Education & Training     The Practising Accountants           Seminar 2011                  Presenters:           Brendan ...
The Practising Accountants Seminar                        2011                 Supporting Documentation IndexContents     ...
Education & TrainingTax Review for Practising     Accountants  Brendan Twohig, MK Brazil
Taxation Review for Practising Accountants                      Supporting Documentation IndexContents                    ...
The Practising Accountants              Seminar 2011         Taxation Review for        Practising Accountants            ...
Foreign Currency               g         y            TransactionsForeign Currency/Bank Accounts:• Much more topical for v...
Foreign Currency/Bank Accounts cont…•    Typically foreign currency is either:1)   Trade related – S 79 applies           ...
Foreign Currency/Bank Accounts cont… Obligation to Disclose: • S 895(6)   S.     – ...If, during a chargeable period,…    ...
Foreign Assets:• If asset bought and sold in foreign currency    – Must convert each step – ‘can’t do global comp’Example:...
Inter-company Loans:   • Difference between ‘associated’ and ‘Group’   Fiachra              Alannah                       ...
CGT on Loans:• A loan is an asset and thus liable to CGT   – This can often causes difficulties, e.g. in liquidation cases...
Directors Loans:•       Two common errors arise in practice where Directors take        loans from their companies:1)     ...
Capital Goods Record    C it l G d R       dVAT – Capital Goods Scheme (CGS):• VAT life of 20 years imposed on buildings b...
Capital Goods Record:•   S.12E(12)    “A capital good owner shall create and maintain a record (in this    section referre...
Capital Goods Record continued...Example:• BT purchased unit on 13/09/2010 for €10m + VAT of €1.35m• He expects full Vatab...
A            B         C (A xB)                  (C-A)Interval    Start     Finish      Total Tax    IPofDU        TD     ...
Tax Provisions –        overlooked aspectsBusiness Relief:• Example:   – Mick & Kate Brazil own the local Pub - operated v...
Business Relief cont...:• Solution?    – Both RR and BR apply to shares in a family company                      pp y     ...
S.79 Stamp Duty Relief:• S.79 facilitates t/f of assets between associated companies   (Associated – basically 90% Group)•...
V D v D of D cont…Example:• Fiachra dies in 2007 and leaves a few specific legacies and the  residue, including his house,...
V D v D of D cont…• Also - Potential double tax on income, (e.g. if above house was  rented, the rental income would accum...
• Example :   – Paul (aged 75 and very ill) is married to Heather (aged 50 and in good health).   – He bought a Unit for €...
 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 (€9...
• Example - John is single and has a trade and rental income   – Adjusted Loss before CA was €17,000 in 2010   – Capital A...
Doctors & Pensions:• See various Tax Briefings as per notes• Pension Contributions are subject to two caps    – NRE are ca...
• Dr. Twohig Example: GMS - Capitation Income                                      €77,000 GMS - Non-Capitation Income    ...
Doctors & Pensions - Dr.     Twohig Example cont..:                                                  Capitation    Non-Cap...
False Claims:• S.864 (S.21 FA 2011) imposes a penalty of €3,000 on ...  ‘any person who makes or delivers to Revenue, or k...
Summary:• Always revert to legislation and/or primary source of information• Keep abreast of developments• Ensure client u...
Thank you for your attention.QUESTIONS?E-mail: brendantwohig@mkbrazil.com           OmniPro Education & Training   Page 27...
The Practising Accountants’ SeminarTaxation Review for Practising AccountantsIntroduction:It is a difficult time for pract...
Most practitioners will be aware of the proper treatment of tradingtransactions, and personal items are typically not rele...
For the purposes of this provision, the Euro is regarded as ‘Irish currency’ andtherefore excluded from CGT on foot of S.5...
Incidentally, a loan held in a non-euro currency does not have the samecomplications because liabilities are outside the s...
With this in mind, practitioners should consider reminding their clients thatS.895(6) requires any person who opens a fore...
Example:-   Suilta bought US shares for $100,000 and subsequently sold them for    $90,000.-   The exchange rate at the ti...
Loan Transactions:The taxation issues surrounding loans can throw up some unexpectedproblems and/or solutions, depending o...
may appreciate the difference, Suilta and Alannah might not appreciate thetechnical difference between the D Co’s relation...
4) Group    o E Co and F Co could become a group, for example via a share – for –      share restructuring using S.586 etc...
There are various technical arguments around the difference between the‘release of a debt’ and the write off of one, e.g. ...
effectively €0 because that’s what the shares were actually worth when    acquired.This is an over-simplified explanation ...
MKB Ltd is owed €100,000 by one of its oldest customers, Broke Co. The  liquidator has exhausted all options and failed to...
It should also be noted that a loss arising on a debt acquired from aconnected party is not an allowable loss for CGT purp...
highlight the risks, problems and often unintended consequences which canarise.(iii) Directors’ LoansDirectors often borro...
negative reserves. The main company might be able to utilise the  subsidiary to manage any potential exposure to the Close...
VAT – Capital Good RecordThe Capital Goods Scheme was part of the new VAT on Property regime thatcame into effect in July ...
adjustment is made in relation to the portion of the premises no-longer usedfor ‘Vatable’ purposes.There is no ‘CGR bluepr...
CGR - Example 1:  Liam purchased a site and built commerical Unit - completed 13 September 2010.  Total Cost of the projec...
CGR - Example 2:  BT Insurance Ltd purchased unit on 25 July 2008 for €1m + VAT €135,000  Its July/August recovery Rate wa...
The fact that the VAT treatment of a property acquisition can subsequently bechanged on foot of a CGS adjustment can impac...
Liam would have been denied any VAT input-credits in 2009, but would beable to claim a repayment of €26,000 in 2016.In thi...
   As the sale takes place > 5 years since the acquisition of the property, the    property is no longer regarded as new ...
Tax Provisions – Over-looked AspectsTax law can be extremely complex and it is important to explore all aspects ofthe rele...
-   They continue to own the Pub premises jointly and rent it to their    company.-   They are both in their 70s and wish ...
It is possible that, depending on the circumstances, the Revenue might take aconcessionary approach in these circumstances...
