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RENTAL EXPENSES IRELAND – High Court decision in Revenue Commissioners v Thomas Collins

 

The High Court decision in Revenue Commissioners v Thomas Collins has just been published.

It states that contrary to Revenue’s position, the NPPR (Non Principal Private Residence) charge was in fact an “allowable” expense against rental profits under Section 97(2) TCA 1997.

 

What was the NPPR Charge?

The NPPR (Non Principal Private Residence) charge was an annual charge of €200 implemented by the Local Government (Charges) Act 2009, as amended by the Local Government (Household Charge) Act 2011.

 

It related to all residential property situated in Ireland which was not used as the owner’s sole or principal residence from 2009 to 2013.

 

Examples of the type of residential properties liable for the NPPR charge were:

  • private rented properties including houses, maisonettes, flats, apartments or bedsits.
  • vacant properties – This definition excluded new but unsold residences in situations where they had never been used as a dwelling houses but instead were deemed to be part of the trading stock of a business.
  • holiday homes or second homes.

 

 

Previous Tax Treatment of NPPR

Irish Income Tax is calculated on the net amount of rents received or rental profits.  In other words Income Tax is charged on the gross rents received less any allowable expenses as specified in the Taxes Consolidation Act 1997.

 

The main deductible expenses include:

  • Interest on money borrowed to purchase, repair or improve the property
  • Any rent payable by the landlord in relation to a sub-lease
  • The cost to the landlord of providing any goods or services to the tenant
  • The cost to the landlord of insurance, repairs & maintenance, property management fees, etc.
  • Local Authority Rates where relevant.

 

For details of allowable rental expenses, please visit www.revenue.ie/en/tax/it/leaflets/it70.html

 


Prior to this ruling the Irish Revenue Authorities and the Department of Finance stated that the payment of the NPPR charge for residential properties was NOT an allowable deduction in calculating Income Tax on the rental profits.

 

Effect of this Ruling

If this High Court decision is not overturned then it could result in a repayment of taxes overpaid.

There is a time limit for claiming refunds of tax overpaid.  All claims for tax refunds must be made within four years of the end of the year to which the claim relates.

 

 

CORPORATE TAX – Payment and Filing

 

Corporation Tax Returns

The Irish corporation tax system operates on a self-assessment basis.  Therefore, it is solely the responsibility of the company to calculate and pay its corporation tax liability within deadline.

 

Any company liable to corporation tax must submit a CT1 Form which is a Tax Return containing details of profits, chargeable gains and other relevant information as outlined in Section 884 TCA 1997.

 

This return must be filed within nine months of the end of the company’s accounting period but no later than the 23rd day of the month if the Tax Return along with payment of the associated tax liability is filed via the Revenue Online Service.  Otherwise, the Return must be filed within eight months and twenty one days of the company’s year-end.

 

A company with a 31st December 2016 year-end, for example, must file its CT1 form on or before 21st September 2017 unless it files its Return and the relevant tax payment using the Revenue Online Service, in which case the deadline date is extended to 23rd September 2017.

 

An accounting period for corporation tax purposes cannot be longer than twelve months.

 

If a company has an accounting period of say, fifteen months for example, then it is deemed to have:

(a)   Two accounting periods for Corporation Tax purposes and

(b)   Two Preliminary Tax payment dates.

 

The first accounting period would be for the first twelve months and the second accounting period would be for the remaining three months.

 

 

Consequences of filing a late or incomplete/incorrect CT Return

If a company files (a) an incomplete or (b) an incorrect or (c) a late CT1 Form the following surcharges will apply:

  • If filed less than two months late, a 5% surcharge (subject to maximum of €12,695) will be calculated on the company’s CT liability for the accounting period in question.  This surcharge will apply irrespective of whether the tax had been paid within deadline because this surcharge arises in relation to the late filing of the CT1 Form.
  • If filed more than two months late, a 10% surcharge (subject to maximum of €63,485) will be levied on the company’s tax liability for the period in question regardless of whether or not the tax had been paid on time.

