A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
Tax Review for Practising Accountants
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Tax Review for Practising Accountants

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Brendan Twohig of MK Brazil delivers a 2 Hour Online CPD Course covering a range of topical Tax issues and opportunities facing practitioners. This rapid fire review presents the issues and solutions to some of the main tax challenges that are being experienced throughout Ireland. Brendan provides a rang of examples and case studies through the presentation.

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Tax Review for Practising Accountants

  1. 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 Review for Practising Accountants Presenter: Brendan Twohig – MK Brazil 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. 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. Taxation Review for Practising Accountants Supporting Documentation Index Contents Page Slide Set 1 – 26 Back Up Paper Foreign Currency Transactions 27 – 32 Loan Transactions 33 – 41 VAT – Capital Good Record 42 – 48 Tax Provisions – Over-looked Aspects Business Property Relief 49 – 50 S.79 Stamp Duty Exemption 51 – 52 Valuation Date v Date of Death 52 – 54 Inter-Spouse Transactions 55 Losses v Capital Allowances 56 – 57 Sale of a Patent 58 Doctors & Pensions 59 – 63 Sundry Other Issues False Claims 64 – 65 VAT Updates 65 – 67
  3. 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. The Practising Accountants Seminar 2011 Taxation Review for Practising Accountants g © M.K.Brazil Overview: Part 1: Foreign Currency Transaction Part 2: Loan Transaction Part 3: Capital Goods Scheme Part 4: Sundry Tax Provisions Part 5: Sundry & Summary (followed by Q & A) OmniPro Education & Training Page 1 of 66
  4. 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. Foreign Currency g y Transactions Foreign Currency/Bank Accounts: • Much more topical for various reasons – Boarder with stg£ – Many businesses importing/exporting – Immigration / Emigration – More business and personal travel – Investors/savers concern about Ireland/Banks/Euro • Many people moving money overseas, but many don’t consider the potential tax implications OmniPro Education & Training Page 2 of 66
  5. 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. Foreign Currency/Bank Accounts cont… • Typically foreign currency is either: 1) Trade related – S 79 applies S.79 o Basically follows accounting treatment but only if trade related 2) Personal – Exempt from Tax via S.541(6) • Holidays or foreign residence – but disclosure, 27% etc 3) Non-trade & Non-Personal = CGT as per S.532 • If not covered by above, then CGT should be considered CGT Example: • Suilta has savings of €100k • Opens UK bank account in Jan. 2011= stg£80,000 • Closed the account in May 2011 = €110k • => Capital Gain of €10,000 • Imagine investment co. with stg£ / us$ bank account – Each lodgement is an acquisition, e g interest credited acquisition e.g. – Each withdrawal is a disposal, e.g. cheques, bank charges – Multiple CGT computations OmniPro Education & Training Page 3 of 66
  6. 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. Foreign Currency/Bank Accounts cont… Obligation to Disclose: • S 895(6) S. – ...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 the State • If not-already a ‘chargeable person’ (foreign interest etc) simply opening a foreign account will create obligation to submit a Return. Taxing the Interest: • S.267M - Interest arising in a Member State of the European Communities - other than Ireland • Taxed @ Irish DIRT rate 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%) g ( y ) – Non-EU = Marginal rate 41% + (really 55% as USC applies) – Also - DTT? Local Rules? Remittance Basis, etc OmniPro Education & Training Page 4 of 66
  7. 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. Foreign Assets: • If asset bought and sold in foreign currency – Must convert each step – ‘can’t do global comp’ Example: • Alannah bought US shares for $100k and subsequently sold them for $90k. Based on exchange rates – at time of acquisition, $100,000 amounted to €80,000, but – at the time of disposal $90 000 amounted to €85 000 disposal, $90,000 €85,000.  Actual loss of $10,000 triggers a taxable gain of €5,000. Loan Transactions OmniPro Education & Training Page 5 of 66
  8. 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. Inter-company Loans: • Difference between ‘associated’ and ‘Group’ Fiachra Alannah Brighid Liam ALtd ALtd CLtd BLtd CLtd BLtd • Loan not always obvious - e.g. extended credit terms Mary Pat • Inter-company loans A Co B Co – Golden Share – Technical Group – no Audit Exemption – CRPSs - Loan can’t be repaid unless distributable reserves – Invoice for services - Vat, commercial basis, etc – Create Group - watch distributable reserves, Audit Exemption etc ALtd • Write-off of loan – S.87 - write-off might trigger tax bill for borrower BLtd CLtd • Convert into shares – S.547(2) – no loss relief if…. – S.626B if ord. shares – ‘Uncalled’ shares? OmniPro Education & Training Page 6 of 66
  9. 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. CGT on Loans: • A loan is an asset and thus liable to CGT – This can often causes difficulties, e.g. in liquidation cases Example: – MKB Ltd goes into liquidation – Its assets include trade debt owed by BET for €100k – All attempts to collect so far have proven unsuccessful – Liquidator distributes loan out to shareholders - valued @ €1. – BET subsequently pays €80k in full and final settlement!  C it l G i b shareholders of €79 999 Capital Gain by h h ld f €79,999 • Care should be taken re. assignment of loans – Valuation, anti-avoidance rules re. connected parties, etc CGT on Loans cont…: • As original creditor is exempt, the loss arising on a write down of the value of a debt is not allowable. – In above example – MKB Ltd has a loss of €99,999 but no loss relief is ( ) available via S.541(1). • Loss relief is also denied for ‘connected party’ acquisitions – Even though a gain could be taxed!! – If shareholders had acquired above loan at €100k – Subsequently they collected €60k in full settlement – No loss relief • Different rules for ‘Debt on a Security’ – Room for planning – but…. OmniPro Education & Training Page 7 of 66
