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Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
Tax Pitfalls to be Avoided when Advising Aging Clients and their Families
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Tax Pitfalls to be Avoided when Advising Aging Clients and their Families

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In this 2 Hour Online CPD Course Liam Grimes discusses some of the main pitfalls which professional advisors may encounter when providing Tax advice to aging clients and their families. …

In this 2 Hour Online CPD Course Liam Grimes discusses some of the main pitfalls which professional advisors may encounter when providing Tax advice to aging clients and their families.

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  • 1. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. In Association with:- Online CPD for Accountants & Professional Advisors Tax Pitfalls to be avoided when advising Aging Clients and their Families Presenter: Liam Grimes CPDStore.com Unit 3, South Court, Block D, Iveagh Court, Wexford Road Business Park, 5 – 8 Harcourt Road, Carlow. Dublin 2. 059 9183888 01 4110000 www.OmniPro.ie www.CPDStore.com
  • 2. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Tax Pitfalls to be Avoided h Advising A id d when Ad i i Ageing Clients and their Families Wealth Planning - Steps Main Considerations  Generally not possible to apply a “one size fits all approach”, but useful to do the following:- 1) Define key objectives. 2) Determine a proposal that is capable of satisfying these key objectives. 3) Consider financial aspects (generally related to taxation and financing). 4) Implement the proposal.
  • 3. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Wealth Planning - Steps Defining Key Objectives  Should underpin the entire process. process  Financial analysis should involve the following steps:-. 1)List all assets and liabilities i.e. prepare a statement of net worth. 2)Estimate ongoing financial requirements for individual and spouse – recurring income and capital. 3)Identify assets that must be retained / accumulated to achieve 2) above. 4)Balance represents surplus assets? o Who gets what? o When will they get it? o Do they need to pay for it? Wealth Planning – Taxation Issues Transfers to a Spouse T f t S •Exempt from CGT •Exempt from CAT •Exempt from SD •But the problem is only deferred (potentially).
  • 4. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Wealth Planning – Taxation Issues Lifetime T Lif ti Transfers t Oth “Connected Persons” f to Other “C t dP ” • Market value consideration imposed under s549, TCA 1997. May have a large CGT liability in situations when no cash consideration is received. • Market value rules also apply for CAT purposes. Beneficiary may become asset rich but cash poor if they cannot claim CAT/CGT offset (will discuss later) or if they receive non-cash assets. • M k t value rules also apply f SD purposes b t th rate may b Market l l l l for but the t be reduced by 50% in the case of non-share transfers to “relatives”. • Different valuation rules for different taxes often overlooked. Wealth Planning – Taxation Issues Transfer on Death • No CGT and deemed acquisition at market value at time of death – s573, TCA 1997. • Market value rules apply for CAT purposes. No CAT/CGT offset as there is no CGT liability (will discuss later). • No SD on transfers out of the deceased estate.
  • 5. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Some of the Reliefs…… Business relief Retirement Ex-Gratia Payments Relief e e CAT/CGT Consanguinity offset Relief Planning Site / Group Dwelling Reconstruction Transfers Holding Pension company planning relief Retirement Relief Conditions Relating to the Disponer  Over 55 years (45 years for scheme to decommission fishing boats subject to Ministerial Order) Order).  “Chargeable Business Assets”. - Shares (including L&B used by the business and disposed at the same time and to the same person as the shares) or - “Qualifying Assets” of an unincorporated business  In the case of shares must be in a “Family Company”  Assets must be held for minimum of 10 years but remember the aggregation provisions e.g. holding of a spouse  “Working Director” – 10 years ending with disposal.  “Full Time Working Director” – 5 years out of the 10 years.  Disposals on/after 31 January 2008 subject to “bona fide” test.  FA 2010 – CGT taxable share-buyback gains within section.
