John McGuinness (Carlow-Kilkenny, Fianna Fail)
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116. To ask the Minister for Finance if he has examined exempting corporation tax due on small and medium enterprises; if he has explored exempting capital gains tax for all investors in small and medium enterprises; the effect of this on Exchequer revenue generation; and if he will make a statement on the matter. [19266/15]

Michael Noonan (Limerick City, Fine Gael)
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I would like to inform the Deputy that measures have been introduced in the Taxes Acts in recent years which benefit small and medium enterprises.

A 3-year tax relief for start-up companies commencing a new trade was introduced in 2009, and extended in subsequent Finance Bills, as a support to encourage new business development. The relief is granted in respect of the profits of a new trade and chargeable gains on the disposal of any assets used for the purposes of the new trade. The relief is granted by reducing the corporation tax on profits relating to the trade to nil where the total amount of corporation tax payable by the company for an accounting period does not exceed €40,000. Marginal relief is granted on a tapering basis where the total amount of corporation tax liability for the accounting period is between €40,000 and €60,000.

The qualifying period has been extended in subsequent Finance Acts, and the relief is now available to qualifying companies commencing to trade up to and including 2015.  As part of one of the early extensions of the relief, in Finance Act 2011, the basis on which relief is computed was changed to link the reduction in corporation tax to the amount of employers' PRSI paid in an accounting period, subject to a limit of €5,000 per employee and an aggregate limit of €40,000. The purpose of this change was to better target the relief at companies generating employment.

Subsequent amendments have also extended the relief to provide that, where a start-up company does not have sufficient profits to claim the relief in a given year, any relief unclaimed in the first three years can be carried forward into future years for use against future corporation tax liabilities.

The total annual cost of the relief is €6m, and it was due to expire at the end of 2014. However in last year's Finance Bill it was extended to the end of 2015, in order to allow for a review of the operation of this measure to take place in 2015 to ensure that it meets the policy objectives of creating jobs and activity in Ireland and provides value for money for the Irish taxpayer.

I would also mention that certain small enterprise grants made under section 10(5) of the Údarás na Gaeltachta Act, 1979 and section 21(5)(a) (as amended by the Industrial Development (Amendment) Act, 1991) of the Industrial Development Act, 1986 are not liable to corporation tax under TCA, section 223.

Capital Gains Tax

Capital Gains Tax (CGT) is charged at the rate of 33% in respect of gains on the disposal of assets. The first €1,270 of gains made by an individual in any year is exempt from CGT.

The Finance Act 2014 provides relief from a future CGT liability for entrepreneurs who, on or after 1 January 2014 and on or before 31 December 2018, invest the proceeds of an earlier disposal in respect of which CGT was paid in new business ventures, which are subsequently sold.

A qualifying enterprise for the purpose of the relief is defined as an enterprise which, at the time of the making of the initial risk finance investment, is a micro, small or medium-sized enterprise, as defined in Article 2 of the Annex to Commission Recommendation 2003/361/EC of 6 May 2003 and which:

- has not been carrying on any business, trade or profession, or

- has been carrying on a trade, business or profession for less than 7 years. 

The relief is in the form of a tax credit against any capital gains tax liability on the future disposal of chargeable business assets of the qualifying enterprise made more than 3 years after they were acquired. The tax credit will be thelower of:

- the CGT paid on the earlier disposal where all the consideration on the disposal, apart from any CGT paid, is invested in chargeable business assets (or a proportionate amount where less than the full amount is reinvested), and

- 50 per cent of the CGT payable on the disposal of chargeable business assets.

Chargeable business assets are assets used wholly for the purposes of a new business carried on by an individual or new ordinary shares issued on or after 1 January 2014 in a qualifying company in which the shareholder is a full-time working director. The assets must have been acquired at a cost of not less than €10,000. In the case of investment through a company, each shareholder must own not less than 15% of the shares in the qualifying company carrying on the new business (or in a holding company which owns 100% of the ordinary share capital of a qualifying company carrying on a new business) and must be a full-time working director in the qualifying company. Assets held as passive investments do not qualify for the relief.

If the proceeds of a disposal of chargeable business assets are in turn reinvested in another new business, CGT relief can be claimed on the same basis as outlined above. At the time of its introduction, the CGT entrepreneur relief was estimated to cost €20m in a full year.

I have no plans to introduce full exemptions on the lines of those referred to by the Deputy.