  10. 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. Directors Loans: • Two common errors arise in practice where Directors take loans from their companies: 1) The company neglects to reclaim the income tax paid over when the loan arose (especially if loan was > 2 years ago). 2) The loan is often ‘interest free’ so a BIK could arise on the basis of the ‘preferential Loan’ provisions (12½% of the value of the loan!). Sundry Loan issues: • Directors’ loans to a company can have gift tax implications for other shareholders. • Directors’ loan to dormant companies – Don’t be afraid to retain for future use. • Inter-company Loan to dormant company – Might be useful for CCS if negative Reserves – Store Cash – deposit interest etc. – Repay loan using deposit interest. OmniPro Education & Training Page 8 of 66
  11. 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. Capital Goods Record C it l G d R d VAT – Capital Goods Scheme (CGS): • VAT life of 20 years imposed on buildings broken into 20 individual ‘intervals’ • Intervals – basically 12 months but with some changes • CGS for ‘Refurbishment’ is 10 years, and for ‘transitional long- leases’, the length of CGS is the remaining life if < 20. • Tax position to be reviewed each year and adjust if necessary e g necessary, e.g. exempt sales?, exempt use?, sale? (Calculation not pro-rata if annual entitlement varies by > 50%). OmniPro Education & Training Page 9 of 66
  12. 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. Capital Goods Record: • S.12E(12) “A capital good owner shall create and maintain a record (in this section referred to as a ‘capital good record’) in respect of each capital good and that record shall contain sufficient information to determine any adjustments in respect of that capital good required in accordance with this section” • Not just ‘owner’ - also development by tenant, Refurbishment, etc ( S.12E(1) - expenditure incurred on acquisition or development ) Capital Goods Record continued... • It is the Revenue’s Guide which outlines content – Total Tax Incurred – Initial VAT reclaimed – Date Adjustment Period begins – Number of Intervals – Initial Interval proportion of deductible use – Total Reviewed Deductible Amount – Portion of Deductible Amount for each Interval – Details of any Adjustments – Details of any Sale of the property OmniPro Education & Training Page 10 of 66
  13. 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. Capital Goods Record continued... Example: • BT purchased unit on 13/09/2010 for €10m + VAT of €1.35m • He expects full Vatable use so initially reclaims €1.35m • Actually used only for 80% Vatable activities in first 12 months. • In 2015 and 2016 the use falls to 70%. • I 2019 th % use rises t 95% In the i to 95%. • Apart from 2015, 2016 & 2019, the % use remains at 80%. Capital Goods Record - Example cont...: • Total Tax Incurred €1,350,000 • I iti l I t Initial Interval P ti of D d tibl use l Portion f Deductible 80% • Total Reviewed Deductible Amount€1,080,000 (€1.35m x 80%) • Initial Interval Adjustment €270,000 (€1.35m - 1.08m) • Base Tax Amount €67,500 (€1.35m / 20) • Reference deduction amount €54,000 (€1.08m / 20) • Interval Deductible Amount €67,500 x ?% OmniPro Education & Training Page 11 of 66
  14. 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. A B C (A xB) (C-A) Interval Start Finish Total Tax IPofDU TD R A IRefund C IIA Initial 13/09/10 12/09/11 €1,350,000 80% €1,080,000 €1,350,000 (270,000) A B C (A xB) D (C - D) Base TA P of DUse I DAmount R A D mount IAdjstmnt 2 12/09/11 31/12/11 €67,500 €67500 80% €54,000 €54000 €54,000 €54000 0 3 01/01/12 31/12/12 €67,500 80% €54,000 €54,000 0 4 01/01/13 31/12/13 €67,500 80% €54,000 €54,000 0 5 01/01/14 31/12/14 €67,500 80% €54,000 €54,000 0 6 01/01/15 31/12/15 €67,500 70% €47,250 €54,000 (6,750) 7 01/01/16 31/12/16 €67,500 70% €47,250 €54,000 (6,750) 8 01/01/17 31/12/17 €67,500 80% €54,000 €54,000 0 9 01/01/18 31/12/18 €67,500 €67500 80% €54,000 €54000 €54,000 €54000 0 10 01/01/19 31/12/19 €67,500 95% €64,125 €54,000 10,125 11 01/01/20 31/12/20 €67,500 80% €54,000 €54,000 0         20 01/01/29 31/12/29 €67,500 80% €54,000 €54,000 0 VAT CGS & Other Taxes: • Note how CGS adjustment interacts with other taxes Example: • Suilta buys property for €100k (plus VAT €20k). He sells it for €200k 6 years later (Sale exempt from VAT) => Gain Arising €100k? => CGS adjustment – Claw back €15k (€20k x 15/20) j ( ) => Don’t forget to adjust base cost to €115k => Gain arising actually €85k. OmniPro Education & Training Page 12 of 66
  15. 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. Tax Provisions – overlooked aspects Business Relief: • Example: – Mick & Kate Brazil own the local Pub - operated via company – Company > 10 years ago, both aged > 55 – Own Pub jointly, rented to MKB Ltd – Values: Premises €600k MKB Ltd shares €200k €600k, – Intention is to transfer business to Son, Breandán. OmniPro Education & Training Page 13 of 66
  16. 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. Business Relief cont...: • Solution? – Both RR and BR apply to shares in a family company pp y y p y – Both RR and BPR facilitate property held outside the company  Gift everything to Breandán at the same time • No CGT due to S.599 • No CAT due to S.90 (€800k @ 10% - €80k < Threshold) • Ignore SD and VAT etc – But……... Business Relief cont...: • Review S.93(1)(e) – “used …for the purposes of a business carried on by a company...of which the disponer then had control…..a p p person is deemed to have control of a company …if that person then had control of the powers of voting on all questions…..which if exercised would have yielded a majority of the votes capable of being exercised…”. – Requires Disponer to control majority of voting rights • Neither Mick nor Kitty control > 50% of the votes! – Kitty transfers her share of the Pub and 1 share to Mick? – Anti-avoidance? OmniPro Education & Training Page 14 of 66
  17. 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. S.79 Stamp Duty Relief: • S.79 facilitates t/f of assets between associated companies (Associated – basically 90% Group) • Clawed back if relationship broken within 2 years • But - S.79(5) (no relief if t/f part of an arrangement under which the companies were to cease to be associated). • Tax advisor outlines proposal and refers to something like; p p g ; ‘the plan is to wait 2 years before liquidating the company so as to avoid the 2-year claw back rule’!! – This in itself could prevent the exemption applying Valuation Date v Date of Death: • In practice, the Valuation Date for CAT purposes is often later that the Date of Death • S.30(4) CATAs deals with VD in death cases – ‘..entitled to retain..for the benefit of the successor’ – ‘..is so retained…’ – ‘…date of delivery, payment …’ • S 573 TCA - CGT b S.573 TCAs based on D t of D th d Date f Death • Important to consider the implications of this OmniPro Education & Training Page 15 of 66
