2011 Sep 13 - Brendan Twohig - Topical Tax Issues

TOPICAL TAX ISSUES Maryborough House Hotel 13th September 2011© M.K.Brazil

Overview:Part 1: Tax Planning Reminder (Pre Budget)Part 2: Opening a Foreign Bank AccountPart 3: Some Topical Tax IssuesPart 4: Summary <> Q & A© M.K.Brazil

Summary of Revenue Interventions (Importance of getting things right): 2006 2007 2008 2009 2010 A udits A udits A udits A udits A udits C o m ple te d C o m ple te d C o m ple te d C o m ple te d C o m ple te dComprehensive (all taxheads) 4,127 3,875 3,904 4,353 4,209Multi-Tax/Duty Audits 1,757 2,206 2,065 1,735 1,374Single Tax/Duty Audits 6,305 6,603 6,082 5,053 3,841Single Issue / Transaction Audits 1,437 1,624 1,363 1,278 1,584Total 13,626 14,308 13,414 12,419 11,008Assurance Checks 176,064 237,626 347,445 361,299 454,796Total Interventions 189,690 251,934 360,859 373,718 465,804 © M.K.Brazil

(Pre-Budget) TAX PLANNING REMINDER© M.K.Brazil

HighLow 1980s ================Late 90s==================== 2009/11 = / Asset Value / Income / Inflation / Tax Rates / Reliefs / Exemptions© M.K.Brazil

• Overhaul of CGT/CAT Regimes - Tiered rates, reducing allowances, etc=> Now is the time to consider….. - Succession planning - Retirement planning - Tidy up groups - Extract cash/assets from companies …basically anything that triggers a tax charge, and especially anything that triggers capital taxes. © M.K.Brazil

Opening a Foreign Bank Account© M.K.Brazil

Opening a Foreign Bank Account:• Genuine concern about Irish bank system - Also more businesses exporting, more individuals working abroad etc• Many people moving money overseas, but many don’t consider the potential tax implications• Lets consider just three: 1) Chargeable Person 2) Exempt v Income Tax v CGT 3) Tax on the interest arising © M.K.Brazil

1) Chargeable Person:• S. 895(6) – ...If, during a chargeable period,… – ..an Irish resident person opens a ‘foreign account’.. – ..then, he/she is a ‘chargeable person’ for that period.• Foreign Account = held at a location outside of the State• Open a foreign bank account = Must submit a Form 11 (Must disclose the opening of the account) © M.K.Brazil

2) Potential CGT Exposure:• Exempt if for personal expenditure – S.541(6) - Holidays, maintaining foreign residence• Income Tax (or CT) if trade-related account – S.79 - Basically P & L dictates tax treatment• CGT - if not the above! – S.532 - non-Irish currency = Asset for CGT purposes © M.K.Brazil

CGT cont...• Suilta has savings of €100k• He opens UK bank account in Jan. 2011= stg£80,000• Closed the account in May 2011 = €110k  Capital Gain of €10,000• How many people disclose this? (hence S.895 above)• ( Imagine investment co. with stg£ / us$ bank accounts – Each lodgement is an acquisition, e.g. interest credited – Each withdrawal is a disposal, e.g. cheques, bank charges – Care needs to be taken ) © M.K.Brazil

3) Taxing the Interest:• S.267M• Interest arising in a Member State of the European Communities - other than Ireland• Taxed @ Irish DIRT rate – but not at source• BUT - only if pay & file on time.• Summary – Irish savings = 27% - taxed at source (but really 31% as no USC) – EU savings = 27% - but not ‘at source’ (really 31%) – Non-EU = Marginal rate 41% + (really 55% as USC applies) © M.K.Brazil

Taxing the Interest cont...• Also - Foreign tax considerations, e.g.: – DTT provisions – Credit v Taxing rights – If no DTT – Local tax and Irish tax @ 50%+ on net – Local rules, e.g. Deposit A/C = Inheritance• Don’t forget Remittance Basis for non-Irish Domiciled © M.K.Brazil