  • 6. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. General • Applies to sale of trading assets (buildings,P&M and goodwill) by sole traders/practitioner. y p • Applies to sale of shares by directors in family companies. • Applies to property let by the director to the company if transferred/sold at the same time as the transfer/sale of shares. (December 2006 Q1) • Limit of €750k for proceeds for sales to 3rd parties • No limit for gifts/sales to children or favourite nieces/nephews. They must hold the assets for 6 years otherwise relief is clawed back and charged on the “Child”. Shares in a Family Company • Applies equally to spouses • Must be 55 or older • Limit €750,000 on the value of shares relating to chargeable business assets. Note: once you breach the €750k limit no retirement relief is due. You do not get an exemption on the first €750k and assess the balance. • The €750k is a lifetime relief. • Marginal relief may apply • Must be a director for 10years (5 years full time)- includes period as sole trader
  • 7. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Family Company • Must be a trading company • Must hold 25% of shares or • 10% of shares but with family members control 75% of company • Chargeable business assets (CBA) =land and buildings, goodwill and P&M • Total chargeable assets =chargeable business chargeable assets plus chargeable investments • Formula 1-€750k limit • Value received x CBA/Total Chargeable assets Shares in a Family Company • Applies equally to spouses • Must be 55 or older • Limit €750,000 on the value of shares relating to chargeable business assets • Marginal relief may apply • Must be a director for 10years (5 years full time)-includes period as sole trader
  • 8. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Family companies • Formula 2 • Once the limit of €750k is not breached • The relief is, gain on shares x CBA/CBA+investments -------------------------------------------------------- • No €750k limit if disposal is to child or favourite niece/nephew. • Favourite niece or nephew is a person who has worked substantially on a full time basis in the business for 5 years to date of disposal • “Child” must hold shares for 6 years to avoid a claw back of relief (assessable on child) Retirement relief • Miscellaneous: • You can get a mixture of the relief by transferring to children and selling to 3rd parties • Selling to 3rd parties would include a company redeeming its own shares. • Consider transferring shares to spouse before final sale to avail of two€750k limits. This assumes, though, that the spouse has been a director for 10years • Stamp duty of 1% on the transfer/gift of shares to children. • Watch for CAT –possible 90% business relief and CAT/CGT offset
  • 9. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Retirement relief-sole traders/partners • The same relief applies but assets-including goodwill must be owned for 10years. 10years • The assets must be used as a trading asset throughout the last 10years of ownership. Exception for farm land leased under EU scheme. 10 years is counted up until date land was first let.(Q.6 June 2006) • No need to apply formula as the proceeds for the chargeable trade assets (land/buildings/goodwill/p+m) are clearly identified. identified • When a sole trader/partner incorporates and then sells his/her share in the family company the period prior to incorporation is take for the purpose of computing the period in which he/she was a director. Retirement relief • Miscellaneous: • You can get a mixture of the relief by transferring to children and selling to 3rd parties • Selling to 3rd parties would include a company redeeming its own shares. • Consider transferring shares to spouse before final sale to avail of two€750k limits. This assumes, though, that the spouse has been a director for 10years. Watch anti avoidance rules-Later slide • Stamp duty of 1% on the transfer/gift of shares to children. • Watch for CAT –possible 90% business relief and CAT/CGT offset
  • 10. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Retirement Relief • Consideration Limits – CGT Exemption  None for disposal to “children”  €750,000 when disposing to strangers with possible marginal relief if consideration slightly exceeding €750,000  “Bad Assets” (e.g. investments) must be excluded and in the case of shareholdings - this is achieved by formula.  Some shares to children followed by a share buy-back? • Claw-back Provisions  6 years if disposal to children.  None when disposing to strangers. Teeming and ladling • If one spouse has an asset exceeding €750k and th other h an asset less that €750k d the th has tl th t consider transferring an amount to balance • Only works if transferring spouse is under 55 • Where over 55 the amount transferred to spouse eats into the €750k limit
  • 11. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Partition of Family Trading Company Partition of Family Trading Company • Family carries on separate trades under single company/group / • Shares reorganised into separate classes • New companies formed to take over separate trades • Each group of shareholders receive shares in a different company • Reliefs under s587 and s615 may apply
