I might make a submission on a proposed investment product

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Corola said:
Why then do we need another layer of complexity with tax-free SIA products, when we already have a CGT exemption threshold that could be increased and extended to cover funds.
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A tax-free SIA product reduces complexity.

You invest your money into the wrapper, it generates capital gains and income, it can compound, no tracking required, no tax returns need to be made.

When I lived in the UK, I never once heard anyone talking about how the ISA added complexity.
 
Corola said:
Why then do we need to add another layer of complexity with tax-free SIA products, when we already have a CGT exemption threshold that could be increased and extended to cover funds.
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Because the government has spent the last 10 years resisting changes to the taxation of funds, whereas they were involved in creating the SIU/SIAs at the EU level and have committed to implementing the strategy and begun work on it. So we can a) make submission number 4 million asking for the scrapping of DD/Exit Tax or b) push the open door of advocating for SIAs and try to steer them to a sensible place.
 
I agree the products exist. The real opportunity here is a once in a generation change to the taxing of these products. I dont understand the reluctance to push for a significant tax free element or at the very least a significant increase in CGT allowance. If we want to achieve something like the ISA in the UK, now is the chance to push for it.
 
Jordan Belfort said:
1. Treat ETFs the same shares. Tax as CGT and allow losses in one against gains in another
2. Reduce fund tax to same as CGT and remove deemed disposals requirements
3. Remove the stamp duty on Irish shares
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Just so I am clear.

I don't think it will be possible to have a different tax treatment on ETFs compared to non-traded funds?

If the 38% exit tax on ETFs is to be reduced, surely it would also be reduced for all funds, e.g. non-traded funds offered by life assurers?

The same applies to deemed disposal.

This means going back to the tax regime before 2001?
 
jpmackey said:
Do people really think the average Irish saver will be incentivised to invest in the stock market (via an ETF) at a 33% CGT rate?
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A far bigger issue to the average person is the chance of losses, this is a bigger issue than 33% versus 38% exit tax.
 
Brendan Burgess said:
So is that a submission which the vast majority on askaboutmoney would agree with?
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Obviously, the best would be making ETFs work as part of the CGT rules.

Dividends should be considered capital gains (unless the owner is a senior employee of the company, and can abuse the rule to convert salary into capital gains).

Failing that, I suggest making deemed disposal much less of a hassle.

At the moment, you have to track each individual transaction. Each purchase has to be individually handled on its 8th anniversary.

So, keep deemed disposal, but have it happen only once every 8 years. All ETF activity in that 8 years period is taxed in one go.

Effectively, the deemed disposal would mean that you must nominally sell & re-buy all your ETFs on the 8th anniversary of your oldest ETF.

This resets them all to age 0 and then 8 years later you will have to do it again.

This means a slightly higher tax payout, but that can be compensated by reducing the rate slightly, to keep it revenue neutral.

Keeping it simple.

You just need 4 numbers.

Start value: total value of all ETFs at start of period [*]
End value: total value of all ETFs at end of period
Proceeds: total cash received by selling ETFs in the period
Cost: total cash spent on buying ETFs in the period

[*] The start value must equal the end value of the previous period, when the last tax was paid, or zero for the first cycle

It might be worth limiting ETFs to index funds that cover at least a country, if that makes it easier politically.

I would also treat distributing and accumulating ETFs the same, but that is just me. The dividends from distributing ETFs would just count as extra proceeds and be tax free otherwise.

Calculation

ETF gain: (Start value) - (end value) + (proceeds - cost)

tax payable = rate * (ETF gain)

This is really simple to work out. If you sell the ETFs the day before the end, it is still included in the gain as proceeds. Also, anything you spend on the ETFs is deducted as cost.

There is an issue with time value of money, since cash is not index linked, but this keeps everything simple and people only have to do it once every 8 years.

It may hit people who make a small purchase, and then 7 years later make a big purchase, but even then it is still only the gains that are taxed. They just have to do deemed disposal on any gain on the big purchase after 1 year.

The rule could allow making payments early, but 8 years is the max delay. Alternative, you could allow (but not require) that the period can be broken up into parts. I don't think it matters that much, each person will have an ETF year based on when they initially buy ETFs.

Finally, this rule allows offsetting losses in one ETF against gains in another.

Protocol said:
DD was introduced to prevent somebody doing gross rollup forever, and never paying tax.
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Which is funny since you can do that with CGT. If you invest in stocks and then wait until you die, your heirs don't have to pay CGT on gains up until your death.

The idea is that they pay CAT instead, but that is often eliminated due to thresholds.

Maybe they should change it so that you can offset CAT payments against the CGT. Ofc, the family home is exempt from CGT anyway.
 
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I think an ISA type solution is what is needed. I am more familiar with the Canadian Tax Free Savings Account., which has an accumulating limit of $7k per year., relatively low but if someone doesnt start to late 20s they can start with a 70k capacity. Its very simple, you can do whatever you want in there and it is tax free, it think its a little more straight forward /has less options than the ISA in UK. It solves issues regarding different rates for different product in one go. The yearly limit is low enough that it really is aimed at the middle earner but the flexibility of accumulation means you dont miss out if you cant contribute for a single year.

The only downside is it doesnt really help the person in ireland aged 50 who has build up savings in a bank. Maybe they could give people a starting cap based on age on a limit based on age like pensions.
 
