Capital Gains Tax

Today, 10th October 2023, the Minister for Finance, Michael McGrath and Minister for Public Expenditure, NDP Delivery and Reform, Paschal Donohoe presented the 2024 Budget.

Budget 2024 tax measures feature a range of supports for individual and business taxpayers under the following headings:

PERSONAL TAX

• All PRSI contribution rates will increase by 0.1% from 1st October 2024. There will be an increase of 0.1% in Employee and Employer’s PRSI contributions from 1st October 2024. Class A1 Employee PRSI will rise from 4% to 4.1%.  Employer’s PRSI will rise from 11.05% to 11.15% and the reduced rate of Employer’s PRSI for earnings of €441 per week or less will rise from 8.8% to 8.9%.

• The standard rate band for Income Tax (i.e. the amount of income subject to tax at the 20% rate) will be increased by €2,000, meaning that the first €42,000 of a single individual’s income and the first €51,000 for married couples, with one earner, will be taxed at the 20% Income Tax rate.

• The ceiling for the 2% USC rate will be increased from €22,920 to €25,760. The 4.5% rate of USC will be reduced to 4% and the reduced rate of 2% USC currently applying to full medical card holders as well as those individuals aged over seventy, whose total income does not exceed €60,000, will be extended to the end of 2025.

• The Personal Tax Credit, the Employee Tax Credit and the Earned Income Tax Credit will each be increased from €1,775 to €1,875 for the tax year 2024 onwards.

• The Home Carer tax credit will be Increased by €100, from €1,700 to €1,800.

• The Single person child Carer tax credit will be increased from €1,650 to €1,750.

• The Incapacitated Child Tax credit will be increased from €3,300 to €3,500.

• The Sea-going Naval Personnel Tax Credit has been extended for a further year to 31st  December 2024.

• The Rental Tax credit for principal private residence has been increased from €500 to €750 per year for 2024 or from €1,000 to €1,500 per jointly assessed couple (i.e. married couples or civil partners). Parents who pay for their student children in Rent-a-Room or digs accommodation can now claim relief for rent paid. This change has been backdated and will apply retrospectively to the years 2022 and 2023.  In order to qualify for this tax credit, the children must attend an approved course.

• A temporary one year tax credit in relation to mortgage interest has been introduced for 2024.  It will apply at the standard Income Tax rate of 20%, subject to a maximum tax credit of €1,250 per property, on an outstanding mortgage balance on the taxpayer’s Principal Private Residence of between €80,000 and €500,000, as of 31^st December 2022.  To claim the tax credit, the taxpayer must be compliant with Local Property Tax requirements and file a Tax Return.  The tax credit will be available for offset against the taxpayer’s Income Tax liability for the 2023 year of assessment.  Prorating of the relief will apply where the interest paid is less than twelve months.

• The Company car Benefit-in-Kind relief introduced in Finance Act 2019 to apply from 1^st January 2023 have been extended to 2024.  With effect from 1st January 2023, BIK on employer provided cars is calculated based the vehicle’s CO2 emissions.  The amount liable to tax as BIK is determined by (a) the original market value of the car, (b) the annual business kilometres driven and (c) the CO2 emission rate of the vehicle.  In March 2023, a temporary change was introduced to combat the negative impact of this new BIK rule on the employee’s net or take-home pay.  It provided for a reduction of €10,000 to the original market value of vehicles in categories A to D.  There is no reduction to Open Market Values for cars in the E category.  In addition, the highest business mileage band was reduced from 52,001 Kms to 48,001 Kms as part of that amendment.  These temporary universal measures have been extended to 31^st  December 2024.

• The Temporary Universal Relief of €10,000 applied to the Original Market Value of a company car, including vans, for vehicles in Category A-D is being extended to 31^st December 2024.

• The special Benefit-in-Kind rule on Electric Vehicles is being enhanced and extended. The current Original Market Value deduction of €35,000 will be extended until 31^st December 2025. Along with the additional €10,000 introduced in Budget 2024, Electric Vehicles will see a deduction of up to €45,000 on the open market value.  The tapering of this discount will, therefore, be deferred by two years.  In summary, the current reduction of €35,000 in OMV will continue to apply for all EVs until the end of 2025, and will taper to €20,000 for 2026 and €10,000 for 2027.

• The Department of Finance will be launching a public consultation on modernising share based remuneration.

• It was confirmed that EU State aid approval to deliver the Finance Act 2022 amendments to the Key Employee Engagement Programme (KEEP) has been received and will be commenced by Ministerial order shortly. This will include an extension of the scheme until 31^st December 2025 as well as doubling the lifetime company limit for KEEP shares to €6 million.  It will also enable the Capital Gains Tax treatment to apply to the buy back of KEEP shares by the company from a relevant employee, provided all the conditions are met.