  • 12. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Conditions • No money (or worth) changes hands • N value shifting t k place No l hifti takes l • Accepted that assets t/f and shares received pass at original acquisition date and cost • Applies to 100% family companies • All parties must be Irish tax resident • Trades must be separately identifiable and trades must continue post partition • Must be for bona fide commercial reasons Example Before Jack Jill 50% 50% Company Alpha Trades T1 & T2
  • 13. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Example Apply Section 584 Jack Jill 50 Ordinary 50 ‘A’ Ordinary Company Alpha Company Alpha Trades T1 & T2 Example Apply Section 587 50 Ord 50 ‘A’ Ord 50 Ord 50 ‘A’ Ord Jack Jill Jack Jill Company Alpha Trades T1 & T2 Newco
  • 14. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Example Apply Section 615 Jack Jill 50 Ordinary 50 Ordinary 50 ‘A’ Ordinary 50 ‘A’ Ordinary Company Alpha Newco Trade 1 Trade 2 Example Companies Redeem Relevant Shares Jack Jill 50 Ordinary 50 ‘A’ Ordinary Company Alpha Newco Trade 1 Trade 2
  • 15. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Buy Back of shares Buy Backs • Section 130 TCA 1997 defines a distribution as i l di a situation where a company including it ti h buys back/redeems its own shares at a premium • The premium element of the redemption is regarded as a distribution in the hands of the recipient and liable as income under Sch F (individual) or treated as FII (Company)
  • 16. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Quoted companies • Section 175TCA 1997 regards the full redemption as b i li bl t CGT when: d ti being liable to h – The redemption is made by a quoted company General rule Non quoted companies The redemption will be treated as liable to CGT if the following conditions are met: Holding test – The shares have been held for 5 years Residence Test – The individual and company are resident in the state p y Trading Test – The shares are in a trading company
  • 17. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Buy backs Substantial reduction test • The % of overall shareholding held by the individual post redemption is 75% or less than the % of overall shareholding prior to redemption The connected test • Post redemption the individual is no longer connected with the company. That is s/he holds less than 30% of the overall shares in the company Trade benefit test • The redemption must be to benefit the trade of the company or its 51% trading subs. Benefits of CGT treatment • Indexation relief • Tax rate of 20% compared to 46% • Possibility of Retirement relief • Use of Company funds to buy out vendor • Retain control within a family by avoiding the necessity of selling to 3rd parties d
  • 18. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Trade benefit Test • Revenue Tax Briefing Article number 25 • Disagreement between shareholders on the management of the company, with adverse effects on the company’s trade • A shareholder wishes to sell to a 3rd party who may not be acceptable to the other shareholders Trade benefit test Example • A controlling shareholder who i retiring as a di t t lli h h ld h is ti i director to make way for new management (old to new) • Personal reps of deceased shareholder wishing to realise their investment Allows for the retention of some shares for sentimental reasons
  • 19. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Substantial reduction test • The % of overall shareholding held by the individual post redemption is 75% or less than the % of overall shareholding prior to redemption- Shareholding includes holding of spouse plus children under 18 Example Alpha:Mr A 40 shares-40% Mr B 40 shares-40% Mr C 20 shares-20% Alpha intends redeeming 20 shares of Mr A Substantial reduction test • Post redemption • Mr A 20 shares-25% • Mr B 40 shares-50% • Mr C 20 shares-25% • Test Prior 40%-Post 25% • 40 x 75%=30% therefore test is met
  • 20. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Planning aspects • Consider extracting ex -gratia payment on retirement by maximising SCSB g • Consider substantial pension contribution • If children are involved gift or sell all but €1.5m worth of shares prior to redemption-also claim Retirement relief • Use Buy back provisions to provide for tax free extraction of €750,000 or €1.5m in the case of a married couple by availing of retirement relief Business Property Relief (BPR) • Main conditions - No age limit (e g >= 55 years) (e.g. - No consideration limit - Disposal of “relevant business property” o A business or an interest in a business o Shares o Business assets used by a company/partnership - 5 year ownership in the case of gifts - 2 year ownership in the case of inheritances • 90% reduction in taxable value • Exclude “bad assets” • 6 year clawback period
  • 21. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. BPR - Decision Tree Company p y Good Assets Bad Assets Qualifying Non qualifying 2.5% tax 25% tax Agriculture Relief • Main conditions - A ‘farmer’ (80% test) - Gifts / inheritances taken on condition that the benefit will be invested in agricultural property within a 2 year period qualify if such a condition is satisfied. • 90% reduction in market value of agricultural property • FA (No 2) 2008 extended relief to agricultural land situated in any EU member state • 6 year claw-back period but can avoid if proceeds reinvested (subject to time limits) in replacement agricultural property – note FA 2010 anti-avoidance that denies re-investment relief if replacement agricultural property purchased from a spouse.