  18. 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. V D v D of D cont… Example: • Fiachra dies in 2007 and leaves a few specific legacies and the residue, including his house, to Liam. • Probate taken out in 2008 - House is valued @ €100k €100k. • Administration takes a few years and in 2010 the house is sold for €200k. Estate funds are distributed in 2011. • (Assume Liam has no available threshold). • CAT = Valuation Date v CGT = Date of Death • There is a gap between “V D” and “D of D” and this can lead to unexpected consequences (not always negative) V D v D of D cont… • If Valuation Date is 2011  Estate pays CGT of €25k (25% of €200k - €100k)  Liam pays CAT of €43,750 (25% of €200k - €25k) p y , ( )  Total Tax of €68,750K • Valuation Date 2008  Liam pays CAT of €25k (25% of €100k)  Liam pays CGT of €25k (25% of €200k - €100k)  Total Tax of €50k (Double Tax on €100k capital appreciation from D of D to VD) OmniPro Education & Training Page 16 of 66
  19. 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. V D v D of D cont… • Also - Potential double tax on income, (e.g. if above house was rented, the rental income would accumulate in the Estate - and be liable to income tax - for Liam to pay CAT on the Valuation Date. Double Taxation is rare - but can arise twice here!) • Valuation Date not always clear - Entitled to Retain? - Establish Residue? - Revenue clearance to distribute? - Identify costs if not paid, etc • Difference between falling and rising values – CGT Based Cost > Inheritance Value!?! – Importance of Valuations - more than once Inter-Spouse Transfers: • Inter-spouse Transfers are generally exempt from tax, but that is not to say that they are irrelevant for tax purposes • Can be VAT implications for inter-spouse transfers of property • Transfers of stock can have usual income tax implications • Can use up €750,000 RR Threshold – S.598(6)(c) • Base Cost difference – Gift = No Gain No Loss = Original Acquisition – Inheritance = Date of Death = New Acquisition OmniPro Education & Training Page 17 of 66
  20. 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. • Example : – Paul (aged 75 and very ill) is married to Heather (aged 50 and in good health). – He bought a Unit for €2m in 2006 - now valued @ €500k – He bought House for €5k in 1990 - now valued @ €200k  If he gifts Unit to Heather now - Base Cost for Heather is €2m  If he gifts House to Heather now - Base Cost is €5k  If she inherits the unit - Base Cost €500k  If she inherits the house - Base Cost €200k • Other factors to be considered but keep rules in mind (If Heather bought the house - consider gift to Suilta to update base cost?) • Example: – Breandán is a farmer and a business man - aged 54 – His spouse, Alannah, is 52 and works in the business – Business operated via Family C f > 10 years. B i t d i F il Co for – Farm owned and operated since 1980s – B owns 99% of Family Co, A owns 1% - Value €900k. • Plan to sell Family Co and some sites next year • Be aware of dangers: – Sale of Family Co > €750k so no RR – T/F to spouse exempt but relevant for €750k RR cap – Subsequent sale of sites might trigger claw back OmniPro Education & Training Page 18 of 66
  21. 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.  T/F 16% of shares to Alannah now  Not 55 yet so no impact on RR  Sale when 55 => No CGT on €747k received by B (€900k x 83%)  A will pay CGT on €153k - but better than on €900k  Beware farm land  Subsequent sale might trigger claw back  Consider t/f of ‘sites’ to Alannah  Sabotage RR, e.g. stop farming that land prior to sale  In practice, numerous other factors (possible t/f of farm to son? Reduce Family Co value by termination payments, or pension planning, etc) Loss Relief & Capital Allowances: • S.381 - Loss Relief against other income in current year • S.382 - C/F against future trading income • S.392 – Capital Allowances as part of S.381 claim • S.381 - must be claimed within 2 years (Don’t be afraid to back-date claim), and must be claimed in full • Remember - you don’t have to claim S.392 just because you don t claim S.381. • Might be relevant if unused credits, unused SRCOP etc OmniPro Education & Training Page 19 of 66
  22. 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. • Example - John is single and has a trade and rental income – Adjusted Loss before CA was €17,000 in 2010 – Capital Allowances were €3,000 – Rental Profits were €25 000 €25,000 • If S.381 & S.392 claim? – Taxable income €5k => Tax Credits of €1,000 utilised • If S.381 but no S.392 claim – Taxable income €8,000 - Tax Credits of €1,600 used , ,  Claiming S.392 wasted €3k that could otherwise be available against 2011 trading profits Sale of a Patent: • 2011 FA removed Patent Exemption – from November 2011 • Many individual Patent Holders now considering sale of their Patents as previous structure designed in different times • S.757 TCAs: o Sale of Patent = Case IV income, not CGT o But gain computed like a capital gain OmniPro Education & Training Page 20 of 66
  23. 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. Doctors & Pensions: • See various Tax Briefings as per notes • Pension Contributions are subject to two caps – NRE are capped @ €150,000 – Age-related % cap • In 2009, Revenue ‘clarified’ how €150k is to be allocated • GMS Doctors fundamentally changed – 5% of Capitation income etc Doctors & Pensions cont….. • See examples in Tax Briefing 11, Sept. 2010 • Dr. Jean – aged 43 – Net GMS Remuneration €160k • Capitation €130k <> Non-Capitation €30k – Private Practice NRE €100,000 • Can’t claim any private pension as GMS > €150k – Can only make GMS AVC (€115k cap no ) now) • However Examples are misleading (They don’t “start from the start” but at ‘net GMS remuneration”) OmniPro Education & Training Page 21 of 66