BUSINESS TAX

• In his Budget 2024 Statement, Minister McGrath reaffirmed Ireland’s commitment to the OECD’s Two Pillar Agreement to address the tax challenges arising from the digitalisation of the economy. The legislation to implement the 15% minimum tax rate under the OECD’s Pillar Two agreement will be published in the Finance Bill next week.  Under the BEPS 2.0 initiative, these rules require EU Member States to introduce a global minimum effective tax rate (ETR) of 15% for corporate/multinational groups with annual global turnover of in excess of €750 million. This minimum rate will apply in each jurisdiction in which the group operates.  The ETR will be calculated on adjusted financial accounting profits less tax expenses.

• Minister McGrath also reaffirmed his commitment to introducing a participation exemption for foreign sourced dividends in Finance Bill 2024.

• In his speech, the Minister confirmed that the R&D Tax Credit will be increased from 25% to 30% in respect of qualifying expenditure incurred in 2024. The first claims will be filed in 2025. There is a payment limit on the amount that can be paid to a claimant in the initial year of a claim. The Minister announced an increase in the payment threshold from €25,000 to €50,000 thereby doubling the amount of the R&D Tax Credit available for refund to the company, as part of its first year R&D Tax credit instalment.

• The Accelerated Capital Allowances Scheme for Energy Efficient Equipment, which is available to companies and unincorporated businesses, will be extended for a further two years until 31^st December 2025. The scheme allows for 100% Accelerated Capital Allowances to be claimed in year one, on capital expenditure on certain energy efficient equipment, used for the purposes of its trade, provided the qualifying conditions are met.

• As you may remember Finance Act 2022 extended film relief to 31^st December 2028. The Section 481 Film Corporation Tax Credit is a corporation tax credit of 32% of the qualifying costs of certain audiovisual productions. Budget 2024 increased in the current project cap for the film credit from €70 million to €125 million.  This is subject to EU State Aid approval.

• Employment Investment Incentive Scheme (EIIS) provides Income Tax Relief for investment in qualifying small and medium sized businesses, provided qualifying conditions are satisfied. Budget 2024 standardised the minimum holding period required to obtain relief to 4 years and it doubled the limit on the amount on which an investor can claim such relief to €500,000.  It is expected that further changes to EIIS will be made in the Finance Bill to take into account amendments to the EU General Block Exemption Regulation (GBER).

• Capital Gains Tax Retirement Relief applies on the disposal of business assets, farming assets and/or shares in certain family companies by an individual, aged fifty five years or over, provided certain qualifying conditions are met. A reduced Capital Gains Tax Relief is available where the individual is aged sixty six years and over. From 1st January 2025, that upper age limit for Capital Gains Tax Retirement Relief is to be extended to the age of seventy years.  In summary, the reduced relief which is available on disposals from age 66 onwards will now apply from age 70. There will also be a new limit of €10 million on the relief available for disposals to a child up until the age of 70 provided all the qualifying conditions are satisfied.

• No changes to Revised Entrepreneur Relief were announced in the Budget.

• A targeted new capital gains tax relief for individual angel investors in innovative start-ups, in line with the recommendation from the Commission on Taxation and Welfare, was announced today. The relief will be available to an individual who invests in an innovative start-up small and medium enterprise for a period of at least 3 years.  The investment by the individual must be in the form of fully paid-up newly issued shares costing at least €10,000 and constituting between 5 percent and 49 percent of the ordinary issued share capital of the company.  This relief will consist of a 16% rate of Capital Gains Tax (18% if invested through a partnership) on the disposal of qualifying investments, capped at twice the level of investment.  In other words, the gain to which this reduced CGT rate can apply is capped at 200% of the investment made.  Any gain above that will be liable to CGT at the standard rate of 33%. A lifetime gains limit of €3m will apply.   Further details will be available in the upcoming Finance Bill.  The scheme will include a certification process, carried out by Enterprise Ireland, to ensure the relief is targeted at innovative SMEs that can demonstrate financial viability and compliance with the requirements of the EU General Block Exemption Regulation (GBER).

PROPERTY

• As you’re aware, Finance Act 2022 introduced a Vacant Homes Tax which applies to residential properties which are in use as a dwelling for less than thirty days in a twelve-month chargeable period. With effect from 1^st November 2023, the rate will increase from three to five times a property’s existing base Local Property Tax liability.