  • 22. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CGT / CAT Offsets Key Issues – s104, CATCA 2003  “Same Event” transfers  Credit CGT paid against CAT  Need to have CAT capacity – order of transfers important  Finance Act 2006 changes – no offset if beneficiary sells asset within 2 years y Succession Planning – Taxation Reliefs • Dwelling House CAT Exemption (s86, CATCA 2003)  Gift / inheritance of a dwelling house (area limit but any value)  Continuously occupied as the only or main residence of the beneficiary for 3 years immediately preceding the gift or inheritance.  Beneficiary must not have an interest in another dwelling at the date of the gift / inheritance.  Claw-back provisions if the house is sold or the beneficiary (< 55 years at the date of the gift / inheritance) ceases to reside in the house for 6 years years.  No corresponding CGT / SD reliefs for lifetime transfers – although PPR relief may be available to donor.  Finance Act 2007 – Gifts (not inheritances) of family home to child excluded unless parents moved out > 3 years prior to gift.
  • 23. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Succession Planning – Taxation Reliefs • Exemption on Transferring a Site to a Child  Parent to child transfers of a site on which a dwelling will be constructed as the childs only or main residence.  Market value of the dwelling site < €500,000.  CGT exemption for parent under s603A, TCA 1997.  SD exemption for the child under s83A, SDCA 1997.  No corresponding CAT relief but might be covered by g p p g g y group threshold.  Claw-back of CGT relief (chargeable on the child) if the child sells the site or sells the dwelling before having lived in it as his/her only or main residence for a period of 3 years. Consanguinity Relief Stamp Duty on Lifetime Transfers  Transfer of shares - 1% duty  Transfer of other assets - to family members – maximum 3% duty - to others – maximum 6% duty y
  • 24. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Ex-Gratia Termination Payments Key Features y  Cannot have a contractual entitlement to receive.  Basic Exemption (s201, TCA 1997) of €10,160 plus €765 for each complete year of service. An extra €10,000 possible under Schedule 3(8).  SCSB Formula – good if (a) long service record (20 – 40 years) and (b) low “relevant capital sum in relation to an office or employment”  Cap of €200 000 €200,000  Remember “top-slicing relief” can significantly reduce the final tax liability if the “average” tax rate over the past 3 years less than the marginal effective rate of tax incurred on the taxable element of the ex-gratia. Pension Planning Contributions b Individuals C t ib ti by I di id l  Maximum amounts (15% - 40%) depending on age.  €150,000 earnings cap. Contributions by Employer  More flexibility to fund.  More generous contributions allowed if there is an employer sponsored occupational pension scheme.
  • 25. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Pension Planning Retirement Options – looking at self employed/proprietary directors (> p g p y p p y ( 5% voting rights)  25% tax free - subject to €1.25m cap (as indexed - €1.354m for 2010) by FA 2006.  Purchase an annuity.  Transfer to an AMRF/ARF and pay tax under PAYE on withdrawals.  Withdraw fund under deduction of PAYE.  C t l over fund pre and post retirement. Control f d d t ti t  Gross roll up regime attractive for certain assets e.g. high yielding equities  Restrictions on what can be held – i.e. “nothing you can enjoy!” Pension Planning Transfers on Death – Inheritance of the ARF  No tax to spouse (ARF regime continues)  Children < 21 – No IT but there may be CAT  Children > 21 – Standard rate IT but no CAT  Others – Marginal rate IT and there may be CAT g y
  • 26. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Pension Planning Finance Act 2006 Changes  3% imputed distribution from ARF’s introduced on a phased basis – 2007 (1%), 2008 (2%) and 2009 et seq. (3%)  “Personal Fund Threshold” 1. €5m (indexed going forward - €5.418m for 2010) but higher if MV of fund > €5m on 7 December 2005. 2. €5m limit (as indexed) caps 25% tax free lump sum – now €1.25m (as indexed - €1.354m for 2010). Pension Planning  “Benefit Crystallisation Event” - Review when becoming entitled to pension benefits. - Amount over fund threshold (“chargeable excess”) taxable at marginal IT rate. - Get no credit for tax paid when drawing benefits.