Opening a foreign bank account - Summary• Fear motivates Action – but not Planning – Consider actual purpose and requirements – Consider wider implications – Plan accordingly – but that requires information and experience• Get Advice – e.g. – Would Irish Branch of UK Bank be more suitable? – Stg£ Based & UK Guarantee – but Irish DIRT – Similar options available for other currencies – Which banks are subject to which guarantee? © M.K.Brazil

Topical Issues© M.K.Brazil

Matching Losses & Gains:• Think before you act - Example: – Fiachra invests €100k in ‘UOME Fund’ - linked to Irish property – Fund value falls to €20k so he cashes out of UOME fund – Invests remaining €20k in IOU fund - linked to German property – IOU fund matures at €80k. – €60k increase in IOU fund liable to tax, even though Fiachra actually lost €20k!!! (€80k loss in UOME fund lost forever).• What could he have done differently? – Keep the money in UOME fund but re-allocate to German Property – No tax on €80,000 realised as invested €100k © M.K.Brazil

Never Too Late for Pension Planning:• Never too late to fund pension plan – esp. Directors• Spouses of Directors often over-looked (Individualisation = Spouse Salary = Possible Pension Entitlements)• Remember ‘Small Fund’ rulesExample:- Brighid aged over 60 - Company director – about to retire etc- Company contributes €24,000 to ARF- Brighid waits 12 months: – takes €6k tax-free lump-sum - Balance drawn down @ < 25%. – even after costs - effective tax < 20% © M.K.Brazil

Rental Properties:• Landlords facing difficult times – Household Charge / PRTB / NPPR / BER etc etc• At least ensure tax is in order – Separate Rental Accounts – Loan Interest Restriction 75% (81½ % in 2009) – PRTB Registration v Loan Interest Deduction – Mortgage Protection Premiums - often unclaimed – Spouses - can’t t/f losses but can t/f property• Pre-letting Costs not Allowable, but... © M.K.Brazil

Rental Properties cont...:• Brand new commercial property• 4 units - only one let• Pre-letting restriction? 25% allowable? Com m ercial Unit Un it 1 Un it 2 Un it 3 Un it 4 © M.K.Brazil

Inter-Spouse Transactions:• Exempt is not the same as irrelevant – RR €750,000, VAT, Home Carers, etc – Note Gift v Inheritance = Original Cost v New Cost• Example - Liam & Ala: – Liam bought Unit for €2m in 2005 - now valued @ €500k – He bought House for €5k in 1985 - now valued @ €200k  If he gifts Unit to Ala now - Base Cost for Ala is €2m  If he gifts house to Ala now - Base Cost is €5k  If she inherits the unit - Base Cost €500k  If she inherits the house - Base Cost €200k© M.K.Brazil

Summary:• Difficult Time for everyone – Don’t make it worse• Avoid the avoidable and avail of the available – Identify potential opportunities and pitfalls – Take your points and the goals will come• Get advice when in doubt – Its good to talk! © M.K.Brazil

This presentation is intended to be informative but in a generic and interesting manner and issues are condensed in the interest of clarity and brevity which may lead to over-simplification and inaccuracies. The slides and speakers comments are based on the current tax rules, regulations, practices and interpretations. These factors change constantly and consequently the information contained herein should be considered in this context. This format does not facilitate a more comprehensive examination of the issues covered. In addition, many of the comments are based on the author’s personal interpretation of the relevant events, statements and documents and may differ from the interpretation of others. Please note that this presentation was intended to be a only general guide and further advice should be obtained before taking, or refraining from taking, any action. Neither the speaker nor MK Brazil accept any responsibility for any party acting on the basis of the information disclosed either orally or in writing during this presentation.© M.K.Brazil

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2011 Sep 13 - Brendan Twohig - Topical Tax Issues

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2011 Sep 13 - Brendan Twohig - Topical Tax Issues — Presentation Transcript