  24. 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. • Dr. Twohig Example: GMS - Capitation Income €77,000 GMS - Non-Capitation Income p €92,000 , €169,000 , Private Practice Income €100,000 Total Income €269,000 Less: Expenses & Capital Allowances (€99,000) Case I Taxable Income €170,000 • Based on Dr. Jean example – initial view might be GMS income €160k > €150k cap => no access to private practice income? Doctors & Pensions - Dr. Twohig Example cont..: • However TB examples refer to Dr. Jean’s “net GMS remuneration” and links definition to TB 28. • TB 28 confirms that trade expenses & CA can be first set against Non-Capitation GMS income. • Following TB 28 – Dr. Twohig can actually pay private pension of > €19k!!! He is not stuck with GMS AVC option. • Further clarification required. OmniPro Education & Training Page 22 of 66
  25. 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. Doctors & Pensions - Dr. Twohig Example cont..: Capitation Non-Cap Private Allocation of Expenses & Capital Allowances: Income Income Income In m co e € 7,0 7 00 €9 ,0 0 2 0 € 0 0 10 ,0 0 €269,000 Less: Exp nse & C ita Allow n s e s ap l a ce (€ ,0 5) 3 4 (€9 ,0 0) 2 0 (€3 5 ,95 ) (€99,000) R lev t Ea g e an rnin s € 3,9 7 55 €0 €9 ,0 5 6 4 €170,000 T l Pe sio Pa e ota n n ym nt €150,000 €150000 @25% @25% €3 ,5 0 75 0 Pa b v G S ya le ia M €73,955 @25% €1 ,4 9 8 8 => Pay le v Private Pen io ab ia s n €76,045 €1 ,0 1 9 1 Sundry & Summary OmniPro Education & Training Page 23 of 66
  26. 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. False Claims: • S.864 (S.21 FA 2011) imposes a penalty of €3,000 on ... ‘any person who makes or delivers to Revenue, or knowingly or carelessly assists in or induces another to make or deliver to Revenue any incorrect account, declaration, information, particulars, returns or statement in connection with any claim for exemption, allowance, credit, deduction or relief or repayment…” • Much lower threshold than S.1078 (Aiding & Abetting) • Awaiting guidance but… – Medical Expenses? Single Parent Status? Service Charges? Estimates in I & E Account? Sundry other: • VAT Changes – Bakery Products y – Medical Services – Letting v Other • Moving to on-line only – New RCT Regime – More and more tax-payers – No one cares about Broadband cost and connection problems • Budget 2011 OmniPro Education & Training Page 24 of 66
  27. 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. Summary: • Always revert to legislation and/or primary source of information • Keep abreast of developments • Ensure client understands complexity and who is responsible for what • A problem shared….. 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. OmniPro Education & Training Page 25 of 66
  28. 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. Thank you for your attention. QUESTIONS? E-mail: brendantwohig@mkbrazil.com OmniPro Education & Training Page 26 of 66
  29. 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. The Practising Accountants’ Seminar Taxation Review for Practising Accountants Introduction: It is a difficult time for practitioners. Accountants have to do more for less and do it much quicker. Add to this the fact that Tax is constantly changing and it is difficult to keep up to date with developments as they occur. In this presentation, we will look at some of the more nuanced aspects of taxation to highlight the importance of understanding the mechanics and smaller details of tax provisions, including potential opportunities as well as issues that can cause problems for the unwary. As always, it is important to remember that this seminar is designed to prompt rather than inform, and information is condensed in the interest of brevity and clarity. It is essential that practitioners review the relevant legislation and other guidance sources for further information about the items covered below. Foreign Currency Transactions: Foreign currency transactions have become much more common in recent years for various reasons. Many Irish businesses import and export to non- Euro countries, while individuals now travel more for work and pleasure. In this context, it is surprising how often the tax issues that can surround foreign currency transactions and/or holding foreign bank accounts are over-looked. From a tax perspective, foreign currency transactions can effectively be summarised under three headings: 1) Trading Transactions 2) CGT Transactions 3) Personal Transactions OmniPro Education & Training Page 27 of 66
  30. 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. Most practitioners will be aware of the proper treatment of trading transactions, and personal items are typically not relevant for tax purposes, so the following focuses more on the capital gains tax aspect. Other incidental issues are also explored, such as the obligation to disclose that a foreign account has been opened and the taxation of foreign deposit interest. 1) Trading Transactions S.79 TCAs deals with foreign exchange gains and losses and effectively ensures that the tax treatment follows the accounting treatment of foreign currency transactions, (S.79 specifically provides that foreign currency transactions are an exception to the general rule about not taxing unrealised gains). See also S.402 which deals with issues such as capital allowances and situations where accounts are prepared in a currency other than Euro. Therefore there is normally no tax adjustment required provided that the accounts are prepared properly and in accordance with the usual rules and regulations. That is not to say that the accounting treatment of foreign currency items is simple, but it is outside the scope of this presentation. It is important to note however that S.79 only applies to a ‘relevant monetary item’ which it clearly defines as relating to money held or payable by the company “for the purposes of a trade carried on by it”. Therefore if the foreign currency transaction does not relate to a trading transaction, then S.79 does not apply, e.g. investment companies, or bank accounts linked to foreign- based investments such as rental properties. Therefore, as S.79 does not apply to non-trade situations, the tax treatment may well fall into the remit of capital gains tax. 2) Capital Gains Tax Capital gains tax is linked to the disposal of an ‘asset’ and, while stopping short of providing a definitive definition of what constitutes an ‘asset’, S.532 TCAs does confirm that “all forms of property shall be assets for the purposes of the CGT Acts….including…any currency other than Irish currency’. OmniPro Education & Training Page 28 of 66