• The Minister announced a one year extension to the liability date for Residential Zoned Land Tax (RZLT) to facilitate engagement with the mapping process by affected landowners. RZLT was previously intended to be charged and levied from 1^st February 2024 onwards. This has been deferred and will now apply from 1^st February 2025.

• A new temporary tax relief for small landlords will apply from 2024 to 2027. This Rented Residential Relief will provide relief at the standard rate of tax on a portion of the landlord’s rental income from residential properties.  Subject to certain conditions, €3,000 will be disregarded at the standard rate of tax in 2024.  The new relief will rise to €4,000 in 2025 and €5,000 in 2026 and 2027.  This will be equivalent to a tax credit of €600 in 2024, €800 in 2025 and €1,000 in 2026 and 2027.  The relief will be clawed back if the landlord removes the property from the rental market within four years of the initial claim.  To avail of the relief, the tenancies must be registered with the Residential Tenancies Board or with the public authority, where relevant.  In situations where the landlord owns multiple properties, the relief will be apportioned.  Where the property is jointly owned, the relief will be divided based on the percentage to which each owner is entitled.  Further information will be provided in the Finance Bill.

• The Help-to-Buy Scheme is being extended until 31^st December 2025. The relief takes the form of a repayment of Income Tax paid for the four years of assessment prior to making the application.  The scheme will be amended to make it more accessible to those purchasing properties through the Local Authority Affordable Purchase Scheme.  The affordable dwelling contribution received under the LAAP scheme can be used for the purpose of computing the 70% loan to value requirement of the Help to Buy Scheme.  This change will be implemented tomorrow, 11^th October 2023.

• The Defective Concrete Products Levy is being amended so that it will no longer apply to the pouring of concrete used to manufacture precast concrete products. A refund scheme will be introduced for those who paid the levy between 1^st September and 31^st December 2023.

AGRICULTURE

• The flat rate VAT compensation rate for unregistered farmers will be reduced from 5% to 4.8% from 1^st January 2024. This is a measure introduced to compensate unregistered farmers for the VAT they cannot claim on their farming purchases.

• Consanguinity Relief (Stamp Duty) will be extended for a further five years to 31^st December 2028. This reduced Stamp Duty rate of 1% applies to transfers of farmland between certain blood relatives.

• The scheme of accelerated capital allowances, at 50% per annum over two years, for capital expenditure incurred by farmers on certain farm safety equipment will be extended for a further three years, to 31^st December 2026. The expenditure must be certified by the Minister for Agriculture, Food and the Marine.

• The Minister announced that the Income Tax Relief for leased land will be amended so that it only applies to land which has been owned for seven years. Currently, no ownership period condition exists for the relief to apply. This amendment is targeted at active farmers and will apply to lessors who acquire farmland from 1^st January 2024. The change will require a lessor who purchases the farmland for market value on/after 1^st January 2024 to have owned the land for a minimum of seven years before they are eligible to make a claim for Land Leasing Income Tax Relief.

• From 1^st January 2024, the aggregate lifetime limits have been increased from €70,000 to €100,000 for the following Agricultural Reliefs: Stock Relief for Young Trained Farmers, Relief for Succession Farm Partnerships and Young Trained Farmers’ Stamp Duty Relief.

• The maximum Stock Relief for Registered Farm Partnerships will be increased from €15,000 to €20,000 for qualifying periods commencing on/after 1^st January 2024.

VAT

• With effect from 1^st January 2024, the current VAT business registration thresholds will increase from €37,500 to €40,000 for services and from €75,000 to €80,000 for goods.

• The 9% VAT rate for gas and electricity has been extended for an additional twelve months until 31^st October 2024. It had been due to end on 31^st October 2023.

• The Minister announced that a public consultation will be launched by the Revenue Commissioners shortly on the modernisation of the VAT invoicing and reporting system. The digitisation of the VAT system is expected to be introduced in line with EU tax digitisation measures.

• From 1^st January 2024, the zero rate of VAT will apply to e-books and audiobooks.

• From 1^st January 2024, the zero rate of VAT will apply to the supply and installation of solar panels in schools.

• From 1^st January 2024, the total annual capped fund for the Charities VAT Compensation Scheme will be double to €10 million.

MISCELLANEOUS

• No changes were announced in relation to the Capital Gains Tax rate, Capital Acquisitions Tax rate or the amount of the Capital Acquisitions Tax thresholds.

• In accordance with the recommendation of the Commission on Taxation and Welfare, foster children will now be able to avail of the Group B Capital Acquisitions Tax lifetime tax free threshold (currently €32,500) based on their relationship to their foster parent. This amendment will be introduced in the Finance Bill.