D ad Ltd               100%                                t/f of asset                 S on LtdConsider the implications ...
S. 573 effectively provides that the Date of Death will usually be theacquisition date for capital gains tax purposes. The...
valuation date for CAT purposes, because a later date could lead to doubletax.Perhaps the Valuation Date was 2008 when pro...
Inter-Spouse Transactions:Most practitioners know that inter-spouse transactions are exempt from tax,e.g. there is no CGT,...
Losses v Capital Allowances:Many individuals have suffered trading losses in recent years andpractitioners will be familia...
 If John claims €20k Loss in 2010:    • Taxable income €5k => Tax Credits of €1,000 utilised If only €17,000 loss claime...
Sale of a Patent:S.234(9) TCAs – as inserted by the 2011 Finance Act – provided that PatentRoyalties paid to a person on/a...
Doctors & Pensions:Practitioners will be aware that the pension landscape changed fundamentallyin 2009 following the Reven...
Jean has already made a contribution of €6,500 to the GMS Plan. Assumingshe has capacity to do so (having regard to overal...
The Tax Briefing confirms that “.. pensionable GMS income (i.e. net GMSremuneration) makes up the first part of the aggreg...
Practising Accountants Seminar
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Practising Accountants Seminar

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The Practising Accountants’ Seminar is an 8 Hour Online CPD course covering 4 core CPD areas – Taxation, Insolvency, Company Law as well as a regulatory update from the ODCE. This event was recorded live at the CPD Fest in Citywest on the 9th of December 2011.

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Practising Accountants Seminar

  1. 1. Education & Training The Practising Accountants Seminar 2011 Presenters: Brendan Twohig, MK Brazil Tom Murray, Friel Stafford Corporate Recovery Kevin Prendergast, Office of the Director of Corporate Enforcement (ODCE) Alan O’Driscoll, Flynn O’Driscoll OmniPro Education & TrainingUnit 3, South Court, Block D, Iveagh Court,Wexford Rd Business Park, 5 – 8 Harcourt Road,Carlow. Dublin 2.059 9183888 01 4110000www.omnipro.ie info@omnipro.ie
  2. 2. The Practising Accountants Seminar 2011 Supporting Documentation IndexContents PageTax Review for Practising AccountantsSlide Set 2 – 27Back Up Paper Foreign Currency Transactions 28 – 33 Loan Transactions 34 – 42 VAT – Capital Good Record 43 – 49 Tax Provisions – Over-looked Aspects Business Property Relief 50 – 51 S.79 Stamp Duty Exemption 52 – 53 Valuation Date v Date of Death 53 – 55 Inter-Spouse Transactions 56 Losses v Capital Allowances 57 – 58 Sale of a Patent 59 Doctors & Pensions 60 – 64 Sundry Other Issues False Claims 65 – 66 VAT Updates 66 – 67Insolvency & Restructuring – achieving the best outcomes Slide Set 69 – 106Review by the Office of the Director of Corporate Enforcement Slide Set 108 – 128Shareholder Agreements & Disputes Slide Set 130 – 156 Shareholders Agreement Briefing Questionnaire 157 – 163
  3. 3. Education & TrainingTax Review for Practising Accountants Brendan Twohig, MK Brazil
  4. 4. Taxation Review for Practising Accountants Supporting Documentation IndexContents PageSlide Set 1 – 27Back Up Paper Foreign Currency Transactions 28 – 33 Loan Transactions 33 – 42 VAT – Capital Good Record 43 – 49 Tax Provisions – Over-looked Aspects Business Property Relief 50 – 52 S.79 Stamp Duty Exemption 52 – 53 Valuation Date v Date of Death 53 – 55 Inter-Spouse Transactions 56 Losses v Capital Allowances 57 – 58 Sale of a Patent 59 Doctors & Pensions 60 – 64 Sundry Other Issues False Claims 64 – 65 VAT Updates 66 – 67
  5. 5. The Practising Accountants Seminar 2011 Taxation Review for Practising Accountants g© M.K.BrazilOverview:Part 1: Foreign Currency TransactionPart 2: Loan TransactionPart 3: Capital Goods SchemePart 4: Sundry Tax ProvisionsPart 5: Sundry & Summary(followed by Q & A) OmniPro Education & Training Page 2 of 163
  6. 6. Foreign Currency g y TransactionsForeign 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 3 of 163
  7. 7. 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 related2) Personal – Exempt from Tax via S.541(6) • Holidays or foreign residence – but disclosure, 27% etc3) Non-trade & Non-Personal = CGT as per S.532 • If not covered by above, then CGT should be consideredCGT 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 4 of 163
  8. 8. 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 5 of 163
  9. 9. 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 6 of 163
  10. 10. 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 7 of 163
  11. 11. CGT on Loans:• A loan is an asset and thus liable to CGT – This can often causes difficulties, e.g. in liquidation casesExample: – 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, etcCGT 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 8 of 163
  12. 12. 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 9 of 163
  13. 13. Capital Goods Record C it l G d R dVAT – 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 10 of 163
  14. 14. 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 11 of 163
  15. 15. 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 12 of 163
  16. 16. A B C (A xB) (C-A)Interval Start Finish Total Tax IPofDU TD R A IRefund C IIAInitial 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 13 of 163
  17. 17. Tax Provisions – overlooked aspectsBusiness 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 14 of 163
  18. 18. 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 15 of 163
  19. 19. 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 applyingValuation 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 16 of 163
  20. 20. 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 17 of 163
  21. 21. 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 18 of 163
  22. 22. • 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 19 of 163
  23. 23.  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 20 of 163
  24. 24. • 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 profitsSale 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 21 of 163
  25. 25. 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 etcDoctors & 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 22 of 163
  26. 26. • 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 23 of 163
  27. 27. Doctors & Pensions - Dr. Twohig Example cont..: Capitation Non-Cap PrivateAllocation of Expenses & Capital Allowances: Income Income IncomeIn m co e € 7,0 7 00 €9 ,0 0 2 0 € 0 0 10 ,0 0 €269,000Less: 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 €170,000T l Pe sio Pa e ota n n ym nt €150,000 €150000 @25% @25% €3 ,5 0 75 0Pa 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 24 of 163
  28. 28. 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 25 of 163
  29. 29. 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 26 of 163
  30. 30. Thank you for your attention.QUESTIONS?E-mail: brendantwohig@mkbrazil.com OmniPro Education & Training Page 27 of 163