  • 27. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Negligible value • When an asset has become worthless or has a negligible value then th li ibl l th there i no obvious is b i market to trigger a disposal and realise a gain. • When an Inspector is satisfied that an asset has little or no value s/he will allow a deemed disposal, therefore triggering the loss. • Claim must be made by filing date. Discretionary Trusts • Settlors liable to CGT on assets lodged with Trust T t • Beneficaries liable to CAT when assets leave Trust • Levy 6% on value of Truston death of Settlor or (if later) when youngest beneficiary reaches 21 • 1% annual levy thereafter
  • 28. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Family Partnerships • Parent settles property on partnership- possible CGT ibl • Children are partners so are beneficially entitle in possession. CGT/CAT offset. • Increase in value of assets escapes charge to CAT Family Partnership • Ideal when children are young • Parent acts as a general partner so controls what is bought and sold • Best when initial capital is cash as assets transferred gives rise to disposal at MV (CGT) • CAT cannot be avoided on percentage of cash/assets transferred to children as partners
  • 29. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Family Partnerships • No discretionary trust tax • No CAT on exit • Possible CGT on exit based on percentage share transferred Donation of Heritage Items • The value of heritage items (paintings, manuscripts, etc) donated t museums, art i t t )d t d to t galleries, etc. can be allowed as a tax credit New provision • Credit is lower of – Market value per revenue valuer and – The value tendered by donor (or price paid)
  • 30. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Personal Companies • Trading companies held by private personal companies i Persons Coming to and Leaving Ireland • Issues of residence and ordinary residence. y • Issues of domicile. • Issues of charging sections i.e. Ireland’s taxing rights • Issues of reliefs. • Issues of case law, Statements of Practice, eBiefings etc. • Issues of anti-avoidance legislation.
  • 31. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Recent Finance Act Changes Finance Act 2008 • Extension of remittance basis (income only) Finance Act 2008 (No 2) • Residency rules (“mid-night test” repealed) • Special assignment relief (introduced) • Extension of remittance basis (gains) Finance Act 2010 Fi A t • Introduction of the domicile levy. • Remittance basis abolished for Irish domiciled individuals. • Special assignment relief (amended) Residence, Ordinary Residence and Domicile Resident under “days test” (s.819, TCA 1997) • “Day” “D ” – old “Cinderella” t t replaced b “ ld “Ci d ll ” test l d by “any ti time d i a d ” t t during day” test • 183 days + in the State during the tax year, or • 280 days + in the State during current and previous tax year. • But, But remember the 30 day rule i e if in the State for “not more than 30 days”, i.e. not days then • Not resident for that year. • That year not taken into account for the purpose of the 280 days test.
  • 32. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residence, Ordinary Residence and Domicile 2. 2 Resident b l ti (s.819, R id t by election ( 819 TCA 1997) • Not resident under the “days” test. • May “elect” to be resident for a tax year if he/she can satisfy an officer of the Revenue Commissioners that he/she is in the State with the intention and in such circumstances that he/she will be resident in the State in the following tax year. • If test satisfied then the individual shall f th purpose of th A t b t t ti fi d th th i di id l h ll for the f the Acts be deemed to be resident in the State. Residence, Ordinary Residence and Domicile 3. Residence by Ordinary Residence (s.821, TCA 1997) • Often forgotten test. • Not resident under the “days test” or by “election test”. • Irelands taxing rights are restricted – discuss later. 4. Treaty Residence • Not a test per se • Dual resident under domestic rules e.g. Ireland and UK • “Tie breaker” clause determines country with primary taxing rights and county with secondary taxing rights • Takes precedence over domestic legislation
  • 33. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residence, Ordinary Residence and Domicile Ordinary Residence - s.820, TCA 1997 • Ordinarily resident if resident for each of the 3 years of assessment preceding that tax year. • Don’t lose ordinary residence status until non-resident for 3 years. Residence, Ordinary Residence & Domicile Domicile – No Statutory References • Domicile of Origin • Domicile of Choice • Domicile of minors / dependents • Bunch of case law in footnote to s.71, TCA 1997 in your Taxes Acts.