• The VRT relief for battery Electric Vehicles has been extended for a further two years to 31^st December 2025. This applies to EVs valued up to €50,000.

• The review of the Funds sector is ongoing.

• Tax Relief available to taxpayers who donate items under the Heritage Item Donation Scheme in any one year will be amended to take into account an increase in the aggregate value of such items from €6 million to €8 million. The tax relief available is a credit of 80% of the market value of the heritage item donated.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

On 27th April 2022 Revenue updated its guidance material to provide clarity on the tax treatment of transactions involving crypto-assets.  This latest publication also provides worked examples.

The terms “cryptocurrency” and “cryptocurrencies” are not defined.

The Irish Central Bank places cryptocurrencies, digital currencies, and virtual currencies into the same category of digital money. It is important to bear in mind, however, that although defined in this manner, these “currencies” are unregulated and decentralised which means that no central bank either guarantees them or controls their supply.

Throughout Revenue’s updated document the term “crypto-asset” is used, which includes cryptocurrencies, crypto-assets, virtual currencies, digital money or any variations of these terms.  Revenue state that the information contained in their most updated guidance is for tax purposes only.

Under Section TCA97 Ch4 s71–5, an individual who is resident in Ireland but not Irish domiciled is liable to Irish income tax in full on his/her/their income arising in Ireland, and on “non-Irish income” only to the extent that it is remitted to Ireland.

This is known as the remittance basis of taxation.

It’s important to keep in mind that the remittance basis of taxation does not apply to income from an office or employment where that income relates to the performance of the duties of that office or employment which are carried out in Ireland.

Section 29 TCA 1997 is the charging section for Capital Gains Tax.

s29(2) TCA 1997 states that a person who is Irish resident or ordinarily resident and is Irish domiciled is chargeable to Irish CGT on gains on all disposals (on his/her/their worldwide assets) arising in the year of assessment regardless of whether the gains are remitted to Ireland or not.

s29(4) TCA 1997 states that an individual who is Irish resident, or ordinarily resident,  but not Irish domiciled is chargeable on gains arising on disposals of Irish assets in the year of assessment as well as on remittances to Ireland in the year of assessment in respect of gains on the disposals of foreign assets.  In other words, an Irish resident/ordinarily resident but non domiciled individual is liable to Irish CGT on remittances in respect of gains arising on the disposal of assets situated outside the state.

From professional experience, the location of the crypto asset is often difficult to prove.

According to Revenue’s most recent publication:

“… where a crypto-asset exists ‘on the cloud’, it will not actually be situated anywhere and therefore, cannot be
viewed as ‘situated outside the State’.”

If the crypto-asset isn’t located anywhere and isn’t, therefore, considered to be a “disposal of an asset outside the state” then the remittance basis of taxation does not apply and the gain arising will be liable to Irish Capital Gains Tax based on the residency rules of the individual.

As you can see, it is very much the responsibility of the taxpayer to be able to prove the location where the gain arose on the disposal of the crypto-assets.

Revenue have outlined their record keeping provisions in relation to all taxes as follows: https://www.revenue.ie/en/starting-a-business/starting-a-business/keeping-records.aspx

In situations where the records are stored in a wallet or vault on any device including a personal computer, mobile phone, tablet or similar device, please be aware that these records must be made available to Revenue, if requested.

As with all taxes, full and complete records must be retained for six years in accordance with legislation. It is important to keep in mind that these provisions apply to all taxpayers, including PAYE only taxpayers.

For further information, please follow the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-02/02-01-03.pdf

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

HMRC issued it’s updated Digital Service Tax guidance material today in which it confirmed that cryptocurrencies are unlikely to meet the definition of financial instruments, commodities or foreign exchange and will therefore, not be exempt from the Digital Services Tax.  For further information, please click: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto48000

This means that exchanges dealing in crypto assets will be subject to the 2% digital services tax on their revenue.

HMRC has confirmed that it will issue ‘nudge letters’ to known UK resident crypto-asset investors who it believes may have underpaid tax on their cryptocurrency transactions.

Therefore, if you have used, bought or sold crypto-assets between 6th April 2020 and 5th April 2021, you should check whether or not you have a reporting obligation to HMRC.

Although the letters are not being sent out to non-UK domiciled individuals, this does not mean that HMRC’s view on the situs tests for crypto-assets has changed.    For further information on the location of crypto assets please click: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22600

According to eBrief No. 030/21, Revenue’s Revised Entrepreneur Relief Manual has been updated to reflect an amendment made to the relief under Section 597AA CTA 1997 by section 24 Finance Act 2020.