Please be aware that the surcharge also includes any Income Tax due.

 

In addition to the above surcharges, in circumstances where a company does not submit its return on time, the following restrictions on the use of certain allowances and reliefs will also apply:

  • If filed less than two months late, the reliefs and allowances will be restricted by 25%, subject to a maximum of €31,740 in each case
  • If filed later than two months, the reliefs and allowances are restricted by 50%, subject to a maximum of €158,715 in each case.

 

For Group Relief to apply, both the surrendering and the claimant company must have submitted their Corporation Tax Returns within the deadline date.

 

In situations where the Corporation Tax Return has been filed on time but the Local Property Tax (LPT) Return or relevant payment is outstanding at the CT filing date then a surcharge of 10% will be levied on the final liability.

 

This surcharge will also be levied if an agreed payment arrangement for LPT has not been set up.

 

If the company subsequently pays its LPT liability in full, bringing its tax affairs up to date, the amount of the surcharge will be capped at the amount of the LPT liability involved.

 

 

 Preliminary Tax

 

In Ireland, companies are required to prepay a portion of their corporation tax liability – this is known as “Preliminary Tax”.

 

The rules for calculating Preliminary Tax depends on whether a company is considered to be a “small company” or a “non-small company”.

 

A “small company” for preliminary tax purposes is a company whose corporation tax liability for the previous twelve month accounting period did not exceed €200,000.

 

A company which qualifies as a “small company” has the option of computing its preliminary corporation tax payment on the lower of:

  • 90% of the total estimated corporation tax liability for the current period, or
  • 100% of the final corporation tax liability for the previous period.

 

A small company has the option of paying its Preliminary Tax one month before the end of its accounting period on a date no later than the 23rd day of the month.

 

Any balance of tax outstanding must be paid on or before the company’s tax return filing date i.e. the 23rd day of the ninth month following the end of the accounting period.  In other words, if the accounting period ended on 31st December 2016 the balance of the tax would be payable by 23rd September 2017 providing the Return and payment were made via ROS otherwise it would be on or before 21st September 2017.

 

It is advisable to choose the second option because by paying 100% of the previous year’s CT liability this ensures that no underpayment will have been made by the Company thereby avoiding exposure to interest penalties.

 

Please be aware that if the company doesn’t pay sufficient preliminary corporation tax or if the preliminary tax is not paid on time, an interest charge will be levied.   A daily simple interest rate of 0.0219% will arise on the difference between:

(a) 100% of the final CT liability and

(b) The amounts paid over to the Irish Revenue Authorities.

 

For companies which are not deemed to be “small companies” the following rules will apply:

The first preliminary tax payment or “Initial Instalment” falls due no later than the 23rd day of the sixth month from the commencement of the chargeable period. The payment due is the lower of

(a)   50% of the previous periods corporation tax liability or

(b)   45% of the current year’s liability.

 

The second preliminary tax payment or “Final Instalment” falls due no later than the 23rd of the month preceding the end of the chargeable period (i.e. by the 23rd day of the eleventh month of the accounting period). This payment must bring the total preliminary tax payment submitted to the Revenue Authorities to at least 90% of the total tax payable for the current chargeable period including the tax on any chargeable gains.

 

The company must file its CT1 Return and pay the balance of the Corporation Tax (i.e. the remaining 10%) no later than the 23rd day of the ninth month after the chargeable period ends.

 

 

 

CORPORATE TAX – RESIDENCE & REGISTRATION

Registration

If you intend to set up a new company in Ireland in 2017, please be aware that you must register with the Irish Revenue Authorities within thirty days of incorporation. This can be done by completing the relevant sections of a TR2 Form:

http://www.revenue.ie/en/tax/vat/forms/formtr2.pdf

http://www.revenue.ie/en/tax/vat/forms/formtr2-nonresident.pdf

 

The information required to register includes:

1. Your CRO Number – For further information you should contact the Companies Registration Office https://www.cro.ie
2. The company’s year-end.
3. The company’s trading activities.
4. The name of the company, its registered office address and the address of its principal place of business.
5. The name of the Company Secretary.
6. Details of Directors and the main shareholders of the company including their Personal Public Service (PPS) numbers.