  • 34. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residence, Ordinary Residence & Domicile Domicile Levy (FA 2010 introduced) • Aimed at high net worth individuals who reside abroad • Domicile levy of €200k applies if: - Irish domiciled and Irish citizen - Residence irrelevant - Worldwide income > €1m - Market value of Irish property > €5m • Credit given for any Irish income tax paid • Submit domicile levy return on or before following 31 October Income Tax and Residence
  • 35. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Income Tax – Table of Possible Scenarios Possible Scenario Ireland’s Taxing Rights Irish resident, ordinarily resident and Worldwide income. domiciled. domiciled Irish resident but not ordinarily resident Worldwide income - remittance basis on foreign Irish domiciled and Irish citizen source income abolished by FA 2010. Irish resident but not Irish domiciled Irish and remittance basis on foreign income. Not resident but ordinarily resident Deemed resident but section not applied to income (remember 3rd way of becoming from a trade, profession or employment exercised resident above) wholly outside the State and other income if not > €3,810. Not resident or ordinarily resident and Irish source income only e.g. rents, Irish not Irish domiciled. office/employment, foreign employment where duties exercised in Ireland. Not resident or ordinarily resident but Irish source income but certain high net worth Irish domiciled and Irish citizen individuals may also be liable to the domicile levy. Capital Gains Tax and Residence
  • 36. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CGT – Table of Possible Scenarios Possible Scenario Ireland’s Taxing Rights Irish resident or ordinarily Worldwide gains. resident and domiciled. Irish resident or ordinarily Irish (and pre–FA (No 2) 2008 UK) source gains and foreign gains resident and not Irish on a remittance basis. domiciled. Not resident or ordinarily Irish source gains – i.e. “specified assets” resident. 1. Land in the State 2. Minerals in the State or rights to mining or minerals or the searching for minerals. 3. Exploration rights under s.2 of the Continental Shelf Act, 1968. 4. Non-quoted shares deriving their value or the greater part of their value from and 1 – 3 above. 5. Assets of a branch or agency in the State e.g. goodwill of an Irish PE. Capital Acquisitions Tax and Residence
  • 37. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CAT – Table of Possible Scenarios Possible Scenario Ireland’s Taxing Rights Dispositions on/after 1/12/1999 Irish resident or ordinarily The whole of the gift or inheritance. A non-domiciled resident donor or donee. donor or donee is not considered resident or ordinarily resident until 31/12/2004 and then only if resident or ordinarily resident for 5 consecutive years preceding the relevant date. Non-Irish resident/ordinarily Irish situated property. resident donor or donee CAT – Table of Possible Scenarios Possible Scenario Ireland’s Taxing Rights Dispositions Before 1/12/1999 Irish domiciled disponer. The whole of the gift or inheritance. Non-Irish domiciled disponer. Irish situated property.
  • 38. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residency Related Reliefs Residency Related Reliefs Major Provisions • Remittance basis – s29 (CGT) and s71 (IT) 1. Who and what qualifies? 2. Mixing income and capital “pools” – Scottish Provident Institution v Allen. 3. Watch for “constructive” remittances. • Split Year Residence – s822, TCA 1997 1. Year of arrival or departure. 2. Employment income only. • Cross Border Relief – s825A, TCA 1997 1. Aimed at commuters to UK, but wider than the UK. 2. Qualifying conditions (“qualifying employment”, 13 week rule etc). 3. Formula to compute a reduction in Irish tax liability.
