The Roadmap for Deemed Disposal - don't discuss other issues.

TomEdison said:
was your choice to invest in a bank deposit, the real capital value of which will almost invariably decline. If you want an asset whose value tends to (at least) keep pace with inflation choose a real asset, like shares or property. But if you do choose a bank deposit, don't expect an income tax exemption for doing so
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Other countries allow tax free thresholds even for savings accounts, the UK and France and other countries allow you to have a certain amount of savings tax free. Then above a certain threshold you pay tax. Again we are an outlier in taxing everything at a very high rate of 33% . The reason why we have relatively large sums on deposit is that they also tax investments and ETFs punitively, so people by default choose the lowest risk (in their minds) bank deposits. There is no justification for taxing heavily bank deposits which are already being eroded by inflation, they need to be called out on all this stuff.
 
TomEdison said:
Because the managed fund is buying and selling shares all the time on your behalf. If you bought and sold shares directly yourself the gains and losses (and the dividentds, of course) would be taxable; there's no reason to exempt them merely because you're doing it indirectly, through a fund manager. That would give a huge tax incentive to invest via managed funds; there's no public polciy reason for such a tax incentive.

The DD regime is crude and somewhat broad-brush, but it's intended to have the result that people who invest indirectly, via managed funds, pay tax in respect of earnings and gains accruing in the fund that is broadly comparable with the tax they would pay if they invested directly, and received the earings and gains directly.
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True, but all the buying and selling that the ETF fund manager is doing to track the index are not taxed, for policy decision in order to attract ETF in Ireland, at the fund manager level.

At the retail level, investors are punished because they did the sensible thing, investing in an extremely powerful and efficient asset (because all the transactions happening inside the wrapper are not taxed), with ultra-low cost and no fee given to a middle-man which statistically is more likely to do a worst job than the index.
 
Wolframius said:
True, but all the buying and selling that the ETF fund manager is doing to track the index are not taxed, for policy decision in order to attract ETF in Ireland, at the fund manager level.
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Well, two points about that.

First, not all ETFs are passivlely-managed index-trackers. You can have an actively managed ETF (just as you can have both actively and passively managed funds which use other structures, like a unit trust or a life assurance fund).

Secondly, so what? Revenue doesn't care why somebody acquires or disposes of shares. Your motive for undertaking a transaction is mostly irrelevant for tax purposes; all that matters is the nature of the transaction you undertake. So the tax treatment of a managed fund is never going to depend on whether the management strategy is active, trying to beat the index, or passive, trying to match the index.
Wolframius said:
At the retail level, investors are punished because they did the sensible thing, investing in an extremely powerful and efficient asset (because all the transactions happening inside the wrapper are not taxed), with ultra-low cost and no fee given to a middle-man which statistically is more likely to do a worst job than the index.
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So what? An investor who buys and sells shares himself, whether in an attempt to beat the market or in an attempt to match it, will pay tax on any gains realised and any income received. Why should he get a tax break for doing this indirectly, through a managed fund? If the passively-managed fund is, as you suggest, a powerful, efficient and wise investment, why should people get a tax break for investing it it? If its inherent qualities don't attract investors I don't think its the job of the state to encourage them in with tax concessions.
 
Duke of Marmalade said:
Recall the conversion from punts to euro. Everything in nominal terms including wages and tax bands and personal allowances were increased by c.26%.
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No. Redesignating my £100 deposit as €126 was not a nominal increase of 26%, because £1 = €1.26. The value of the two amounts is exacty the same, which is not true of the value of €126 in 2018 and the value of €126 in 2026.

If I changed my €126 into GBP 108, you wouldn't argue that I had suffered a 14% loss, would you?

I don't think this analogy is apt at all.
 
Greenbook said:
1. I earn 40k in 2026. I have 20k after tax.
2. By 1 January 2027, the 20k is only worth 18k in purchasing power due to inflation
3. My boss gives me a 2k pay increase in an attempt to compensate for the loss of purchasing power.
4. However I lose 1k of the 2k increase in tax meaning that my purchasing power is now 19k. Despite a pay increase, I'm worse off.
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No, you're better off. Before the pay increase, your purchasing power was only 18k in 2026 terms; now it's 19k in 2026 terms.

Inflation itself makes people worse off. You're effectively calling for them to be insulated from that by the tax system; the government should give them tax breaks to offset the effects of inflation.