 

Every company which is incorporated in Ireland regardless of its residency or which is a foreign incorporated company commencing to carry on a trade or profession in Ireland is also advised to file a Form 11F CRO (www.revenue.ie/en/tax/it/forms/11fcro.pdf) with the Irish Revenue Commissioners within thirty days of commencing to trade.

 

Under Section 882(2) TCA 1997 where the company is incorporated but not tax resident in Ireland, the following additional information is required:

1. The country in which the company is resident;
2. The name and address of the company which is trading in Ireland if the Trading Exemption in Section 23A(3) applies.
3. The names and addresses of the beneficial shareholders if the Treaty Exemption under Section 23A(2) applies. If, however, the company is controlled by a company whose shares are traded on a stock exchange in an EU or DTA country then the registered office of that company will be required.

 

If your company is deemed to be tax resident in Ireland then it will be liable to tax on its worldwide income/profits in Ireland and not just the profits generated in Ireland. If it is not deemed to be Irish tax resident, then it will only be liable to Irish tax on Irish source or generated income/profits.

 

Residence

The first question to ask yourself is how to determine the residence of the company?

 

The 2014 Finance Act, which came into effect on 1st January 2015, amended the corporate tax residence rules contained in Section 23A TCA 1997 to address concerns about the “double Irish” structure.

 

Here is a brief summary of the legislation as follows:

  • A company incorporated in Ireland will be deemed to be Irish tax resident.
  • However, to ensure it complies with how company residence is dealt with in the Double Taxation Agreements, there is an exception to this rule.
  • The exception states that if, under the provisions of a Double Taxation Agreement, the Irish incorporated company is deemed to be tax resident in another jurisdiction then that company will not, in fact, be considered to be Irish tax resident.
  • A company which was not incorporated in Ireland but is managed and controlled in Ireland will not be prevented from being taxed as an Irish tax resident company according to the amendments to Finance Act 2014.

 

There are specific rules for companies incorporated in Ireland before 1st January 2015.

The new provisions apply only from the earlier of the following dates:

a) 1st January 2021 or
b) The date of “change” which takes place after 1stJanuary 2015. By “change” we mean where there is both (a) a change in ownership of the company and (b) a major change in the nature or conduct of the business activities of the company. The timespan for this “change” to have taken place is within one year before the date of the change or on 1st January 2015, whichever is the later date, and ending five years after that date.

 

What does this really mean?

It means that companies incorporated in Ireland before 1st January 2015 can use the previous company tax residence legislation until 31st December 2020.

It is essential that up to 31st December 2020, all corporate groups take into consideration the impact of the new legislative provisions on any proposed reorganisations, mergers or acquisitions where there would be (a) a change in the ownership and (b) a change in the nature/conduct of the business in relation to non-resident companies which were incorporated in Ireland.

 

Tax Rates in Ireland

• Trading Income is taxed at 12½%

• Investment Income including Deposit Interest, Interest on Securities and Rental Income is taxed at 25%.

• Dividends or distributions paid by one Irish resident company to another Irish resident company are known as Franked Investment Income and are not liable to Irish Corporation Tax in the hands of the recipient.

• Foreign Dividends received by Irish resident companies will be subject to Irish corporation tax at 25% in most cases. However, tax at the 12½% rate will apply on dividends received from EU subsidiaries where certain conditions are met under 21B TCA 1997.

• Companies are subject to Corporation Tax on their chargeable gains. The relevant rate of Capital Gains Tax is 33% which is applied to the gain which is then adjusted to an amount which would give the same tax liability using the 12½% Corporation Tax rate. The tax adjusted chargeable gain is the figure to be included in your Corporation Tax calculation.