Treasury and Resources
Ministerial Decision Report
2013 Budget – enacting legislation to support the proposals in the Draft 2013 Budget Statement
- Purpose of Report
The purpose of this report is to present a summary of the Minister’s budget proposals relating to the following enacting legislation ahead of lodging on 17 October 2012:
- Finance (2013 Budget) (Jersey) Law 201-
- Income Tax (Amendment No. 41) (Jersey) Law 201-
- Goods and Services Tax (Amendment No. 4) (Jersey) Law 201-
The legislation will be lodged together with the 2013 Budget Proposition and Draft 2013 Budget Statement.
- Background
The legislation supports the 2013 Budget proposition and the proposals contained within the draft 2013 Budget Statement.
- Proposals
A summary of the proposed measures to which the enacting legislation relate are listed below:
Income Tax Proposals
Unless specifically stated, all changes come into effect for year of assessment 2013.
Other than the measures relating to income tax exemption thresholds and allowances, all income tax amendments are included within the draft Income Tax (Amendment No. 41) (Jersey) Law 201-. The former are included in the draft Finance (2013 Budget) (Jersey) Law 201-.
Exemption thresholds
The Minister proposes to increase the income tax exemption thresholds for the year of assessment 2013 by 3% in line with the increase in inflation for the year to June 2012.
Allowances
It is proposed to retain allowances at the same level as in 2012.
Taxable distributions
It is proposed to redefine, and extend, the definition of what constitutes a taxable distribution from a Jersey resident company. The purpose of this measure is to ensure that when taxpayers operating via a company receive a distribution from that company,
the proportion of that distribution that represents taxable profits arising in the company
is subject to income tax.
This amendment has three strands to it:
• amending the definition of what is a taxable distribution;
• reducing the risk of deferring a tax liability; and
• ensuring that these rules apply to the distribution of cash and non-cash assets.
Intermediary Service Vehicle (personal services company)
The Minister proposes to introduce specific legislation to deter taxpayers from using
a corporate vehicle through which to provide their personal services. In the absence of specific provisions on this issue, there may be an opportunity for a taxpayer to defer their income tax liability by effectively disguising what would ordinarily be employment income. Employment income received directly would be subject to income tax via the ITIS system. Although the general anti avoidance rule can be invoked in many circumstances, it is considered appropriate to introduce specific, targeted legislation to provide certainty.
This proposal will ensure that individuals who are effectively employees are not able to
obtain beneficial tax treatment, compared to an employee who is not in a position to operate via a “personal service company”.
Amending the “group relief” rules for certain companies
The Income Tax Law allows certain companies to shelter profits from tax by utilising losses
that arose in another company within that corporate ‘group’. Under the current law, it is possible for losses arising in a 0% company to be offset against certain profits in another company subject to tax at 20%. This was not the intention of the law following the introduction of zero/ten. It is proposed to amend the law to prevent this from being possible.
Benefit in kind exemption for directors
The Minister proposes to amend a specific exemption from income tax that exists for
controlling shareholders. Under the existing rules, taxpayers are not subject to a benefit-in-kind income tax charge provided no deduction is sought in relation to the provision of the benefit within the employing company’s tax computation. In the case of companies that are subject to tax at 0%, and following the removal of the shareholder tax rules, this rule is ineffective. This measure will ensure the benefit-in-kind rules cannot be abused by controlling shareholders.
Exemptions for non-residents
The Minister proposes an amendment in respect of dividends paid to non-residents. This will ensure that non-residents are only exempt from income tax on dividends if those dividends have been paid out of profits that have been taxed at 0% on the company.
The amendment will be effective from 17 October 2012. Any claims made before 17 October 2012 for the repayment of income tax due under the Income Tax Law will be determined, and permitted, in accordance with the Income Tax Law as it existed prior to that date. Any claims made on or after the 17 October 2012 will be dealt with under the Income Tax Law, as amended.
Repeal of income tax relief on life insurance premiums
The Minister proposes to withdraw the current availability of income tax relief on premiums
paid for life insurance cover. The majority of income tax reliefs for higher earners were withdrawn as part of the ‘20-means-20’ measures. Most of these measures took full effect from 2011. Tax relief continued to be available for certain life insurance policies in place in 2007, but only for higher earners. The Minister proposes to remove the availability of income tax relief. This measure is the final step in removing the availability of the relief.
Rental income of non-resident landlords – penalty regime
The Minister proposes to clarify the Comptroller’s ability to apply penalties on non-resident
landlords in cases where tax has not been withheld when it should have been. Under the existing rules, an agent who receives rent in respect of a property in Jersey on behalf of a non-resident landlord is required to deduct tax at rate of 20%, in cases where the non-resident landlord does not have a ‘certificate of good compliance’. If that agent does not deduct and remit the income tax within a specified period, they will be subject to a financial penalty.
This measure amends a technicality within the existing law to ensure this penalty provision
is effective, thereby encouraging agents to ensure the correct amount of income tax is paid
on time.
Additional personal allowance
An amendment is proposed to rectify the law following the move to ‘20-means-20’ to ensure that a married taxpayer who is entitled to claim child allowance, cannot also claim the additional personal allowance, save for in certain limited circumstances.
Enhanced ITIS measures
One of the cornerstone elements of the ITIS system is that employers are obliged to withhold income tax from their employees’ salaries and remit those funds to the Taxes Office within a specified period. There are some persistent offenders who do not comply with this requirement. This measure will enable the Comptroller to issue estimated assessments to those non-compliant employers followed by legal proceedings if the estimated tax is unpaid.
Long standing ‘concessions and practice’
The Minister proposes to enshrine into law some long-standing concessional practices.
