Income Tax AmendmentNo 2 Bill 2004 15th November 2004

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Income Tax (Amendment)(No 2)Bill 200415th
November 2004
Practitioners Seminar
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Arrangements

• Fire Exit
• Mobiles turned off please
• Copies of Slides available
• On ITD website
• Or leave a Business card
• Health Warning subject to Legislative process

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Introduction - Purpose of meeting

• Opportunity to meet Malcolm Couch
• Tax Strategy update
• Background to the next Bill
• Inform on proposed timescale for the next Bill
• Opportunity to consult / discuss
• Details of the last Act e.g. Accounts basis
• Policy within this Bill e.g. Distributions

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Agenda

• Taxation Strategy update Ian Kelly
• Where are we up to?
• Next Steps
• Framework of IT (A) (No 2) Bill John
  Williamson
• Land Transactions
• Taxation of Non-residents
• Married Couples Alice Martin
• Undistributed profits Ian Kelly
• Personal Introduction Malcolm Couch
• Questions Panel
• Close Ian Kelly

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Taxation Strategy Update

• Oct 2000 Taxation Strategy approved by Tynwald
• Oct 2002 Modified for Code of Conduct issues
• Oct 2003 Exchange of information
• May 2004 EU Savings Directive

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Income Tax Legislative Programme

• Tax Strategy Aims -
• Modernise the Income Tax System
• Satisfy International Obligations
• Simpler
• Fairer
• Protection of the Revenue

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Legislative Programme

• Income Tax Act 2003
• Income Tax (Amendment) Act 2004
• Income Tax (Amendment) (No.2) Bill 2004
• EU Savings Directive
• Corporate Tax Bill
• Pensions
• Consolidation

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Tax Strategy Update

• Next Steps
• Continue domestic changes
• Reduce taxation for companies
• General fee for companies
• Corporate Tax
• Removal of harmful practices

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Income Tax (Amendment)(No. 2) Bill 2004

• Transactions in Land
• Taxation of Non Residents
• Married Couples Treatment
• Undistributed Profits
• Rates of Tax
• Discounts
• CT Annual Charge
• Temporary Tax Order confirmation Lower rate for
  companies
• Miscellaneous amendments

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Transactions in Land

• Policy - Land is a national asset
• Protect population from speculation
• Avoid quick fix development
• Everyone should benefit when value increases
• Protect revenue take regarding trading in
  property
• Stability of property market

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The Proposed Mechanics

• Retain current charging provision
• Section 2
• Onus on us to prove trading income
• Income Tax (Amendment) (No 2) Bill 2004
• New schedule
• New charging provision gain treated as income
• 3 cases A, B, C and ability to prescribe D
• List of circumstances outside the scope

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Aim to charge

• Property Developers who do not hold the land for
  7 years
• Persons who do not hold the land for five years,
  unless they have lived in the property as only or
  main residence for last 18 months
• Persons escaping a charge because they have lived
  in the property for 18 months, however they
  cannot meet financial commitments (living on
  development profits)
• Ability to define further charge by Treasury
  Regulations if necessary

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Outside the scope

• Otherwise chargeable
• Personal representative disposing of deceased
  persons land
• Inherited property
• Leaving the Island (to take up employment
  elsewhere)
• Disposal outside their control
• Disposal by Board, Authority, Crown or charity
• Business property

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Computation

• Part of normal assessment
• Treated as trading income but no Class 4 NIC
• Proceeds less expenses reasonable for a trade
• Cost / MV
• Valuation fees
• Estate agents fees
• Advertising
• Legal fees
• Enhancement expenditure

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Key Issues

• Clarity over Land
• Contracts within the scope
• Date of disposal
• Signing / exchange / money exchanges hands
• Disposal outside their control
• Loss relief
• Reporting requirements advocates?
• Clearance procedure for certainty

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Taxation of Non Residents

• Restriction of liability of Non Residents
• UK S 128 concept
• Allowances for Non Residents
• Change to Income Tax (Amendment) Act 2004 rules

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Married Couples

• Consultation Document issued Oct 2003
• How to update the legislation to -
• Make it compatible with European Convention on
  Human Rights
• Improve fairness and equality of treatment
• Retain benefits of aggregated treatment
• Should other couples be included?

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Married Couples

• Feedback
• Most supported continuation of joint treatment
• Some favoured application to married couples only
• More flexibility over time limits for elections
• Keep it simple

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Married Couples

• Specific Issues
• Respect confidentiality of married couples,
  unless they decide differently
• Burden of taxation should not fall on one partner
• Payments or repayments should be made to the
  individual or couple as appropriate
• Increase time limits for election process

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Married Couples

• Independent treatment, or
• Election for joint taxation
• Aggregation of income, deductions, allowances and
  reliefs
• Documents issued in joint names
• Both signatures required on return forms
• Named partner for correspondence cheques
• Partners will be jointly and severally liable

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Married Couples

• Election conditional upon both being
• Resident at start of the year and for the full
  tax year
• Married and living together for the full year
• New resident rules
• Independent in year of marriage, separation or
  death
• Transfer of unutilised allowances on
• Marriage
• Death
• Transitional provisions

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Distributable Profits

• Why do we have to do anything?
• 2 Regimes
• Code of Conduct compliant
• Protect the domestic tax base
• Mixture of Primary and Subordinate legislation
• Maintain competitiveness Taxation Strategy

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Distributable Profits

• Distributing companies
• Tax credit equal to rate of tax paid by company
• Non-distributing companies
• Deemed distribution
• Distributable income
• Taxable income e.g. includes Capital Allowances

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Distributable Profits

• Clubs Associations outside the scope
• Investment company 100 distribution
• Trading company
• Distributing company - basic test
• Non-distributing company 60 _at_ 18
• 10 rate companies
• Rental income, property development

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Distributable Profits

• Consultation
• Definition of distributing company
• Averaging, start ups
• Administrative issues
• Tracking dividends, returns, payments
• Share Options
• Anti-avoidance
• Differential share regimes, winding up,
  liquidation

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Personal Introduction

• Malcolm Couch started work with the Income Tax
  Division on 1 November
• He is working alongside Ian Kelly until the end
  of November
• A combination of Ians support and the strong
  (and recently augmented) management of the
  Division will ensure a smooth handover

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Personal Introduction

• During a 15 year career in tax, Malcolm has
  gained wide experience in both the public and
  private sectors, and at the international level
• His most recent role was with Shell as a tax
  manager in their North Latin America and
  Caribbean region

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Personal Introduction

• At a time of many challenges, the Income Tax
  Division remains committed to delivering change
  professionally within the context of the
  Governments Economic Strategy 2004
• Consultation with the professions and industry
  continues to be a vital part of the way that we
  operate

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Personal Introduction

• Malcolm is delighted to have been appointed as
  Assessor and is looking forward to playing his
  part in ensuring the future prosperity of the
  Island and its people
• He is married to Caroline, and has two young
  children who are now happily in school

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???????
QUESTIONS
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Close

• Modernise the Income Tax System
• Satisfy International Obligations
• Maintain a competitive tax environment
• Continue working with the industry
• Feedback comments to
• E-mail richard.carter_at_itd.treasury.gov.im
• By 10th Dec 2004 please

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Income Tax (Amendment)(No 2)Bill 200415th
November 2004
Practitioners Seminar