  31. 31. The Practising Accountants’ SeminarTaxation Review for Practising AccountantsIntroduction:It is a difficult time for practitioners. Accountants have to do more for less anddo it much quicker. Add to this the fact that Tax is constantly changing and itis difficult to keep up to date with developments as they occur.In this presentation, we will look at some of the more nuanced aspects oftaxation to highlight the importance of understanding the mechanics andsmaller details of tax provisions, including potential opportunities as well asissues that can cause problems for the unwary.As always, it is important to remember that this seminar is designed to promptrather than inform, and information is condensed in the interest of brevity andclarity. It is essential that practitioners review the relevant legislation and otherguidance sources for further information about the items covered below.Foreign Currency Transactions:Foreign currency transactions have become much more common in recentyears for various reasons. Many Irish businesses import and export to non-Euro countries, while individuals now travel more for work and pleasure. Inthis context, it is surprising how often the tax issues that can surround foreigncurrency transactions and/or holding foreign bank accounts are over-looked.From a tax perspective, foreign currency transactions can effectively besummarised under three headings:1) Trading Transactions2) CGT Transactions3) Personal Transactions OmniPro Education & Training Page 28 of 163
  32. 32. Most practitioners will be aware of the proper treatment of tradingtransactions, and personal items are typically not relevant for tax purposes, sothe following focuses more on the capital gains tax aspect. Other incidentalissues are also explored, such as the obligation to disclose that a foreignaccount has been opened and the taxation of foreign deposit interest.1) Trading TransactionsS.79 TCAs deals with foreign exchange gains and losses and effectivelyensures that the tax treatment follows the accounting treatment of foreigncurrency transactions, (S.79 specifically provides that foreign currency transactionsare an exception to the general rule about not taxing unrealised gains). See alsoS.402 which deals with issues such as capital allowances and situationswhere accounts are prepared in a currency other than Euro.Therefore there is normally no tax adjustment required provided that theaccounts are prepared properly and in accordance with the usual rules andregulations. That is not to say that the accounting treatment of foreigncurrency 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 monetaryitem’ which it clearly defines as relating to money held or payable by thecompany “for the purposes of a trade carried on by it”. Therefore if the foreigncurrency transaction does not relate to a trading transaction, then S.79 doesnot apply, e.g. investment companies, or bank accounts linked to foreign-based investments such as rental properties. Therefore, as S.79 does notapply to non-trade situations, the tax treatment may well fall into theremit of capital gains tax.2) Capital Gains TaxCapital gains tax is linked to the disposal of an ‘asset’ and, while stoppingshort of providing a definitive definition of what constitutes an ‘asset’, S.532TCAs does confirm that “all forms of property shall be assets for the purposesof the CGT Acts….including…any currency other than Irish currency’. OmniPro Education & Training Page 29 of 163
  33. 33. For the purposes of this provision, the Euro is regarded as ‘Irish currency’ andtherefore excluded from CGT on foot of S.532. However any other currency iscapable of being regarded as an asset for CGT and therefore capable oftriggering a taxable disposal.Foreign currency may be a non-wasting chattel but is specifically excludedfrom 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 transactionsfor 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 fornon-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 onthe fluctuating exchange rate.It is generally accepted that FIFO applies when trying to identify withdrawalsand lodgements. Transfers between different foreign bank accounts canconstitute a disposal and acquisition for Irish CGT. OmniPro Education & Training Page 30 of 163
  34. 34. Incidentally, a loan held in a non-euro currency does not have the samecomplications because liabilities are outside the scope of CGT, which dealsonly with assets.Given that many foreign bank accounts have interest credited at regularintervals, dealing with the CGT implications can get quite complex andessentially require each transaction to be converted into its Euro equivalent. Itisn’t difficult to see how complex this can become when a non-trade foreignbank account is used as a business current account, with various transactionssuch as interest being credited, new lodgements etc being regarded as newacquisitions, while bank and interest charged, withdrawals, cheques beingwritten etc are regarded as disposals.3) Personal Expenditure:Holding a foreign currency bank account to fund ‘personal expenditure’ is notliable to the above CGT treatment. This is accomplished by ensuring that theS.541 exemption for the sale of a debt by the original creditor continues toapply to such personal accounts – see S.541(6) – on the basis that holding adeposit 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 foreignholiday home remain outside the scope of CGT.Obligation to Disclose:As you can see from the example above, Brighid has triggered a potentialcapital gains tax exposure simply by opening a foreign bank account. If she isin regular contact with an accountant, then Brighid might be aware of thepotential CGT exposure. However many people don’t talk to accountantsregularly, and those who do don’t always tell their advisors about ‘privatetransactions’. OmniPro Education & Training Page 31 of 163
  35. 35. With this in mind, practitioners should consider reminding their clients thatS.895(6) requires any person who opens a foreign bank account to disclosethis to the Revenue.Foreign Assets:The CGT treatment of foreign currency transactions should be differentiatedfrom assets bought and sold via a foreign currency.Following the principle set down by the Bently v Pike ruling, and furtherenforced by S.552(1A), where an asset is bought and sold via a foreigncurrency, both the acquisition cost and sales proceeds must be converted asper the exchange rates applicable on the acquisition and disposal date – asopposed to simply calculating the gain via the non-euro currency and thenconverting 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% = €4,250This treatment can have unexpected results, for example it is possible for anasset sold for a loss to trigger a taxable gain because of variances in theexchange rates. OmniPro Education & Training Page 32 of 163
