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Income Tax (Amendment)(No 2) Bill 2004 15 th 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 profitsIan Kelly Personal IntroductionMalcolm Couch QuestionsPanel CloseIan Kelly

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Taxation Strategy Update Oct 2000Taxation Strategy approved by Tynwald Oct 2002Modified for Code of Conduct issues Oct 2003Exchange of information May 2004EU 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 1.Property Developers who do not hold the land for 7 years 2.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 3.Persons escaping a charge because they have lived in the property for 18+ months, however they cannot meet financial commitments (living on development profits) 4.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% @ 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@itd.treasury.gov.im By 10 th Dec 2004 please

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Income Tax (Amendment)(No 2) Bill 2004 15 th November 2004 Practitioners Seminar