  • 39. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residency Related Anti-Avoidance Residency Related Anti-Avoidance s.29A, TCA 1997 Bob Smith (Irish resident, ordinarily resident and domiciled) has an idea going non-resident, so as to be able to realise CGT free gains on the disposal of his assets which have greatly appreciated in value over recent times. His assets include the following:- M.V € % Shares (Bob Smith Holdings) 2,000,000 100 Shares – Irish quoted 400,000 Negligible Shares – UK quoted 750,000 750 000 Negligible Investment property – Dublin 1,000,000 50% Co-owned Investment property – France 1,250,000 75% Co-Owned Does his idea work?
  • 40. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residency Related Anti-Avoidance s.29A, TCA 1997 • s29, TCA 1997 is the CGT charging section. Liable on worldwide gains if Irish domiciled and either resident or ordinarily resident in Ireland. This is Bob’s y starting position. • Need to keep visits to Ireland to (a) < 140 days a year on average for 3 years and (b) never >183 days in any one year for 3 years in order to remove Ireland’s worldwide taxing rights. • Might take less than 3 years to mitigate Ireland’s taxing rights if he acquires tax residence in a suitable foreign jurisdiction i e become “treaty resident using i.e. treaty resident” the “tie-breaker” clause in a suitably worded DTA. • However, cannot remove Ireland’s taxing rights on “specified assets” i.e. gain on selling Irish land always chargeable. Residency Related Anti-Avoidance s.29A, TCA 1997 • Need to consider provisions of s29A, TCA 1997 which is an anti-avoidance provision that targets “temporary” non-residents. • What does the section do? Answer:- It imposes an exit CGT charge on the disposal of certain chargeable assets held before going non-resident i.e. deemed disposal at market value on the last day of the year of departure. However, only applies to “relevant assets” sold within the 5 year window between going non-resident and resuming Irish residence. • What assets? Answer:- shares or rights to acquire shares whose market value on the l t d of th year of d l th last day f the f departure (l t d resident i I l d) t (last day id t in Ireland) exceed 5% of the value of the company or €500,000.
  • 41. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residency Related Anti-Avoidance s.29A, TCA 1997 • s29A may bite in relation to the shareholding in Bob Smith Holdings and UK y g g quoted shareholding only. No charge on Irish quoted shares (< 5% and €500,000) and non share related assets (French investment property). As outlined above, gain on Irish property always taxable. • Can claim credit for foreign tax paid under s29A. • Self-assessment clock starts running from the year of arrival and not the year of departure when the deemed disposal is treated as having occurred. occurred • Conclusion:- Savings possible but need to weigh the potential tax savings against the personal sacrifices that need to be maintained over a number of years. Residency Related Anti-Avoidance s.806, TCA 1997 • John (Irish Resident Individual) € –Foreign deposit interest 125,000 –Foreign rental income 200,000 –Foreign dividend income 75,000 400,000 • Implications of transferring income generating assets to:- i. A non-resident company?; or ii.A non-resident ii A non resident trust? • John’s ultimate plan is to get access to the income at some stage in the future. • Income that is arising is not John’s income => John avoids Irish tax ???
  • 42. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residency Related Anti-Avoidance s.806, TCA 1997 Does Idea Work? • A transfer of assets abroad  • Transfer for bona fide reasons x • John has ‘power to enjoy’ income  • Section 806 apply?  => Income taxed as John’s income as it arises => Only taxed when remitted if John non-domiciled => Impact of DTA (Asahi case)? Residency Related Anti-Avoidance s.590, TCA 1997 David D id John J h Mary Res/OR/Dom Res/OR/Dom Res/OR/non-dom 3% 57% 40% Non-Resident ‘Close’ Company Asset Disposal Gain €1,000,000
  • 43. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Residency Related Anti-Avoidance s.590, TCA 1997 Gain Shareholder Share of Gain Attributed Explanation Under s.590? David 30,000 Nil Shareholding <1/20ths John 570,000 570,000 s.590 applies Non-Domiciled Non Domiciled Mary 400,000 Nil => No s.590 charge 1,000,000 570,000 Residency Related Anti-Avoidance s.590, TCA 1997 • No “bona fide” test in s.590, TCA 1997 • Any difference if non-resident close company resident in a y y DTA country (e.g. UK) or a non-DTA country (e.g. IoM)? • Impact of DTA (Asahi Case)?

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