  36. 36. 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% andcollected via the DIRT system. Practitioners may be aware that – followingmurmurings 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 EuropeanCommunities - other than Ireland – is taxed also taxed at 27%. However the27% tax rate only applies if the person’s tax submissions are made on atimely basis. Non-EU interest continues to be taxed at the individual’smarginal rates. Incidentally, it is important to review the terms of any DoubleTax Agreement if dealing with foreign deposit interest. OmniPro Education & Training Page 33 of 163
  37. 37. Loan Transactions:The taxation issues surrounding loans can throw up some unexpectedproblems and/or solutions, depending on the circumstances. Typical practicalexamples would be the issues surrounding inter-company loans, and the factthat many people fail to appreciate that a loan debt is an asset for CGTpurposes.(i) Inter-Company Loans:In general, companies within the same group can loan money to each otherrelatively easily, but this is not the case for associated but non-groupcompanies. 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 ofits directors or to any person connected with that director, such as associatedcompanies. These loans are often called ‘S.31 loans’ after the relevantprovision in the Companies Act, and are permitted between companies withinthe same Group as defined for company law purposes. Liam Brighid Suilta Alannah A Ltd D Co B Ltd C Ltd E Co F CoIn 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 DCo to E Co may be acceptable, but any loan from D Co to F Co could fall foulof company law. The problem in practice is that, while trained accountants OmniPro Education & Training Page 34 of 163
  38. 38. may appreciate the difference, Suilta and Alannah might not appreciate thetechnical 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 twocompanies such as E Co and F Co above. The following is only a briefsummary 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 35 of 163
  39. 39. 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 whichare written off. Where a deduction has been allowed for any debt incurred forthe 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 asa 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 36 of 163
  40. 40. 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 offbecause the debtor is bankrupt or in insolvent liquidation, it could be arguedthat this does not constitute a ‘release’ of the debt but merely accepting thereality 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 CLtd had Case I losses of €100k available. However if the losses have beensurrendered, then the inclusion of €100k income could trigger an unexpectedcost. 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 simplyleft 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 loaninto 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 37 of 163
  41. 41. 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 thecentral point is that turning a non-performing loan into shares can have anumber 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 onshares 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 asan asset for the purposes of CGT (see S.532 TCAs). Consequently, thedisposal of a debt is capable of triggering a capital gains tax liability, andS.541(2) makes it clear that the satisfaction of a debt is regarded as adisposal.S.541(1) confirms that the disposal of a debt by the original creditor is exemptfrom CGT. However everyone else is liable to CGT as normal on thedifference between the ‘sales proceeds’ – which may simply be the amountcollected in settlement of the debt, and the original cost of the debt. This isimportant 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 38 of 163
  42. 42. 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 areaccepted as representing open market value in these circumstances but careshould 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, sothe collection of €70,000 by Mick and Kate is not covered by the exemption inS.541(1). However the exemption prevents MKB Ltd from availing of any reliefon the €90k loss arising when the €100k debt is valued at €10k - the lossarising on the disposal of the debt is not an allowable loss because any gainwould not have been taxable. OmniPro Education & Training Page 39 of 163
  43. 43. It should also be noted that a loss arising on a debt acquired from aconnected party is not an allowable loss for CGT purposes, even though again could be taxable in such circumstances. Therefore if M & K Brazil hadaccepted €1,000 in settlement of the above debt, the €9,000 loss could bedisallowed for CGT purposes. This anti-avoidance provision does not excludeliquidations and seems harsh, but serves to further highlight the importance ofobtaining 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 sameas any other asset and not subject to S.541’s exemption, or the associatedloss restriction.Defining a ‘debt on a security’ is a complex issue but essentially it isdifferentiated from a normal debt in that it is capable of having a value of morethan the debt itself. Thus the difference between a debt and a ‘debt on asecurity’ is the marketability of the latter because of potential profit, perhaps inthe form of share conversion rights.The fact that a ‘debt on a security’ is not subject to S.541 has lead to someinteresting tax planning explorations in the past. Take for example a typicalcase where the shareholders loan €100,000 to their company but over-timethe company struggles and is closed down. The shareholders write off the€100,000 but are prevented from obtaining any tax relief for this loss becauseof S.541. Attempts of converting such loans into shares and thus trigger aCGT loss are usually prevented on foot of S.547(2) – an anti-avoidanceprovision 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 40 of 163
  44. 44. highlight the risks, problems and often unintended consequences which canarise.(iii) Directors’ LoansDirectors often borrow money from their companies, often indirectly throughthe company paying personal costs on their behalf. Sometimes the loans arerepaid shortly after the end of the accounting period, but often the loans areleft 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 41 of 163
  45. 45. 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 42 of 163
  46. 46. VAT – Capital Good RecordThe Capital Goods Scheme was part of the new VAT on Property regime thatcame into effect in July 2008. Prior to this, the VAT treatment of a propertytransaction was largely based on the immediate use of the property, but thecapital goods system seeks to ensure that the VAT treatment reflects the useof a building over its lifetime.With some exceptions (legacy leases, refurbishment), a building is regardedas having a 20-year VAT life. Technically it is 20 ‘intervals’ which may not befull years as the capital goods owner can adjust the second interval to fithis/her/its accounting period.The scheme is designed to ensure that the VAT input credit is directly linkedto the ‘Vatable use’ over its 20-year life. In simple terms, the owner estimatesthe VAT recovery on the initial acquisition and claims the input creditaccordingly. The VAT position is then reviewed at annual intervals over thenext 20 years with an annual plus or minus adjustment being made asrequired.A more detailed review of the Capital Goods rules is outside the scope of thispresentation. It is mentioned here only to remind people that anyone with aVatable interest in property is obliged to maintain a ‘Capital Goods Record’ inaccordance with S.12(E)(12) VATAs. The legislation makes it clear that “ acapital goods owner shall create and maintain a record ….(whichcontains)....sufficient information to determine any adjustments in respect ofthat capital good…” .In practice, apart from having to do so in order to comply with the obligationimposed by S.12E, maintaining a CGR is essential to help owners ensure thatthey keep their tax affairs in order and don’t over-pay/under-claim the VATattached to property. For example, where a Vatable business sub-lets aportion of the business premises under a VAT-exempt lease, the annualreview of the CGR makes it much more likely that the appropriate VAT OmniPro Education & Training Page 43 of 163