Revised Entrepreneur Relief is a relief from the standard Capital Gains Tax rate of 33% that would normally apply to the sale of a business.

It applies to individuals disposing of certain business assets.

The relief provides for a 10% rate of CGT to apply to chargeable gains arising on disposals or part disposals of “qualifying business assets” up to a lifetime limit of €1 million.

The term “chargeable business assets” includes:

• shares held by an individual in a trading company and
• assets owned by a sole trader and used for the purposes of his/her trade.

The term “chargeable business assets” excludes:

• shares, securities or other assets held as investments
• development land
• goodwill disposed of to a connected company
• assets which when disposed of would not give rise to a chargeable gain.
• assets owned personally, outside the company, even in circumstances where such assets are used by the company or
• shares or securities in a company where the individual remains connected with that company following the disposal.

The conditions include:

• the qualifying business assets must have been owned by the relevant individual for a continuous period of three years in the five years immediately prior to the disposal of those assets.  It is important to remember that periods of ownership by spouses cannot be aggregated for the purpose of the three year continuous ownership condition.  It should also be borne in mind that periods of ownership of assets before and after incorporation of a business cannot be aggregated for the purpose of the  three year continuous ownership condition.
• where a business is carried on by a company, individuals seeking to qualify for the relief must own not less than 5% of the shares in the qualifying company or 5% of the shares in a holding company of a qualifying group.  The requirement for an individual to have owned a holding of at least 5% of the ordinary share capital for a continuous period of three years in the five years immediately prior to the disposal has been amended by section 24 Finance Act 2020, so that the shares will qualify for relief if they were held for a continuous period of three years at any time prior to the disposal of those shares. 
• For the purposes of accuracy and completeness, a holding company means a company whose business consists wholly or mainly of the holding of shares of all companies which are its 51% subsidiaries and a qualifying group means a group where the business of each 51% subsidiary, other than a holding company, consists wholly or mainly of carrying on a qualifying business.
• The amendment in section 24 Finance Act 2020 applies to disposals of chargeable business assets made on or after 1st January 2021.
• The individual must have been a director or an employee of the qualifying company or companies in a qualifying group and is required to spend at least 50% of his or her time working for the company or companies in a managerial or technical role and has served in that capacity for a continuous period of three years in the five years immediately before the disposal of the chargeable business assets.

For further information, please click the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-06-02b.pdf

Revenue have confirmed in today’s ebrief No. 124/20 that there is no requirement for a person to include a capital loss in a tax return for the chargeable period in which the loss arises in such circumstances where there is no chargeable gain, arising in the same chargeable period, against which it may be offset.

Revenue’s Tax and Duty manual Part 19-02-05 has been updated.

Paragraph 5.1 clarifies Revenue’s position that, where an allowable loss arises in a chargeable period and there is no chargeable gain arising in the same chargeable period against which it may be offset, then there is no obligation for a person to include the loss in a tax return for the chargeable period in which the loss arises.

For further information, please click the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-02-05.pdf

On 2^nd September 2013, Vodafone Group Plc. announced that it was disposing of its 45% interest in Verizon Wireless to Verizon Communications Inc.

At the same time, it also announced its intention to carry out a “Return of Value” to its shareholders, of which there are almost 400,000 in Ireland.  Many of these shareholders had acquired Vodafone shares in exchange for their Eircom shares in 2001.  The “Return of Value” would be partly in cash and partly in Verizon consideration shares.

On 14^th May 2014 the Irish Revenue Authorities issued a comprehensive Tax Briefing outlining the tax treatment of the Vodafone Return of Value to its shareholders which provides comprehensive guidance on the calculation of the base cost for Capital Gains Tax purposes.

 In what form will Vodafone return this value to the shareholders?

 Either by the issue of:

1. B Shares (The Capital Option) or
2. C Shares (The Income Option)

 What does that mean to the shareholder?

1. If the shareholder opts for B Shares or the Capital Option then the return of value will be liable under the Capital Gains Tax rules.  The C.G.T. rate is currently 33%.
2. If the shareholder opts for the C Shares or the Income Option then the return of value will be subject to the Irish Income Tax rules.  In other words the shareholder will be treated as having received a dividend and will be taxed as with previous Vodafone dividends.

What does the Shareholder actually get?

1. 6 new Vodafone Ordinary shares for every 11 Vodafone ordinary shares held.
2. 0.0263001 Verizon Shares for every Vodafone share
3. A cash amount of €0.3585437 for every Vodafone share

 What about the shareholders who exchanged their Eircom shares for Vodafone Shares in 2001?

 These shareholders will NOT have a Capital Gains Tax liability.

