Mixed business reaction as CGT cut grabs the headlines
Published 14/10/2015 | 02:30
A dramatic cut in capital gains tax (CGT) for owners selling on their businesses was Michael Noonan's big announcement for entreprenuers yesterday.
The reduced CGT rate will apply across all sectors and business sizes, but the tax relief is limited to gains of €1m and drew a mixed response from industry.
Separately, income tax changes will bring business owners' tax burden on pay closer into line with rates paid by employees, Mr Noonan said. Business group IBEC's chief executive Danny McCoy hailed the Budget as the best for entrepreneurs "in over a decade".
"The reduction to capital gains tax will make it more attractive to invest in new businesses and expand existing operations," Mr McCoy said.
"This, along with a new tax credit for the self-employed, will encourage more people to start their own businesses and create jobs.
"The Budget will help support a more balanced mix of large and small companies, domestic and international, operating across the economy."
Michael Noonan said the Budget measures are aimed at providing incentives to risk- takers to establish their own businesses.
However, one leading Irish entrepreneur dismissed yesterday's measures as "meaningless."
Serial entrepreneur Brian Caulfield, who has been involved in a string of technology firms that have been sold for tens of millions of dollars, insisted the Government "just doesn't get it" when it comes to providing incentives for people who branch out on their own.
Michael Noonan said that the rate of Capital Gains Tax applying to the net chargeable gains from the disposal of assets of the whole or part of a trade or business will be cut to 20pc from 33pc.
Business owners will have a lifetime limit of €1m on such gains, and they must have owned the business for at least three years before they can avail of the lower rate.
Speaking to the Irish Independent, Mr Caulfield insisted that Irish entrepreneurs will still be paying three times more tax on a disposal than they would in the UK.
He also criticised the reduced CGT rate and the raised limits on the Employment Incentive and Investment Scheme (EIIS).
The EIIS allows companies to raise finance from investors, who in turn benefit from tax relief. It replaced the Business Expansion Scheme.
Mr Noonan yesterday said the limit that companies can raise under the EIIS is being raised to €15m from €10m, and that €5m can be raised in any one year, up from €2.5m.
Mr Caulfield said the EIIS fails to address the problems faced by startups, and said incentives should be targeted at companies seeking to raise small amounts of capital.
"There is virtually no uptake of the EIIS because it's too restrictive and too complex," he said.
But Mr Noonan said that the relief has been identified by entrepreneurs as an important support.
He said that, in 2013, the relief supported 1,038 companies that employ 11,750 people - at an estimated cost to the Exchequer of €4.9m.
Mr Noonan also said he's introducing an Earned Income Tax Credit of €550 to address a disparity that exists between employees and small business owners or entrepreneurs.
Employees in the PAYE system benefit from a PAYE income tax credit worth €1,650 per annum, to which the self-assessed are not entitled.
The new tax credit will be available to people who don't currently benefit from the PAYE tax credit but who have an earned income. "This will be a significant benefit to small business owners right across the country, including small retailers, publicans, farmers and tradesmen," said Mr Noonan.
"I see this measure as a first step and further steps will be taken in future budgets, as resources permit."
The Department of Finance said: "While self-assessed taxpayers do have some benefits compared to PAYE workers in terms of the timing of when they pay their tax and a somewhat more liberal expenses regime, their lack of an equivalent to the PAYE tax credit is a significant difference."