  47. 47. adjustment is made in relation to the portion of the premises no-longer usedfor ‘Vatable’ purposes.There is no ‘CGR blueprint’ and each capital good owner is free to designtheir own version provided it complies with the requirement to ‘containsufficient information’ as above. The following examples contain one possibleversion of a CGR. Example 2 illustrates how the CGR might reflect the annualadjustment that can arise where an owner’s VAT deductibility varies eachyear and highlights the role maintaining the CGR can play in ensuring that theadjustment is accounted for.It is important to note that the format of the following CGR has not beenapproved by the Revenue and may prove to be unacceptable in due course. Ithas been drafted in line with the available guidelines in the hope of provokingcomment and – as always with new concepts – the format of a CGR willprobably evolve and be fine-tuned in the years to come, but this process hasto start somewhere - hence the enclosed CGR. However each capital goodsowner should review the guidelines and legislation for themselves whenpreparing their own CGRs to ensure that whatever template they choosecomplies with the requirements. OmniPro Education & Training Page 44 of 163
  48. 48. 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 45 of 163
  49. 49. CGR - Example 2: BT Insurance Ltd purchased unit on 25 July 2008 for €1m + VAT €135,000 Its July/August recovery Rate was 35% so initially reclaimed €47,250. In August 2009, review of prior 12 months confirms actual % was 30% In January 2010, review of 2009 % showed recovery rate to be 20% In January 2011, review of 2010 % showed recovery rate to be 40% All future intervals the recovery rate was 18% (Usual Y/E is 31 December).Definitions: Total Tax Incurred €135,000 Initial Interval Portion of Deductible use 30% Initial Refund Claimed €47,250 (€135k x 35%) Total Reviewed Deductible Amount €40,500 (€135k x 30%) Initial Interval Adjustment (€6,750) (€40,500 - €47,250) Base Tax Amount €6,750 (€135k / 20) Reference deduction amount €2,025 (€40,500 / 20) Interval Deductible Amount €6,750 x ?% Non-Deductible Amount €94,500Capital Goods Record: A B C (A x B) (C-A) Total Tax Initial Total Initial Initial Interval Portion of Reviewed Refund Deductible Deductible Interval Start Finish Incurred Use Amount claimed Adjustment Initial 25/07/2008 24/07/2009 €135,000 30% €40,500 €47,250 (6,750) 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 25/07/2009 31/12/2009 €6,750 20% €1,350 €2,025 (675) 3 01/01/2010 31/12/2010 €6,750 40% €2,700 €2,025 675 4 01/01/2011 31/12/2011 €6,750 18% €1,215 €2,025 (810) 5 01/01/2012 31/12/2012 €6,750 18% €1,215 €2,025 (810) 6 01/01/2013 31/12/2013 €6,750 18% €1,215 €2,025 (810) 7 01/01/2014 31/12/2014 €6,750 18% €1,215 €2,025 (810) 8 01/01/2015 31/12/2015 €6,750 18% €1,215 €2,025 (810) 9 01/01/2016 31/12/2016 €6,750 18% €1,215 €2,025 (810) 10 01/01/2017 31/12/2017 €6,750 18% €1,215 €2,025 (810) 11 01/01/2018 31/12/2018 €6,750 18% €1,215 €2,025 (810) 12 01/01/2019 31/12/2019 €6,750 18% €1,215 €2,025 (810) 13 01/01/2020 31/12/2020 €6,750 18% €1,215 €2,025 (810) 14 01/01/2021 31/12/2021 €6,750 18% €1,215 €2,025 (810) 15 01/01/2022 31/12/2022 €6,750 18% €1,215 €2,025 (810) 16 01/01/2023 31/12/2023 €6,750 18% €1,215 €2,025 (810) 17 01/01/2024 31/12/2024 €6,750 18% €1,215 €2,025 (810) 18 01/01/2025 31/12/2025 €6,750 18% €1,215 €2,025 (810) 19 01/01/2026 31/12/2026 €6,750 18% €1,215 €2,025 (810) 20 01/01/2027 31/12/2027 €6,750 18% €1,215 €2,025 (810) OmniPro Education & Training Page 46 of 163
  50. 50. The fact that the VAT treatment of a property acquisition can subsequently bechanged on foot of a CGS adjustment can impact on other taxes.Example:Liam purchased a property on 1st January 2009 for €290k and incurred VATof €40,000. Liam’s plan was to let the unit to his company and therefore therelevant elections and paperwork was put in place and Liam charged thetenant rent plus 21% VAT every 3 months. Liam’s company performs badlyover the next few years so he decides to close the doors in December 2015and give up the lease. Mr. F agrees to purchase the property on 1 January2016 for €310k but will not consent to VAT being charged on the sale.In 2009, Liam would have reclaimed €40,000 VAT on the purchase of theproperty. The Revenue would have allowed this input credit on theunderstanding that Liam will ensure that the property is utilised for ‘Vatablepurposes’ throughout its 20-year VAT life. However, the VAT-exempt sale ofthe unit in 2016 means that in fact the property was only used for Vatableactivities for 7 years.Therefore, Liam will have to repay €26,000 to the Revenue, (i.e. €40k x13/20).Such a claw-back could also arise in other circumstances where the propertyceases to be used for Vatable purposes, e.g. if Liam ceases to charge VAT tothe tenant, or if Liam were to set up as a Bookmakers in the unit, or someother VAT-exempt trade.It is important to remember that the CGS can also work in favour of the tax-payer. For example, what if in the above example (1) Liam acquired theproperty to use in his VAT-exempt childcare business and (2) the purchaseragreed to elect for the sale of the unit in 2016 to be liable to VAT. In that case, OmniPro Education & Training Page 47 of 163
  51. 51. Liam would have been denied any VAT input-credits in 2009, but would beable to claim a repayment of €26,000 in 2016.In this example, Liam purchased the unit for €290k and subsequently sold itfor €310k so – ignoring incidental costs etc – he appears to have made aprofit of circa €20,000 for CGT purposes. However, the CGS adjustmenttriggered by the VAT-exempt sale actually increases Liam’s base cost to€316,000 – i.e. the original €290k plus the VAT of €26k payable on foot of theCGS Adjustment.Therefore, the VAT adjustment has the effect of turning an apparent CapitalGain into an actual Capital Loss. Of course a VAT refund would have theopposite effect on the individual’s base cost.Incidentally, a similar adjustment may arise for income/corporation taxpurposes where the original capital cost qualifies for capital allowances – e.g.Industrial Buildings. However it should not impact on stamp duty becausestamp duty is always payable on the VAT exclusive amount.The following example is an excerpt from Tax Briefing – Issue 3 – April 2010which contains many other examples in relation to this subject. A person buys a property that he uses as a shop. The cost of the property is €908,000, which includes VAT of €108,000. The incidental costs of acquisition are €12,100, which includes VAT of €2,100. The property is used for a fully taxable activity and the person gets a VAT credit for €110,100. The shop is used in the sixth CGS interval for partly exempt activities which gives rise to a VAT liability of €500 as a result of a CGS adjustment. The shop is sold in the chargeable period (seventh CGS interval) following this CGS adjustment. OmniPro Education & Training Page 48 of 163