Instead they will have a capital loss to offset against other chargeable gains arising in the current tax year or if unused they can be carried forward against future capital gains.

No Capital Gains Tax charge will arise for these shareholders in the following situations:

1. Where the shareholder opted for the capital option and the sale of Verizon shares.
2. Where the shareholder opted for the capital option and held onto the Verizon shares.

What is the base cost of the Vodafone Ordinary Shares?

The base cost for those Vodafone shares acquired in exchange for Eircom shares in 2001 is €4.46 per share.

Where in legislation are the apportioning rules?

 Section 584(6) Taxes Consolidated Acts 1997 outlines the rule for calculating the apportionment of the original holding between the three elements of the new holding i.e. the cash element, the new Vodafone ordinary shares and the Verizon shares.

What about future disposals of these shares?

• €4.58 will be the base cost per share of the new Vodafone ordinary shares by former Eircom shareholders when they dispose of these shares in the future.  (This figure could be subject to future adjustments)
• €53.85 will be the base cost per share of the Verizon shares by former Eircom shareholders when they dispose of these shares in the future.  (This figure could be subject to future adjustments)

What is the Income Tax treatment for those opting for C Shares?

Individuals who opted for the C Shares have received a dividend from Vodafone which consisted of two elements:

1. A cash amount and
2. Shares in Verizon

The shareholder should include both amounts in his/her Income Tax Return i.e. the cash actually received and the market value of the Verizon Consideration Share Entitlement received.  He/she must then pay the Income Tax arising on this dividend.

How is the tax on these dividends paid?

• Employees or individuals who pay tax through the PAYE system and where their non-PAYE income does not exceed €3,174 can have any tax arising on these dividends collected and offset against their tax credits.
• Self employed individuals must file a Form 11 in which income from all sources must be included and correct taxes paid on or before the self assessment deadline.
• Employees or individuals who pay tax through the PAYE system and where their non-PAYE exceeds €3,174 must complete a Form 11 and include the amount of Vodafone income received.  They must comply with the pay and file requirements of the self assessment system.
  

Are there any exemptions?

Individuals aged 65 years and over are entitled to claim an exemption from Income Tax if their total income i.e. income combined from all sources including Vodafone and Verizon dividends is

• Less than €18,000 in the case of a single person, widowed individual or surviving civil partner or
• Less than €36,000 in the case of a married couple or civil partnership.

Will there be Dividend Withholding Tax on the Verizon Shares?

Dividends paid to shareholders of Verizon shares will, in general, be subject to US withholding tax, currently 30% of the gross dividend amount.

Irish resident shareholders can make a claim to the US Tax Authorities to be entitled to dividend withholding tax at the reduced rate of 15%.

This claim can be made by completing a Form W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and forwarding it to Computershare as stated on the form.

The Irish resident shareholder will be entitled to a credit for tax withheld against Income tax or Corporation tax on the dividends received.

 The credit will be the lower of:

1. The Irish effective tax rate on the dividends or
2. The rate provided by the U.S./Ireland Double Taxation Treaty

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Over the years I’ve been asked many times how court settlements should be taxed.  I’m still surprised by the number of people who are under the impression that a special tax for compensation and damages exists – it doesn’t.

In order to determine the correct tax treatment of damages and compensation it is essential to establish what the payment relates to.

There are several possibilities, the main ones being:

1. Personal Injury
2. Compensation for Revenue Loss
3. Compensation for Capital Loss

 1. Personal Injury Compensation

A total exemption from Income Tax and Capital Gains Tax may be available in the case of personal injury compensation payments and income arising from investments of such compensation payments provided the following conditions, as outlined in Revenue’s IT 13, are satisfied:

1. The compensation must be for personal injury.
2. It must have been received arising from the institution of a civil action for damages in the court (where such an action is initiated but settled out of court, the compensation will still qualify) or pursuant to the issue of an order to pay under Section 38 of the Personal Injuries Assessment Board Act 2003.
3. Payments awarded by the Criminal Injuries Compensation Tribunal also qualify.
4. The person receiving the compensation, must, as a result of the injury, be permanently and totally incapacitated, either physically or mentally, from maintaining himself/herself.
5. The income obtained from the investment of the compensation must be the individual’s sole/main income.

2. Compensation for Revenue Loss

If the compensation is for loss of earnings then the payment will be liable to Income Tax in the case of individuals and partnerships and Corporation Tax for companies.

Examples of compensation liable to Income Tax are as follows:

1. Compensation under an insurance policy for the destruction of trading stock, accidents to members of staff or loss of profits.
2. Losses arising as a result of a breach of contract, etc.