  31. 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. For the purposes of this provision, the Euro is regarded as ‘Irish currency’ and therefore excluded from CGT on foot of S.532. However any other currency is capable of being regarded as an asset for CGT and therefore capable of triggering a taxable disposal. Foreign currency may be a non-wasting chattel but is specifically excluded from the €2,540 exemption as per S.602(7). Likewise the exemption for ‘original creditor’ as per S.541 does not apply to foreign currency transactions for non-personal expenditure bank accounts held in a foreign currency. Example: - Brighid is concerned about Irish banks and decided to put her savings into a UK bank account and thus lodges €100,000 into this account. - She changes her plan within a few months so she closed the UK account and invests instead in An Post. - The €100,000 converted to £80,000 when lodged. €110,000 was received back when the account was closed. - Brighid faces a CGT bill on the €10,000 gain arising on the ‘disposal’ of the foreign currency. Essentially she bought an asset for €100k and sold it for €110k. The practical impact of the above is that holding a foreign bank account for non-trade and non-personal purposes can be quite problematic. Effectively, each lodgement into that account is regarded as the acquisition of an asset, and each withdrawal is regarded as a disposal, with a gain arising based on the fluctuating exchange rate. It is generally accepted that FIFO applies when trying to identify withdrawals and lodgements. Transfers between different foreign bank accounts can constitute a disposal and acquisition for Irish CGT. OmniPro Education & Training Page 29 of 66
  32. 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. Incidentally, a loan held in a non-euro currency does not have the same complications because liabilities are outside the scope of CGT, which deals only with assets. Given that many foreign bank accounts have interest credited at regular intervals, dealing with the CGT implications can get quite complex and essentially require each transaction to be converted into its Euro equivalent. It isn’t difficult to see how complex this can become when a non-trade foreign bank account is used as a business current account, with various transactions such as interest being credited, new lodgements etc being regarded as new acquisitions, while bank and interest charged, withdrawals, cheques being written etc are regarded as disposals. 3) Personal Expenditure: Holding a foreign currency bank account to fund ‘personal expenditure’ is not liable to the above CGT treatment. This is accomplished by ensuring that the S.541 exemption for the sale of a debt by the original creditor continues to apply to such personal accounts – see S.541(6) – on the basis that holding a deposit account is essentially a debt owed to the account holder by the bank. This will ensure that accounts used to fund holidays or maintaining a foreign holiday home remain outside the scope of CGT. Obligation to Disclose: As you can see from the example above, Brighid has triggered a potential capital gains tax exposure simply by opening a foreign bank account. If she is in regular contact with an accountant, then Brighid might be aware of the potential CGT exposure. However many people don’t talk to accountants regularly, and those who do don’t always tell their advisors about ‘private transactions’. OmniPro Education & Training Page 30 of 66
  33. 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. With this in mind, practitioners should consider reminding their clients that S.895(6) requires any person who opens a foreign bank account to disclose this to the Revenue. Foreign Assets: The CGT treatment of foreign currency transactions should be differentiated from assets bought and sold via a foreign currency. Following the principle set down by the Bently v Pike ruling, and further enforced by S.552(1A), where an asset is bought and sold via a foreign currency, both the acquisition cost and sales proceeds must be converted as per the exchange rates applicable on the acquisition and disposal date – as opposed to simply calculating the gain via the non-euro currency and then converting the overall gain using the exchange rate at the time of disposal. Example: - Fiachra inherited a retail unit in London in 2002 at a value of stg£50,000, (the exchange rate was £1:€1.1 at the time). - He sold this unit in 2011 for stg£60,000 (at which time the exchange rate was £1: = €1.2). - Fiachra estimated a CGT bill of €3,000, i.e.  £60,000 - £50,000 = £10,000  £10,000 @ 1.2 @ 25% = €3,000 - The correct calculation generates a CGT liability of €4,250, i.e.  £60,000 @ 1.2 = €72,000  £50,000 @ 1.1 = €55,000  Gain = €17,000, so CGT @ 25% = €4,250 This treatment can have unexpected results, for example it is possible for an asset sold for a loss to trigger a taxable gain because of variances in the exchange rates. OmniPro Education & Training Page 31 of 66
  34. 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. Example: - Suilta bought US shares for $100,000 and subsequently sold them for $90,000. - The exchange rate at the time of acquisition ensured that $100,000 amounted to €80,000, but at the time of disposal, $90,000 amounted to €85,000. - Therefore, an actual loss of $10,000 triggers a taxable gain of €5,000. Foreign Deposit Interest: The income tax rate applicable to Irish deposit interest is capped at 27% and collected via the DIRT system. Practitioners may be aware that – following murmurings about discrimination against fellow EU countries etc – this 27% rate was extended a few years ago to EU deposit accounts. S.267M provides that interest arising in a Member State of the European Communities - other than Ireland – is taxed also taxed at 27%. However the 27% tax rate only applies if the person’s tax submissions are made on a timely basis. Non-EU interest continues to be taxed at the individual’s marginal rates. Incidentally, it is important to review the terms of any Double Tax Agreement if dealing with foreign deposit interest. OmniPro Education & Training Page 32 of 66
