The Gazette 1988

GAZETTE

DECEMBER 1988

of the Incorporated Law Society of Ireland on the 1989 Budget The following is the text of the Law Society's submission on the 1989 Budget prepared by the Taxation Committee.

1. Simplification of the Tax System The greatest advantage a tax system can have is its simplicity and its simplicity is the greatest encouragement to compliance. In general everything possible should be done to simplify the Tax Code w i t h a v i ew to boos t i ng the Revenue yield and at the same time to enhance economic activity. A particular emphasis should be placed on compliance w i th a view to minimising compliance costs, both for the Revenue and for the taxpayer. 2. C.A.T. The current high level of the top rates yields very little tax while at the same time those high rates serve to make the country un- attractive to capital, both domestic and foreign. The psychological negative impact of the current top rates is far out of proportion to the yield from those rates. Because of the level of U.K. taxation, currently the max imum rate is 4 0%, it is essential that this country takes measures to improve its position. Ideally, our top rates should be below the British rate w i t h a view to making this country attractive to free floating capital f r om such locations as South Africa and Hong Kong. Consequently, it is submitted and recommended that the flat rate be 3 5% w i th more generous personal allowances. This recommendation would leave most normal estates in the country unaffected to a large extent insofar as their payments to the Revenue are concerned. In addition to the reduction in rate to 35%, it is submitted that the f o l l ow i ng specific changes be considered w i th a view to relieving hardship and, in some areas, for the sake of consistency, (a) At present, there is no time limit put on the period over

s u ch p r ope r t y. Non - ag r i- cultural business is not so relieved although an employer in t hat t y pe of business p r o b a b ly emp l o ys mo re people than the farmer. Such business could be run, either personally or t h r ough the medium of a company. It is submitted that non-agricultural business be given the same relief as Agricultural Property. A basic principle of taxation is that it should be fair. In the Act, the Oireachtas accepted that acquisitions from close family members would be given more relief than acquisi- t i o ns f r om mo re d i s t a nt relationships. O t h er ma t t e rs w h i c h should be taken into account are: (i) the degree of hardship inflicted by the tax; (ii) that the individuals and

the taxpayer as full records must be kept, ad infinitum, e i t her ma n u a l ly or on computer. Neither method is suitable for keeping records over an indefinite period. It is submi t t ed t hat an aggre- gation period of seven years would be sufficient for this tax. It is submi t t ed that gifts between spouses should be exempt from Gift Tax. This would make the tax con- sistent as it affects spouses. It is submitted that, in the interest of Equity, thresholds be index linked and the new t h r e s ho l ds be a n n o u n c ed each Budget Day by the Minister for Finance. This is the position in the U.K. The small gift exemption of £ 5 0 0 has r ema i n ed un- changed since 1978. It is submitted that this exemption be increased to £1,000 and be applied to inheritances, as we l l. Th is w o u l d relieve Personal Re p r e s e n t a t i v es f r om ma k i ng i n - d e p th enquiries into trivial cases. Nephews and nieces are given favourable treatment in certain circumstances under t he p r o v i s i ons of Par. 9, Second Schedule - First Part of the Capital Acquisitions Tax Act, 1976. In the circum- stances set out there, they will be treated as children for tax purposes. Grandchildren are of closer relationship, both in terms of blood and in terms of affection and are likely to be working in the circum- stances set out in that Para- graph. It is submitted that grandchildren be given the same favourable treatment as the nephew or niece in the same circumstances. Agricultural property is rightly given special treatment in Sect. 19 of the Act wh i ch relieves the burden of tax on

(b)

(g)

(c)

(d)

their families be encour- aged to support them- selves out of their own resources, where poss- ible, and the State should not deprive individuals of assets given or saved t o p r o v i de s u p p o rt

(e)

during decrepitude or old age, particularly if the effect is to make such person a candidate for State assistance This type of hardship can take a number of forms: (i) Frequently a house is shared by t wo or more s i ng le or w i d o w ed

relatives and there is a relationship of mutual dependence going back many years. In most cases there is no other wealth other than the house. The succession of one (or more) of t hem to the house can cause severe financial hardship and force the survivor(s) to sell the house.

(f)

w h i c h a g g r e g a t i on t a k es place. This puts a heavy burden on the Revenue and

337