 3. Compensation for Capital Losses

The main examples under this heading are as follows:

1. Compensation for damage or loss of an asset including land, buildings, plant, machinery, etc.
2. Insurance payments as a result of loss, damage, depreciation or destruction of an asset.
3. Compensation for the surrender or forfeiture of rights.
4. Compensation for the exploitation or use of an asset.

These capital sums will be liable to Capital Gains Tax and treated as if there was a disposal of the asset.

INTERESTING STORY

I recently came across this situation:

• An individual aged in his sixties received a considerable payment through the Irish courts.

• It was held to be compensation as a result of a satisfactory settlement of a case for breach of a joint venture agreement.

• The settlement was deemed to be compensation of a capital nature and therefore liable to taxation under the Capital Gains Tax legislation.

• The reason it was to be taxed in this manner was because the payment represented damages for breaching a joint venture agreement which related to the entire structure of the company’s profit making apparatus as in Van den Berghs Ltd. v Clark (1935) 19 TC 390.

• The individual had been a director of a family company with a shareholding of 30% who retired from the company some years earlier and had disposed of his full shareholding to the other directors.

• When he sold his shares, the entire proceeds were exempt from Capital Gains Tax under Section 598 of the Taxes Consolidation Act 1997.

• The reason he was exempt from Capital Gains Tax on the proceeds of the sale of his shares was because he qualified for “Retirement Relief.”

• To be eligible for Retirement Relief the following conditions must be met: (a) The individual must be over 55 years, (b) He/She must have been a Director for at least ten years prior to the date of the disposal, (c) He/she must have been a full time working Director for at least five of those last ten years years, (d) He/She  must have held “qualifying” shares (i.e. he/she must have owned shares in the company for more than ten years, (e) it must have been a family company (the individual must have held at least 25% of the voting rights or at least 10% of the voting rights with not less than 75% being controlled by family members), (f) it must have been a trading, farming or holding company of a trading group and (g) the proceeds relating to the qualifying assets must not have exceeded €750,000.

• The compensation payment received by the individual was also deemed to qualify for Retirement Relief under Section 598.

• Why?

• At the time the individual disposed of his 30% shareholding to the other directors of the family company, the price he received was well below market value.

• The individual accepted this consideration, which was well below the threshold amount of €750,000, on the written agreement that if the company was successful in their claim for damages for breach of a joint venture agreement, that he would receive 30% of the compensation.

• It held that the individual’s 30% share of the compensation awarded was eligible for Retirement Relief (since he met all the conditions of Section 598 TCA 1997) as it related to the disposal of “qualifying assets,” being his 30% shareholding, some years earlier.

On 24^th October 2013 the Finance (No. 2) Bill 2013 was published which confirmed the measures introduced by the Budget.

As the main priorities in Ireland at the moment are job creation and enterprise growth the following tax packages were introduced:

I.            ENTERPRISE RELIEF– This is a new Capital Gains Tax relief which is aimed at entrepreneurs investing in assets used in new productive trading activities.  The purpose is to encourage individuals to reinvest the sales proceeds from the sale/disposal of a previous asset into new productive trading or a new company.  The main aspects of the relief are as follows:

(a)          It applies to an individual

(b)         who has paid Capital Gains Tax on the sale/disposal of an asset and

(c)          invests in a new business

(d)         at a cost of at least €10,000

(e)          between 1^st January 2014 and 31^st December 2018.

(f)           The investment cannot be disposed of earlier than three years after the investment date.

(g)          Once the new investment is sold the Capital Gains Tax arising with be reduced by the lower of:

• the C.G.T. paid by the individual on a previous disposal of assets from 1^st January 2010 onwards and
• 50% of the C.G.T. arising on the disposal of the new investment.

What type of assets are involved?

The assets must be chargeable business assets.  Goodwill is included in this definition as are new ordinary shares in micro, small or medium sized enterprises after 1^st January 2014.  The main conditions are:

• The investor has control of the company and is a full time working director and
• The company is carrying on a new business.

NOTE: Please be aware the commencement of this measure is subject to E.U. State Aid approval.

II       START YOUR OWN BUSINESS – This is an exemption from Income Tax but not from Universal Social Charge and PRSI for a long term unemployed individual who is starting up a new, unincorporated business.

What is meant by long term unemployed?

         It means some one who is continuously unemployed for the previous fifteen months.

What does this measure actually provide?

         The first €40,000 of profits earned per annum will be exempt from Income Tax for two years.