  35. 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. Loan Transactions: The taxation issues surrounding loans can throw up some unexpected problems and/or solutions, depending on the circumstances. Typical practical examples would be the issues surrounding inter-company loans, and the fact that many people fail to appreciate that a loan debt is an asset for CGT purposes. (i) Inter-Company Loans: In general, companies within the same group can loan money to each other relatively easily, but this is not the case for associated but non-group companies. In practice the difference between ‘group companies’ and ‘associated companies’ can be over-looked, especially for family companies. Company law makes it clear that a company shall not make a loan to one of its directors or to any person connected with that director, such as associated companies. These loans are often called ‘S.31 loans’ after the relevant provision in the Companies Act, and are permitted between companies within the same Group as defined for company law purposes. Liam Brighid Suilta Alannah A Ltd D Co B Ltd C Ltd E Co F Co In the above examples, A Ltd, B Ltd and C Ltd are all within the same group, but only D Co and E Co are within the same group. Therefore any loan from D Co to E Co may be acceptable, but any loan from D Co to F Co could fall foul of company law. The problem in practice is that, while trained accountants OmniPro Education & Training Page 33 of 66
  36. 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. may appreciate the difference, Suilta and Alannah might not appreciate the technical difference between the D Co’s relationships with E Co and F Co. There are many ways of dealing with/facilitating the flow of funds between two companies such as E Co and F Co above. The following is only a brief summary of the type of situations that can arise: 1) Golden Share o This utilises the company law definition of a group which includes two companies if one can control the board of directors of the other. E Co might acquire 1 ‘A’ share in F Co which has no rights to dividends or assets etc, but does have the right to appoint the board in F Co. o The companies are now ‘grouped’ for company law purposes and thus the ‘10% restriction’ does not apply. o Don’t forget that one consequence of creating a group is that the companies loose the Audit Exemption. 2) CRPSs o One way of investing money into another company is to purchase shares in that company. To facilitate the repayment of the funds, the shares may be redeemable shares, and possibly Cumulative Redeemable Preference Shares. o In the above example, E Co could purchase CRPSs in F Co, but note that F Co could not redeem those shares unless it has sufficient distributable reserves. 3) Invoice o Perhaps F Co has provided some service to E Co, or has some stock that is being sold across. o Care should be taken to ensure that arms-length rules are applied, proper VAT procedures are followed, etc. OmniPro Education & Training Page 34 of 66
  37. 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. 4) Group o E Co and F Co could become a group, for example via a share – for – share restructuring using S.586 etc. o This could have tax advantages as well, e.g. to facilitate the surrender of loss relief, prepare the ground for S.626B. Write-off of Loans / Shares: It is worth noting that S.87 TCAs could apply to inter-company loans which are written off. Where a deduction has been allowed for any debt incurred for the purposes of a company’s trade, but that debt is subsequently released, then S.87 provides that the amount of the debt released shall be regarded as a trading receipt. Example: - B Ltd and C Ltd are members of the same group. - B Ltd loans €100k to C Ltd to allow C Ltd to fund its on-going costs. - A few years later, the directors decide to tidy up the companies’ Balance Sheets and simply write off the loan. A Ltd Loan B Ltd C Ltd Costs  It could be argued that S.87 applies to C Ltd as the €100k loan is not being repaid and thus C Ltd is deemed to receive Case I income of €100k. OmniPro Education & Training Page 35 of 66
  38. 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. There are various technical arguments around the difference between the ‘release of a debt’ and the write off of one, e.g. if the debt is written off because the debtor is bankrupt or in insolvent liquidation, it could be argued that this does not constitute a ‘release’ of the debt but merely accepting the reality that it won’t be repaid and thus there is no Case I receipt. The possible application of S.87 might not trigger any additional tax cost if C Ltd had Case I losses of €100k available. However if the losses have been surrendered, then the inclusion of €100k income could trigger an unexpected cost. For this reason, it is worth exploring all options before writing off an inter- company loan, for example the loan might be converted into shares, or simply left sit there. If the loan is converted into shares, it should be remembered that S.547(2) may apply to deny loss relief where a loan creditor seeks to turn a failing loan into a capital loss by converting the loan into shares. Example: - Jimmy B loaned €100k to his company, Cork Ltd, to help it through a difficult trading period. However after a few years of struggle, the company is in serious trouble and may close in the near future. Its trade is losing money, it has a negative Balance Sheet, and turnover is falling. - Jimmy B realises that losing €100k via an un-repaid loan does not trigger a tax deduction, but a loss arising on the sale of shares – e.g. via a liquidation - could trigger an allowable CGT loss. - Therefore Jimmy B converts the loan into 100,000 ord. €1 shares. Shortly after Cork Ltd is closed down and liquidated.  Jimmy B is not entitled to a CGT loss of €100k to be set against future gains. In effect, S.547 provides that the base cost of the shares was OmniPro Education & Training Page 36 of 66