While I can see the attractions of the argument, any time it has been tried it has been an unmitigated disaster, leading to spiralling inflation and economic catastrophe. The government is commited to reducing its tax revenues at a time when its own expenditure must increase to pay it own workers, and to buy the goods and services it needs (at inflated prices). The only way it can do this is by printing money, and we know what that does to inflation.

The only way a government can really protect people from inflation is by trying to address the causes of inflation, and so keep inflation low. This isn't always possible, or at any rate it isn't always successful, though over time governments have got better at it. But attempts to compensate for inflation after it has occurred, unless very narrowly targetted, are ultimately counterproductive.
 
TomEdison said:
Redesignating my £100 deposit as €126 was not a nominal increase of 26%, because £1 = €1.26.
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This is the problem with this medium it leads to0 easily to nitpicking which may be entirely well meaning. 126 is nominally bigger than 100, that is all I am saying. Ir£100 is certainly not nominally the same as €126
Let us imagine that inflation of 5% applies to everything. Let's say the name of the currency is the Shell. That would be exactly the same as the Shell's real value in Year 1 being 105% of the Shell's real value in Year 2. Let us in year 2 replace the Shell with the Acorn at the rate of 105 Shells to 100 Acorns. We are right back were we started and the tax bands etc. etc. in Acorns are nominally the same as they were in Shells.
@Greenbook is right. Indexing the tax bands is equivalent to maintaining the real effect of the tax system.
 
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Greenbook said:
But I am worse off because I started off with 20k. I'm just not as badly off as I would have been had I not got a pay rise.
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But it's the inflation that made you worse off. And it did that before either the pay increase or the tax on that pay increase.

Go back and look at your figures again:

You're paid 40k gross; take-home pay is 20k.

Inflation reduces the real value of your 20k take-home pay to 18k. That implies an inflation rate of 11.1%

Your employer gives you a 2k increase.

And now we come to the key point: a 2k increase on an 40k salary is only a 5% increase. You would not expect a 5% increase in salary to compensate you for an 11.1% inflation rate.

If anybody's treating you unfairly here, it's actually your employer. Assuming the goods and services you produce for him are subject to the same inflation as the rest of the economy, they now command prices that are 11.1% higher than they were a year ago. But he's only paying you 5% more to produce them than he did a year ago. He's trousering the difference.

That may be unfair to your employer. Inflation isn't uniform across the economy, and perhaps the particular things you produce, and he sells, have only gone up by 5%, or maybe even less. But, for whatever reason, he only gave you a 5% increase when inflation was 11.1%. If you're worse off, the reason is that your pay is not keeping pace with inflation.
 
TomEdison said:
But it's quite a differenent idea from only taxing investment income to the extent that it exceeds inflation.
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I agree with you there. Our tax system has a deep historical development all of its own. I seem to recall the concept of Cases for example. The idea seemed to me (not a tax expert) that these cases were compartmentalised. Losses in Case V could not be set against gains in Case VI for example. To the uninitiated (including moi) that doesn't look very fair but that's how our tax system evolved. So Capital and Income are non intersecting tax entities. You can't set capital losses against dividend income or for that matter against earned income.
 
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TomEdison said:
If you're worse off, the reason is that your pay is not keeping pace with inflation.
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I said from the start that my example was a crude one for illustration purposes.

I'm worse off due to inflation of course, but I'm more worse off because pay increases which only match inflation are taxed.

TomEdison said:
If anybody's treating you unfairly here, it's actually your employer. Assuming the goods and services you produce for him are subject to the same inflation as the rest of the economy, they now command prices that are 11.1% higher than they were a year ago. But he's only paying you 5% more to produce them than he did a year ago. He's trousering the difference.
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But isn't the 11.1% increase is purely inflationary as well, and the employer is being taxed on that purely inflationary increase also.

Anyway, we'll off-topic and down a rabbit hole. This is well away from the deemed disposal.

Bottom line is I can certainly see why the government would tax genuine and real increases in profits, gains or wages. Why it is beneficial and correct that they should tax what are, in reality, inflationary increases in profits, gains or wages ie. increases which in reality haven't happened at all is beyond me.
 
If you index everything (salary and tax bands), then it works out the same anyway.

Salary: 30k
Threshold: 20k
Rate: 20%
Tax: 20% of 10k = 2k

Inflation of 10%

Salary: 33k
Threshold: 22k
Rate: 20%
Tax: 20% of 11k = 2.2k

2.2k is the same as 2k without the 10% inflation.
 
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