III     ENHANCEMENT OF EMPLOYMENT & INVESTMENT INCENTIVE – The main points of this new measure are:

• The initial 30% relief available for investments under the E.I.I. has been removed from the High Earners Restriction for three years.
• A maximum of €115,000 can be invested per individual per annum.
• The aim is to encourage individuals to invest more funds in the E.I.I. Scheme which focuses on job creation and expansion.

IV        STAMP DUTY – The transfer of shares listed on the ESM (Enterprise Securities Market) of the Irish Stock Exchange will be exempt from Stamp Duty.  The ESM is the ISE’s market for growth companies.

The current stamp duty rate is 1%.

NOTE:  Please be aware that this measure is subject to a commencement order.

V         RESEARCH & DEVELOPMENT TAX CREDIT – The aim of this change is to assist smaller companies to access the tax credit without reference to the base year.  The following changes have been made and will take place in the accounting periods starting on or after 1^st January 2014:

• The amount of expenditure eligible for the R&D Tax Credit (without reference to the 2003 base year) has increased from €200,000 to €300,000.
• In order to qualify for the R&D Tax Credit, the limit on the amount of expenditure on research and development outsourced to third parties has increased from 10% to 15%.
• With regard to existing clawback provisions, under Section 766(7B)(c), the Bill provides that the tax foregone can be recovered from the company instead of the employee.

VI        VAT – There have been two major VAT changes:

• The annual threshold for VAT on a cash receipts basis has increased from €1.25m to €2m.
• This comes into effect on 1^st May 2014.
• The 9% rate for Tourism related goods and services has been retained so as to encourage growth in small businesses within the Irish Tourism Sector.

PART II

The construction and building sectors saw the introduction of welcome changes:

I          LIVING CITY INITIATIVE – The urban regeneration initiative has been extended to include residential properties constructed up to and including 1914 and covers the cities of Cork, Dublin, Galway and Kilkenny.

The aim is to stimulate regeneration of retail and commercial districts as well as to encourage families to return to historic buildings in Irish city centres.

II          HOME RENOVATION INCENTIVE – This is a new incentive for home owners who:

1. carry out repair, renovation or improvement work on their principal private residence
2. from 25^th October 2013 to 31^st December 2015.
3. Qualifying expenditure carried between 1^st January 2016 and 31^st March 2016 can be treated as having been incurred in 2015 if planning permission was granted before 31^st December 2015.

What kind of relief is available?

Relief is available in the form of an Income Tax Credit of 13½% on qualifying expenditure between €5,000 (minimum) and €30,000 (maximum).

What does “Qualifying Work” mean?

Building extensions, window fittings, plumbing and tiling, plastering, etc. carried out by tax compliant builders.

How does the relief work?

1. The tax credit will be split over two years after the year in which the work was carried out.
2. Any grant aided compensation or tax relief received will reduce the relief available.
3. The home owner must be LPT (Local Property Tax) compliant.

Note: It is essential to keep in mind that the Revenue on-line system will track information on contractors involved and work carried out.

PART III

There were a number of other budget changes which will have a huge impact on our economy:

One Parent Family Tax Credit

• The One Parent Family Tax Credit was replace by a new Single Person Child Carer Tax Credit.
• This takes effect from 1^st January 2014.
• There is no change to the value of the credit or the additional standard rate band.
• The new credit will only be available to the principal carer of the child.

Medical Insurance Tax Relief

• The Bill restricted the Medical Insurance Tax Relief.
• The maximum amount of the Medical Insurance Premium which can qualify for relief at the standard tax rate will be €1,000 for an adult and €500 per child.
• No tax relief will be available on any excess amounts.
• This charge relates to contracts entered into or renewed on/after 16^th October 2013.

Top Slicing Relief

Top Slicing Relief has been abolished completely for all ex-gratia lump sums paid on or after 1^st January 2014.

D.I.R.T. (Deposit Interest Retention Tax)

• The standard D.I.R.T. rate has increased from 33% to 41%.
• The D.I.R.T. rate of 36% has been abolished.
• All deposit interest will be liable to tax at the 41% rate.
• These changes apply to payments made on or after 1^st January 2014.
• The exemption for interest on “Special Term Accounts” will be abolished for accounts opened after 15^th October 2013.
• Credit Union “Regular Share Accounts” will be subject to D.I.R.T. on interest and dividends paid on or after 1^st January 2014.

COMPANY TAX RESIDENCE

There were changes to the company tax residence rules.

The company will be regarded as Irish resident for tax purposes where an Irish incorporated company is managed and controlled in another E.U. member state or treaty state and is not regarded as tax resident in any territory.

This applies from 24^th October 2013 for companies incorporated after that date or 1^st January 2015 for companies incorporated before 24^th October 2013.