  52. 52.  As the sale takes place > 5 years since the acquisition of the property, the property is no longer regarded as new for VAT purposes and is therefore exempt from VAT. This results in a CGS adjustment, which claws back VAT of €75,600. The CGT computation on disposal is as follows: € Sale proceeds 950,000 Base cost of property (876,100) (€800,000 + €500 + €75,600) Incidental costs of acquisition (10,000) Chargeable gain 63,900There is an inherent danger in over-simplifying complex tax rules and it isessential that these issues be explored in more detail before any action ordecision is made. The intention here to simply highlight that certain aspects ofthe CGS are being over-looked in practice, so as to prompt further researchand consideration. OmniPro Education & Training Page 49 of 163
  53. 53. Tax Provisions – Over-looked AspectsTax law can be extremely complex and it is important to explore all aspects ofthe relevant provisions when seeking to rely on same. There are a number ofaspects that are frequently over-looked and/or mis-understood in practice,some of which can generate serious problems for advisors, while others canaid tax-planning.The following is only a selection of some of these provisions. Hopefully thesewill illustrate the importance of always reverting to the legislation beforeimplementing any proposal to ensure that nothing is being over-looked.Business Property ReliefBusiness Relief reduces the taxable value of Relevant Business Property by90% and, along with CGT Retirement Relief, is aimed at facilitating thepassing of a business onto the next generation. However Business Relief ismuch more complicated than Retirement Relief and care should always betaken to ensure that it is available.One example of where problems can arise is where the business premises isheld outside the trading company. Both Business Relief and Retirement Relieffacilitate the situation where the business is carried on by a ‘family company’but the property is held by the shareholder(s) personally - see S.598(1) andS.93(1). Both reliefs will apply provided that the property is transferred to thesame person and at the same time as the shares in the Family company.This is best illustrated by an example:- Mick and Kitty Brazil purchased the local Pub in the 1980’s and incorporated the business into MKB Ltd in the 1990s.- Mick and Kitty own 50 shares each of MKB Ltd’s 100 issues shares. OmniPro Education & Training Page 50 of 163
  54. 54. - They continue to own the Pub premises jointly and rent it to their company.- They are both in their 70s and wish to transfer the business to their Son, Breandán.- The Pub is valued @ €1m and the shares in MKB Ltd are valued at €200k.In practice there are a range of considerations that would be explored in thesecircumstances but this example ignores items like VAT, Stamp Duty,extracting cash to fund their retirement, etc, and instead focus exclusively onCAT and CGT.As outlined above, both RR and BR would appear to facilitate the simple giftof the Pub and the company to Breandán and thus no tax arises:- No CGT as per S.599- No CAT as €1.2m @ 10% = €120k which is < Breandán’s Exemption Threshold.However, a closer look at S.93(1)(e) reveals that they may be a problem withBusiness Relief in this instance. The legislation requires that the property wasused for the purposes of a business carried on by a company “of which thedisponer then had control…..a person is deemed to have control of acompany …if that person then had control of the powers of voting on allquestions…..which if excised would have yielded a majority of the votescapable of being exercised…”.In the above example, both Mick and Kitty are disponers for the purposes ofCAT but, as 50% shareholders, neither of them hold the majority of votingrights in MKB Ltd. Therefore, taking a strict legal interpretation of the abovelegislation, Business Relief would not apply in this scenario on the transfer ofthe Pub premises. OmniPro Education & Training Page 51 of 163
  55. 55. It is possible that, depending on the circumstances, the Revenue might take aconcessionary approach in these circumstances. However it may beimprudent to rely on this and it might be safer for individuals in situations likeMick and Kitty to take preventive action at an early stage, e.g. transfer theproperty into Mick’s sole name and re-allocate the shares on a 51%:49%basis.S.79 Stamp Duty Exemption:Tax in general can be is a complex subject and stamp duty is no exception.S.79(5) is an example of how technical errors can be made if due care is nottaken.S.79 provides that no stamp duty shall arise on transactions betweenassociated companies provided certain conditions are met. In simple terms,companies are regarded as ‘associated’ is they are within the same 90%group, and most advisors know that the exemption will be clawed back if this90% relationship is broken within two years of the transaction.This exemption is very valuable in practice, especially when trying to tidy upgroups, and this is also where S.79(5) can often catch people off-guard.Example:- Dad Ltd owns 100% of Son Ltd. Son Ltd owns a property- The directors would like to tidy up the structure- The advisors prepare a report that suggests transferring the asset to Dad Ltd- This allows Son Ltd to be ‘emptied’ so only one company continues. OmniPro Education & Training Page 52 of 163
  56. 56. D ad Ltd 100% t/f of asset S on LtdConsider the implications if, for example, the advisor’s report contains aphrase such as ‘the plan is to wait 2 years before liquidating/dissolving SonLtd as the stamp duty legislation contains a requirement that the associatedrelationship continues for at least 2 years after the event”. It could be arguedthat this sufficient in itself to prevent S.79 applying in this case becauseS.79(5) prevents the exemption being available if it is “in connection with anarrangement under which ….the transferor and the transferee were to ceasedto be associated..”.It is also worth noting that the onus of proof appears to be on the tax-payerwho must show ‘to the satisfaction of the Commissioners’ that S.79(5) doesnot apply. This phrase does seem to imply that the plan is to empty Son Ltdso that its relationship with its parent can be terminated – albeit after morethan 2 years - and therefore it is possible that the exemption would not beavailable on the initial transfer of the asset.A similar problem can arise where the subsidiary is being ‘prepared’ for sale.In situations such as this, it is perhaps better to err on the side of caution andnot refer to any possibility that the transferor may later be liquidated, sold,etc.Valuation Date v Date of Death:Where assets pass via an Estate, it is important to note that the ValuationDate for CAT is often different to the acquisition date for capital gains tax, andpractitioners should consider the potential implications of different dateapplying to the same asset especially at a time of fluctuating values. OmniPro Education & Training Page 53 of 163
