A list of Committee Stage Amendments (CSA) became generally available yesterday. There are only two completely new provisions to the Bill as initiated - one dealing with Betting Duty and the other dealing with the waiver of exemption in VAT. The existing provisions for dealing in residential land (for both income tax and corporation tax) and the new intangibles relief are slightly revised. It is disappointing to note that the opportunity to amend the retrospective nature of the Income Levy has not been taken.
According to An Taoiseach, the Select Committee is expected to complete its consideration of the Finance Bill 2009 not later than 26 May 2009.
The substantial amendments are noted below:
Dealing in residential development land
Income Tax Treatment
Two new definitions have been introduced, "adjusted income" and "adjusted profits or gains". The purpose of the new definitions is to ensure that the restriction on the offset of such losses works consistently. The carry forward losses to the tax year 2009 and onwards from dealing in residential development land (which would have been subject to tax at 20%) can be offset against profits but are only available on a value basis.
For example, take the situation where a residential land trader has losses forward of €1m at 31 December 2008 and makes a €1m profit in 2009. The 2009 profit cannot be fully offset by the carried forward loss and is only relievable on a value basis. The tax on the profits is reduced by, in effect, a tax credit of €200k (i.e. €1m@20%).
Corporation Tax Treatment
The purpose of the amendment in relation to Corporation Tax is to ensure that losses from dealing in residential development land in one group company cannot be relieved against the total profits of another group company - the losses are available on a value basis.
Intangible Assets
The amendment in this area deals with the interaction of the new relief with the specific capital gains tax relief in section 615 of the Taxes Consolidation Act 1997. Section 615 deals with the transfer of assets in a company reconstruction or amalgamation. Previously, the intangibles relief had only dealt with the interaction with the capital gains tax group relieving provisions of section 617.
Now the provision works in the case of transfers of specified intangible assets between group companies or in situations involving company reconstructions or amalgamations by the acquiring company being able to claim capital allowances on the assets acquired where both companies jointly elect to opt out of the existing capital gains tax group relief provisions (under section 617) or the reconstruction/amalgamation provisions (under section 615).
Betting Duty
Section 53 of Finance (No. 2) Act 2008 provided for the increase in betting duty from 1% to 2% with effect from 1 May 2009.
This Committee Stage amendment provides that the Finance (No. 2) Act change is to be disregarded. The increase in the betting duty to 2% will now occur on the making of an order by the Minister.
VAT - Waiver of exemption
The Committee Stage Amendments provide for the deemed cancellation of a waiver of exemption where the landlord sells the property without cancelling the waiver. This will result in the landlord being liable to the cancellation amount.
In addition, section 7, which relates to waiver of exemption, is to be amended to ensure no unjustified entitlement to VAT credit arises under the capital goods scheme for VAT on certain types of properties.
The following is an explanation of the use of waivers (taken from Tax Briefing No. 64):
Prior to the change in VAT on Property rules, short-term lettings were exempt from VAT. The effect of exemption was that the landlord was not liable for VAT on the rents and had no entitlement to deduct VAT incurred on the acquisition and/or development of the property being let. However, the landlord could waive his/her exemption. This meant that he/she was electing to be taxable on the rents and entitled to deduct the relevant VAT incurred. The landlord could subsequently cancel the waiver of exemption but on doing so, he/she was obliged to repay a 'cancellation amount'. The cancellation amount represented any excess of VAT deducted over VAT payments made during the period of the waiver.