  39. 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. effectively €0 because that’s what the shares were actually worth when acquired. This is an over-simplified explanation of a more complex concept but the central point is that turning a non-performing loan into shares can have a number of implications, but in itself might not trigger an allowable capital loss. However it could still be an effective way of side-stepping any S.87 risk. Incidentally, S.626B can also apply to prevent loss relief on the write off on shares in a ‘subsidiary’ but this can sometimes be avoided, e.g. by not using ‘ordinary shares’. (ii) Disposal of a Debt: A debt is capable of being bought, held and sold and therefore is regarded as an asset for the purposes of CGT (see S.532 TCAs). Consequently, the disposal of a debt is capable of triggering a capital gains tax liability, and S.541(2) makes it clear that the satisfaction of a debt is regarded as a disposal. S.541(1) confirms that the disposal of a debt by the original creditor is exempt from CGT. However everyone else is liable to CGT as normal on the difference between the ‘sales proceeds’ – which may simply be the amount collected in settlement of the debt, and the original cost of the debt. This is important when dealing with liquidations as the following example illustrates: Example: Mick & Kate Brazil own MKB Ltd, a solvent company whose trade is starting to struggle so the decision is made to liquidate the company. A liquidator is appointed and proceeds to collect the debts, discharge the creditors etc and distribute the remaining assets out to the shareholders. OmniPro Education & Training Page 37 of 66
  40. 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. MKB Ltd is owed €100,000 by one of its oldest customers, Broke Co. The liquidator has exhausted all options and failed to settle the debt and the decision is made to distribute the debt out to Mick and Kate along with the other assets – mainly cash. Taking all factors into account, including the fact that Broke Co is struggling to stay afloat and the low possibility of the debt ever being collect, the €100,000 debt is valued at only €10,000 at the time of distribution.  Mick and Kate pay CGT on the deemed disposal of their shares as normal, including this €10,000 deemed proceeds. A few years later, Broke Co’s trade improves and it offers Mick and Kate €70,000 in full and final settlement of the debt. Mick and Kate believe that the offer is largely based on their long relationship with the directors of Broke Co. and that these directors are probably part-funding the repayment personally and thus accept the offer as being the best they can ever hope to achieve.  In this scenario, Mick and Kate will be liable to CGT on the €60,000 gain arising, i.e. €70k collected v €10k deemed cost. In view of the connected party rules, it is assumed that the values are accepted as representing open market value in these circumstances but care should be taken in valuing the debt when being distributed by the liquidator. In the above example, MKB Ltd is the original creditor, not Mick and Kate, so the collection of €70,000 by Mick and Kate is not covered by the exemption in S.541(1). However the exemption prevents MKB Ltd from availing of any relief on the €90k loss arising when the €100k debt is valued at €10k - the loss arising on the disposal of the debt is not an allowable loss because any gain would not have been taxable. OmniPro Education & Training Page 38 of 66
  41. 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. It should also be noted that a loss arising on a debt acquired from a connected party is not an allowable loss for CGT purposes, even though a gain could be taxable in such circumstances. Therefore if M & K Brazil had accepted €1,000 in settlement of the above debt, the €9,000 loss could be disallowed for CGT purposes. This anti-avoidance provision does not exclude liquidations and seems harsh, but serves to further highlight the importance of obtaining proper valuations of debts in liquidation cases. “Debt on a security”: It is important to note that the above does not apply to a ‘debt on a security’ which is dealt with separately via S.585 – essentially treating these the same as any other asset and not subject to S.541’s exemption, or the associated loss restriction. Defining a ‘debt on a security’ is a complex issue but essentially it is differentiated from a normal debt in that it is capable of having a value of more than the debt itself. Thus the difference between a debt and a ‘debt on a security’ is the marketability of the latter because of potential profit, perhaps in the form of share conversion rights. The fact that a ‘debt on a security’ is not subject to S.541 has lead to some interesting tax planning explorations in the past. Take for example a typical case where the shareholders loan €100,000 to their company but over-time the company struggles and is closed down. The shareholders write off the €100,000 but are prevented from obtaining any tax relief for this loss because of S.541. Attempts of converting such loans into shares and thus trigger a CGT loss are usually prevented on foot of S.547(2) – an anti-avoidance provision aimed at such circumstances. If the initial loan has been structured so as to constitute a ‘debt on a security’, then the subsequent write off could in theory generate an allowable loss of €100,000. This is a complex area and outside the scope of this presentation – but interested readers should seek out other articles on this matter which OmniPro Education & Training Page 39 of 66
  42. 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. highlight the risks, problems and often unintended consequences which can arise. (iii) Directors’ Loans Directors often borrow money from their companies, often indirectly through the company paying personal costs on their behalf. Sometimes the loans are repaid shortly after the end of the accounting period, but often the loans are left run for a few years before being repaid. In such circumstances, practitioners should consider the following: 1) Ensure that any income tax paid over by the company via the Close Company rules governing such loans is reclaimed when the loan is subsequently repaid. This is often over-looked in practice, especially if the loan is in place more than two years. 2) The failure by the company to charge interest on the loan could be regarded as a BIK equal to 12½% of the value of the loan under the preferential loan provisions – possibly 5% if the loan related to the director’s home. (iv) Sundry other loan related issues • In situations where a director is owed a substantial amount of money by a failed and now dormant company, the temptation may be to write off the loan and strike off the company. However consideration should be given to maintaining the company for future use where the loan will facilitate the tax- free extraction of cash. • Likewise, where a parent company is owed money by a now-dormant subsidiary, there might be merit in retaining the company if it has significant OmniPro Education & Training Page 40 of 66