  57. 57. S. 573 effectively provides that the Date of Death will usually be theacquisition date for capital gains tax purposes. Therefore the deemedacquisition cost of the asset will be its value on that date.For CAT, the Valuation Date is typically much later than the Date of Death.S.30(4) CATAs deals with the timing of the Valuation Date in inheritancesituations and refers to concepts such as when the executors are ‘..entitled toretain..for the benefit of the successor’, or when the benefit ‘..is so retained…’,or the ‘…date of delivery, payment …’ of the benefit.In practice this is not always easy to determine and will depend on manyfactors, e.g. if it is a specific legacy or a share of the residue.A detailed examination of the timing of the Valuation Date is outside the scopeof this presentation. It is sufficient to note that issues such as probate, the‘executors year’ etc usually ensure that the Valuation Date is later than theDate of Death. It is also important to note that it is often possible to influencethe timing of the Valuation Date, especially for residuary benefits.The following example should help illustrate the issues that can arise.Example:• Fiachra dies in 2007 and his Will contains a few specific legacies but provides that the residue of his Estate, including his house, passes to his brother Liam.• Probate is taken out in 2008 at which time the House is valued @ €100,000. It is accepted that the house was also worth €100k in 2007.• The executors take a few years to administer the Estate. In 2010, the house is sold for €200,000. The Estate if finally wound down in 2011.• Liam has prior benefits so his CAT Threshold has been fully utilised.As outlined above, the ‘base cost’ of the property is €100,000 which is thevalue at the date of Fiachra’s death. The critical question is when was the OmniPro Education & Training Page 54 of 163
  58. 58. valuation date for CAT purposes, because a later date could lead to doubletax.Perhaps the Valuation Date was 2008 when probate was taken out. The delayin finalising the Estate might reflect tardiness on behalf of the executors asopposed to delays in establishing pertinent information. If so, then:- Liam is treated as selling the house in 2010- He pays CAT of €25,000 (25% of €100k – value in 2008)- He pays CGT of €25,000 (25% of €100k – i.e. €200k less €100k) Total Tax €50,000However it is also possible that the Valuation Date did not arise until 2011when the Estate was wound-up. Perhaps the executors were awaitingclearance from the Revenue and thus couldn’t finalise the value of theResidue. In this instance, the house is sold by ‘the Estate’ and thus the capitalappreciation is effectively taxed twice leading to a significant increase in theover-all tax bill.- Estate pays CGT of €25k (25% of €200k - €100k)- Liam pays CAT of €43,750 (25% of €200k - €25k) Total Tax of €68,750The timing of the Valuation Date is important for various other reasons, forexample a beneficiary hoping to claim Agricultural Relief must meet the ‘80%Farmer Test’ on that date. Its inter-action with CGT is just anotherconsideration.In times of fluctuating asset values, it is important to ensure that separatevaluations are obtained for CGT and CAT, especially when it comes to sharesin a Family Company, when there is a time-gap between the Date of Deathand the Valuation Date. OmniPro Education & Training Page 55 of 163
  59. 59. Inter-Spouse Transactions:Most practitioners know that inter-spouse transactions are exempt from tax,e.g. there is no CGT, CAT or stamp duty where a husband transfers aproperty to his wife. However just because such transfers are exempt from taxdoes not mean they are irrelevant for tax purposes. The transfer of a property between spouses would still have the normal VAT on property implications. The transfer of stock could have income tax implications. S.598(6)(c) makes it clear that the transfer of assets between spouses is relevant when considering the availability of the €750,000 for Retirement Relief. For example, say a Farmer owns 300 acres valued at €1m and he gifts 150 acres to his spouse. He might find that this transfer utilises €500k of the €750k. See slides for further examples illustrating this point. There is a significant difference between the base cost of assets acquired from a spouse via a gift as opposed to an inheritance. Again, see slides for an example illustrating this aspect. OmniPro Education & Training Page 56 of 163
  60. 60. Losses v Capital Allowances:Many individuals have suffered trading losses in recent years andpractitioners will be familiar with the issues surrounding same. One of themost common dilemmas is whether the loss should be carried forward againstfuture profits from the same trade, or carried ‘sidewards’ and set against otherincome arising in the same year.In practice, people often fail to appreciate that this decision can be madeseparately for the trade loss and the capital allowances arising in that period.The relevant legislation is contained in S.s 381, 382 and 392 TCAs. It ispossible for the trader to elect to set only the trade loss against current yearincome, and to carry the capital allowances forward.This decision can be quite difficult in practice. There can be obviousinfluencing factors such as using tax credits, utilising tax bands, etc, but thereare also subjective issues such as the potential future profits of the trade. Theoption of splitting the decision between the loss and capital allowances is onlyone additional factor to be thrown into the mix, and like all factors itsimportance will vary from case to case.Example:- John is single and has two income sources in 2010, rent and his trade.- The rental properties were acquired years ago and the mortgages have been paid off and they are performing quite well.- His trade suffered significantly in 2010 but he has taken the relevant steps and hopes that it will improve in years to come.- His 2010 figures were as follows: o Case I: Adjusted Loss before CA was €17,000 o Case I Capital Allowances €3,000 o Case V Rental Income €25,000 OmniPro Education & Training Page 57 of 163
  61. 61.  If John claims €20k Loss in 2010: • Taxable income €5k => Tax Credits of €1,000 utilised If only €17,000 loss claimed (S.381 but no S.392 claim): • Taxable income €8,000 - Tax Credits of €1,600 used Failure to separate S.381 and S.392 would waste €3k that could otherwisebe available against 2011 or future trading profits. OmniPro Education & Training Page 58 of 163
