 1%. The new rate of 3% will apply to renewals and offers of insurance issued by an insurer on and from midnight on 7 April 2009 where premiums are received by the insurer on or after 1 June 2009.
Capital Acquisition Tax
In an unexpected move, the rate of CAT along with CGT is set to increase from 22% to 25% at midnight on 7 April. The Minister also felt the need to reduce the tax free group thresholds by 20% to "in the light of declining asset values". That means that the following changes are now in effect:
Group A €542,544 reduces to €434,000
Group B €54,254 reduces to €43,400
Group C €27,127 reduces to €21,700
Any practitioner working on a CAT calculation for 2009 must contend with two rates of CAT and tax free group thresholds and at the very least, the changes will add to the compliance burden in working out the CAT liabilities. And that's before the client can even get bothered about finding funds to pay CAT on benefits of property for which there is little or no market.