These are as follows:
- Dividends paid by the Channel Islands Co-operative Society Ltd will not be regarded as taxable income.
- War widows’ pensions and war disability pensions, regardless of which government they are paid by, will not be regarded as taxable income.
- Allow a loss arising from non Jersey possessions to be offset against other taxable income from non Jersey possessions in the same tax year.
Legislating for these measures will provide clarity and certainty thereby facilitating taxpayer compliance.
Exemptions for private medical insurance
Under the existing rules employee private medical premiums paid by their employer are exempt from the charge to income tax unless the employee has claimed income tax relief themselves. Since the implementation of ‘20-means-20’, tax relief is not available to the
employee. This measure is to remove an ineffective piece of legislation because individuals are no longer able to claim relief.
Goods and Services Tax Proposals
Bad debt relief
The Minister proposes an administrative amendment to bring into law the practice which is set out in the Public Information Leaflet “Relief on Bad Debts” issued in August 2008, to prevent double relief for GST in the case of unpaid invoices.
Share transfers on domestic property
The Minister proposes an amendment to align the GST treatment of transactions in residential properties which are sold directly, with those properties sold by way of share transfer. At present domestic property sold directly is zero rated, whereas that sold by share transfer is exempt. This causes administrative difficulties to both the Taxes Office and taxpayers. This amendment makes share transfer transactions of domestic property and related parking facilities zero rated, in line with the general policy for domestic property.
Impôts Duty Proposals and Stamp Duty
All impôts duty, Stamp Duty and Land Transactions Tax measures are included in the draft Finance (2013 Budget) (Jersey) Law 201-.
Alcohol and tobacco duties
Increase the duty on alcohol and tobacco duties as follows:
- A 10% increase on all spirits and wines.
- An 8% increase on strong beer and cider (exceeding 4.9% abv).
- A 5% increase on weaker beer and cider (not exceeding 4.9% abv).
- A 10% increase on tobacco products.
This represents an increase of:
- £1.05 on a litre of spirits;
- 13 pence on a bottle of wine;
- 2 pence on a pint of ordinary beer; and
- 38 pence on a packet of 20 cigarettes.
Fuel duty
Increase the rate of duty on all fuels by 6.9%. This represents an increase of 3p per litre.
Vehicle Emissions Duty
Increase all rates of Vehicle Emissions Duty by 5%.
Stamp Duty and Land Transactions Tax - First time buyers relief
The Minister proposes to extend the reduced rate of Stamp Duty and Land Transaction Tax charged to first-time buyers of properties which was introduced in Budget 2012. This
amendment will retain the extension, from £400,000 to £450,000, to the property ceiling
up to which first time buyers are eligible for relief from Stamp Duty and Land Transaction Tax. The purpose is to make it cheaper for first time buyers to purchase a property, thereby acting as a stimulus to the housing market.
This is a temporary measure, intended to take effect from 1 December 2012 and will stay in place until 31 December 2013.
Probate Duty
There is a proposed amendment to the Stamp Duties and Fees legislation to reintroduce
a cap on the amount of probate duty that is payable on an estate. Until 2005, there was a cap on the amount of probate duty that was payable on an estate. Probate duty of 0.75% was payable on the majority of the value of an estate up to £13,360,000. The effect of this was that the maximum amount of probate duty payable on an estate was capped at £100,000. Under the existing rules, probate duty is payable on the entire value of an estate.
This has put the Island at a competitive disadvantage and encouraged non-local advisers to adopt non-Jersey based structures in order to avoid the potential liability to probate duty. The potential loss of business is primarily in relation to the establishment and administration or management of companies owned by individuals rather than by trustees or corporations. It has also had the effect of reducing the amount of cash deposited in Jersey banks. There is evidence of hundreds of millions of pounds not coming to Jersey because of the potential probate duty costs.
The reintroduction of this cap will enhance Jersey’s competitiveness and remove a barrier to investment in the Island by non-residents.
Stamp Duty court fees
It is proposed to introduce Stamp Duty court fees for contested Petty Debts Court hearings. The proposal is to continue to exempt payment for the applications and trials in cases where the claim is up to £3,000 but to introduce a charge of £300 per day or any part of a day in those cases where the claim exceeds £3,000. In the vast majority of cases the proposed court fee would represent 10% or less of the amount claimed.
- Recommendation
It is recommended that the Minister for Treasury and Resources approves the 2013 Budget enacting legislation together with the European Court of Human Rights Statements, accompanying Report and the Decision Summary, and that the legislation be lodged au Greffe on Wednesday 17 October 2012 so as to allow the 2013 Budget proposition to be debated by the States at the sitting of 4 December 2012.
It is also recommended that the Minister request that an Act of Declaration is lodged so that the legislation may have immediate effect.
- Reason for Decision
The 2013 Budget enacting Legislation is to be lodged “au Greffe” at least 6 weeks prior to debate on 4 December 2012 as required by the Public Finances (Jersey) Law 2005.
- Resource Implications
Staffing implications
The proposals within the draft 2013 Budget Statement will be implemented without any increase to current approved staffing levels.
Financial implications
The tax measures within the Budget are broadly neutral and, together with the Duty increases and existing measures, will deliver taxation income of £614,829,000 and contribute to total States income of £647,044,000 in 2013, in accordance with the draft Medium Term Financial Plan 2013-2015.
Report author : Senior Manager – Tax Policy | Document date : 12.10.2012 |
Quality Assurance / Review : Director of Tax Policy | File name and path: w:\international\business tax review\2013 budget\md paperwork\lodge\wr - 2013 budget enacting legislation.doc |
MD sponsor : Treasurer of the States |
gov.je