  62. 62. Sale of a Patent:S.234(9) TCAs – as inserted by the 2011 Finance Act – provided that PatentRoyalties paid to a person on/after 24th November 2011 are no longer exemptfrom income tax. A similar change was made removing the exemption for‘Patent Dividends’.Prior to this, qualifying royalties paid to certain qualifying individuals – usuallythe ‘inventor’ – were exempt from income tax and thus many individualsretained the original Patent in their own names and granted a licence to acompany to exploit the Patented item. The removal of the exemption maytrigger a review of such arrangements going forward, and patent holders maybe considering selling the Patent for a capital sum, possibly in the belief thatsuch a sale would be liable to CGT as it is the ‘sale of an asset’.It is important to remember that the sale of a Patent – and indeed any capitalsum received on foot of Patent Rights - is actually taxed as income. S.757TCAs provides that any capital sum received on the sale of a Patent isassessed to income tax under Case IV. ‘The taxable gain’ is similar to a CGTcomputation as the vendor will be allowed to deduct from the sales proceedsany costs incurred in selling the Patent and/or any capital sum initially paid forthe Patent.S.757 provided that the profit arising is taxed in equal instalments over a 6year period, although the vendor can opt out of this and be assessed in full inthe year of sale. The Revenue may alter this 6-year taxable period in certain‘hardship cases’. OmniPro Education & Training Page 59 of 163
  63. 63. Doctors & Pensions:Practitioners will be aware that the pension landscape changed fundamentallyin 2009 following the Revenue’s ‘clarification’ of how the Net RelevantEarnings cap was to be applied in duel-income situations. See Tax Briefing 74in September 2009 for further details. The Revenue’s approach had asignificant impact on doctors in particular because of their relationship with theGMS pension scheme.The Revenue further clarified the position for doctors in Tax Briefing 11 issuedin September 2010. However it could be argued that further clarification is stillrequired and that many practitioners are incorrectly interpreting the rulesapplicable to GMS doctors. The following example from TB11 might helpillustrate:Jean is a GP aged 43. She is in receipt of net GMS remuneration in 2009 of€160,000 of which capitation income is €130,000 and she has net relevantearnings of €100,000 in respect of her private practice income.As a member of the GMS Superannuation Plan, Jean made a contribution of€6,500 (5% of the capitation income) to the plan in 2009. In addition, during2009 Jean has paid regular monthly contributions of €500 to a PRSA inrespect of her private practice income. Before completing her 2009 tax return,Jean wants to establish what her position is as regards claiming relief on thecontributions already made and on maximising her relief in 2009.Overall the potential maximum contributions in respect of which Jean canclaim tax relief in 2009 is €37,500 i.e. the earnings limit of €150,000 multipliedby the relevant age related % limit of 25%.As in Example 1, Jeans pensionable GMS income must be consideredfirst. In this case, as her net GMS remuneration exceeds the earningslimit of €150,000, she has no scope to claim relief for her PRSAcontributions in 2009. OmniPro Education & Training Page 60 of 163
  64. 64. Jean has already made a contribution of €6,500 to the GMS Plan. Assumingshe has capacity to do so (having regard to overall benefit restrictions), Jeanhas scope to make a special "last minute" AVC of up to €31,000 under theprovisions of section 774(8) TCA before the 2009 return filing date and electto claim the relief on the contribution in 2009 so as to maximise her relief.Jeans PRSA contributions cannot be relieved in 2009 and must be carriedforward for relief in future years. This is the position irrespective of whetherJean decides to make an AVC or not.This example would imply that Dr. Jean can make additional pensioncontributions of €31,000 provided that they are in the form of GMS AVCs.However her GMS capitation income is only €130,000, so a contribution of€37,500 would represent almost 29% of her capitation income, even thoughshe is capped at 25%.Furthermore, in the first example included in the same Tax Briefing – notincluded here but see www.revenue.ie – Dr. Jim pays €18,500 re. his privatepractice income of €74k, even though his capitation income if €77,300.Therefore Dr. Jim’s pension in Example 1 is linked to relevant earnings of€151,300 even though the cap is €150,000.The Relief is supposed to be capped at €150,000 @ 25% - €115 from 2011 -but the Tax Briefing Examples would imply that GMS doctors will usuallybreach either the €150k cap or the 25% cap. This is perhaps an unfair over-simplification but it does illustrate how confusing pension rules have become.However the real change is how the €150k @ 25% cap is to be allocatedbetween capitation income and private practice income and, while correct, itcould be argued that the tax briefing examples are mis-leading because theystart with the “pensionable GMS income” rather than showing how this figureis calculated. OmniPro Education & Training Page 61 of 163
  65. 65. The Tax Briefing confirms that “.. pensionable GMS income (i.e. net GMSremuneration) makes up the first part of the aggregate earnings limit of€150,000 and net relevant earnings in respect of private practice income will,effectively, be zero where the GMS pensionable income is €150,000 or more”.Therefore Dr. Jean above cannot access her private practice income at allbecause her GMS income is €160,000. This example may be correct, but itfails to address how her income figures were calculated and it would appearthat if she had just €30k in additional expenses, then the situation would bedifferent.Example:Dr. Twohig’s June 2010 accounts have been finalised as below and he ismeeting with his accountant to discuss what, if any, RAC he can make in2010:GMS - Capitation Income €77,000GMS - Non-Capitation Income €92,000 €169,000Private Practice Income €100,000Total Income €269,000Less: Expenses & Capital Allowances (€99,000)Case I Taxable Income €170,000Based on Dr. Jean’s Example above, Dr. Twohig and his accountant may betempted to conclude that no RAC can be paid in this instance. Dr. Twohig’sGMS income is > €150,000 and therefore it would appear that any additionalpension would have to be based on a GMS AVC and he cannot pay anypension linked to his Private Practice income.However it is important to note that the Tax Briefing does confirm that‘pensionable GMS income” can be based on the calculation of “net GMSremuneration” in the article’s Footnotes – i.e. "Net GMS remuneration" isdefined as income derived from the GMS Scheme contract less any expensesset against that income for the purposes of assessing the doctors liability totax. It was introduced in 2001 in the context of the extension of AVCs to the OmniPro Education & Training Page 62 of 163

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