  43. 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. negative reserves. The main company might be able to utilise the subsidiary to manage any potential exposure to the Close Company Surcharge, e.g. excess cash could be stored in the dormant company. • A loan by one director/shareholder to a company on favourable terms could have gift tax implications for the other shareholders, so care should always be taken especially where the shareholders are not related parties. • If interest is charged by a director on a loan to the company, don’t forget the Close Company rules surrounding same and how ‘excessive’ can be broadly interpreted. OmniPro Education & Training Page 41 of 66
  44. 44. 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. VAT – Capital Good Record The Capital Goods Scheme was part of the new VAT on Property regime that came into effect in July 2008. Prior to this, the VAT treatment of a property transaction was largely based on the immediate use of the property, but the capital goods system seeks to ensure that the VAT treatment reflects the use of a building over its lifetime. With some exceptions (legacy leases, refurbishment), a building is regarded as having a 20-year VAT life. Technically it is 20 ‘intervals’ which may not be full years as the capital goods owner can adjust the second interval to fit his/her/its accounting period. The scheme is designed to ensure that the VAT input credit is directly linked to the ‘Vatable use’ over its 20-year life. In simple terms, the owner estimates the VAT recovery on the initial acquisition and claims the input credit accordingly. The VAT position is then reviewed at annual intervals over the next 20 years with an annual plus or minus adjustment being made as required. A more detailed review of the Capital Goods rules is outside the scope of this presentation. It is mentioned here only to remind people that anyone with a Vatable interest in property is obliged to maintain a ‘Capital Goods Record’ in accordance with S.12(E)(12) VATAs. The legislation makes it clear that “ a capital goods owner shall create and maintain a record ….(which contains)....sufficient information to determine any adjustments in respect of that capital good…” . In practice, apart from having to do so in order to comply with the obligation imposed by S.12E, maintaining a CGR is essential to help owners ensure that they keep their tax affairs in order and don’t over-pay/under-claim the VAT attached to property. For example, where a Vatable business sub-lets a portion of the business premises under a VAT-exempt lease, the annual review of the CGR makes it much more likely that the appropriate VAT OmniPro Education & Training Page 42 of 66
  45. 45. 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. adjustment is made in relation to the portion of the premises no-longer used for ‘Vatable’ purposes. There is no ‘CGR blueprint’ and each capital good owner is free to design their own version provided it complies with the requirement to ‘contain sufficient information’ as above. The following examples contain one possible version of a CGR. Example 2 illustrates how the CGR might reflect the annual adjustment that can arise where an owner’s VAT deductibility varies each year and highlights the role maintaining the CGR can play in ensuring that the adjustment is accounted for. It is important to note that the format of the following CGR has not been approved by the Revenue and may prove to be unacceptable in due course. It has been drafted in line with the available guidelines in the hope of provoking comment and – as always with new concepts – the format of a CGR will probably evolve and be fine-tuned in the years to come, but this process has to start somewhere - hence the enclosed CGR. However each capital goods owner should review the guidelines and legislation for themselves when preparing their own CGRs to ensure that whatever template they choose complies with the requirements. OmniPro Education & Training Page 43 of 66
  46. 46. 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. CGR - Example 1: Liam purchased a site and built commerical Unit - completed 13 September 2010. Total Cost of the project was €10m plus VAT of €1,350,000 He intends to let the unit and to opt to tax so full €1.35m is reclaimed 21-year lease granted in October 2010 which runs its full course. Summary: Adjustment Period Begins 13/09/2010 (Date of Acquisition / or / Completion) Total Tax Incurred €1,350,000 Initial Interval Portion of Deductible use 100% Total Reviewed Deductible Amount €1,350,000 (€1.35m x 100%) Initial Interval Adjustment €0 (€1.35m - €1.35m) Base Tax Amount €67,500 (Total Tax Incurred/ 20) Reference deduction amount €67,500 (Total Reviewed Deductible Amount/ 20) Interval Deductible Amount €67,500 x 100% (Base Tax Amount x %) Capital Goods Record: A B C (A x B) (C-A) Total Tax Initial Portion Total Reviewed Initial Refund Initial Interval of Deductible Deductible Interval Start Finish Incurred Use Amount claimed Adjustment Initial 13/09/2010 12/09/2011 €1,350,000 100% €1,350,000 €1,350,000 0 A B C (A x B) D (C - D) Base Tax Portion of Interval Reference Interval Deductible Deductible Deductible Amount Use Amount Amount Adjustment 2 12/09/2011 31/12/2011 €67,500 100% €67,500 €67,500 0 3 01/01/2012 31/12/2012 €67,500 100% €67,500 €67,500 0 4 01/01/2013 31/12/2013 €67,500 100% €67,500 €67,500 0 5 01/01/2014 31/12/2014 €67,500 100% €67,500 €67,500 0 6 01/01/2015 31/12/2015 €67,500 100% €67,500 €67,500 0 7 01/01/2016 31/12/2016 €67,500 100% €67,500 €67,500 0 8 01/01/2017 31/12/2017 €67,500 100% €67,500 €67,500 0 9 01/01/2018 31/12/2018 €67,500 100% €67,500 €67,500 0 10 01/01/2019 31/12/2019 €67,500 100% €67,500 €67,500 0 11 01/01/2020 31/12/2020 €67,500 100% €67,500 €67,500 0 12 01/01/2021 31/12/2021 €67,500 100% €67,500 €67,500 0 13 01/01/2022 31/12/2022 €67,500 100% €67,500 €67,500 0 14 01/01/2023 31/12/2023 €67,500 100% €67,500 €67,500 0 15 01/01/2024 31/12/2024 €67,500 100% €67,500 €67,500 0 16 01/01/2025 31/12/2025 €67,500 100% €67,500 €67,500 0 17 01/01/2026 31/12/2026 €67,500 100% €67,500 €67,500 0 18 01/01/2027 31/12/2027 €67,500 100% €67,500 €67,500 0 19 01/01/2028 31/12/2028 €67,500 100% €67,500 €67,500 0 20 01/01/2029 31/12/2029 €67,500 100% €67,500 €67,500 0 OmniPro Education & Training Page 44 of 66

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