Greenbook said:
How do derivatives convert dividends into capital gains? My understanding of an ETF is that is holds all the shares in an index in accordance with their weighting. It receives dividends from those companies
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You are describing passive index tracking ETFs. They can be done crudely as you describe but many use derivatives to some extent to track an index.
Greenbook said:
I googled 'UCITS ETF tax treatment in France', 'UCITS ETF tax treatment in Germany' and so on. Now I haven't looked at every single country in Europe, but aside from Ireland, I have seen very little on deemed disposals.
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Yes deemed disposals are an Irish solution to an Irish problem. This is covered elsewhere but the key aspect of the Exit Tax regime which the life companies cherish is that tax payments are handled by the life company and are paid at a composite rate without any reference to the saver's tax status. Originally it was only payable when a saver "exited" but this became abused by whales who saw a way to avoid any tax ever and so deemed exit (disposal) was introduced.
Originally ETFs were taxed in the way that you and others are asking for and that was sensible but again those whales were messing things up with accumulator ETFs. I presume it was lobbying from the life industry and unit trusts that brought the treatment of ETFs into line with the life companies.
In the jurisdictions that you quote life companies are the tail and not the dog and it is they who are treated the same as the ETFs, that is taxation is a matter for the individual. That is the more natural situation as it allows for taxation to be progressive,
In short, lobbying to have the ETF tax treatment restored to its original and more natural position threatens to put the taxation of life assurance savings on the same basis.
 
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Brendan Burgess said:
This treatment would give investors in ETFs a small tax advantage over direct investors in shares in that they would be paying CGT on the realised gains instead of Income Tax on the dividends. But it would be in the public interest to encourage more Irish citizens to invest in the stock market and this small tax incentive would be tolerable.
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You should suggest that there should be a tax exemption up to a certain level on share dividends. Or a share dividends tax credit.

You should suggest that class K Prsi should be abolished on bank deposit interest and share dividends. This penal charge which gives no Prsi benefits is totally unfair.
At the very least anybody with bank interest or shares dividends over 5k who are currently paying class K should be changed to class S payers.

Also you should suggest that the Irish government should put forward at EU level, a policy of harmonising dividend withholding tax for all EU countries to match the reclaimable amount allowed.

This could be set at 15%. Irish share investors in EU markets are currently disadvantaged compared to Irish investors in UK and US markets.
 
Greenbook said:
That would not suit the life companies. Is that correct?
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No, that's nonsense. The life assurance industry has lobbied for the same reforms on managed funds as individual investors have on ETFs*. Reducing the tax burden and frictions to investing benefits life assurance companies just as much as ETF investors.

*see submissions to the Fund Sector Report 2030
 
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Greenbook said:
That would not suit the life companies. Is that correct?
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Yep. I have done some extensive doodles elsewhere in these parts and it shows that with the Exit Tax down to 38% the DD regime stacks up ok versus the alternatives. There are two reasons the life companies like the ExitTax/DD regime.
1) There is no messing with tax compliance for the saver. This is especially appealing for the mass market.
2) Because the system is blind to the saver's tax status Exit Tax is a composite rate reflecting a mix of standard rate and higher rate taxpayers. It is still higher than the CGT rate but compares favourably with 40% tax plus USC.
 
Thanks @Duke of Marmalade

I thought myself that the resistance to abolishing the DD was because Revenue and/or Department of Finance officials thought that ETFs were tax avoidance vehicles.

I can see now the attractions of the current regime for the life assurance industry.

Why do you think that removing DD from ETFs would mean that life assurance would have to move to a more normal regime too? They are two very different things surely or am I missing something again.
 
Duke of Marmalade said:
Yep. I have done some extensive doodles elsewhere in these parts and it shows that with the Exit Tax down to 38% the DD regime stacks up ok versus the alternatives. There are two reasons the life companies like the ExitTax/DD regime.
1) There is no messing with tax compliance for the saver. This is especially appealing for the mass market.
2) Because the system is blind to the saver's tax status Exit Tax is a composite rate reflecting a mix of standard rate and higher rate taxpayers. It is still higher than the CGT rate but compares favourably with 40% tax plus USC.
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Yes.

For the mass of ordinary savers, if offered this choice:

(1) the life assurer will deal the tax liabilities within the policy, no effort required by saver, but charges an AMC of 1%

(2) the individual saver submits a Form 11 to deal with taxation, on managed funds / ETFs, but can pay as little as 0.20% AMC on passive funds

the majority of savers will choose (1), in my opinion.

Form 11s are not designed for the average saver.

In a sense, the life cos like the complexity, as its delivers savers to them.
 
Corola said:
No, that's nonsense. The life assurance industry has lobbied for the same reforms on managed funds as individual investors have on ETFs*. Reducing the tax burden and frictions to investing benefits life assurance companies just as much as ETF investors.
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I followed your advice and read their submission to the Funds Report.
Naturally they put in the shopping list of requests including not quite asking for Deemed Disposal to be dropped but disingenuously referring to DD only applying in one of 5 other jurisdictions they looked at. But it was half hearted. They spent much more time on asking for the 1% insurance levy to be dropped and for the LAET to be dropped to the level of DIRT. There was no sense in which they were asking for the same treatment as individual investment. This was a key comment:
Insurance Ireland submission to Funds Sector consultation said:
From a consumer perspective, the tax should be the final liability taxes as this is simpler for customers.
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The last thing they want is something like the UK system were individuals are taxed according to their tax status with higher rate taxpayers having to pay extra tax on the top slice of their encashment.
 
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