Income Tax

Chartered Tax Advisors, qualified Accountants, Payroll Providers, Help with Preparing Tax Returns, Employee/Employer Taxes, Personal Taxes

The Minister for Finance Michael Noonan T.D. presented his 2016 Budget yesterday.   As you can appreciate, Accountants and Chartered Tax Advisors have widely anticipated this Budget.  In it, he outlined a wide range of changes to the Irish tax system with particular emphasis on:

(i) personal taxation,

(ii) initiatives to begin equalising the tax treatment of the self-employed and employees

(iii) as well as steps to support businesses in Ireland.

We will outline the key features of yesterday’s Budget below.

PERSONAL TAX

Universal Social Charge

The Government introduced comprehensive changes to the Universal Social Charge for 2016, aimed at reducing the tax burden on low and middle income earners.

The entry threshold for Universal Social Charge (“USC”) will be increased from €12,012 to €13,000.

Otherwise, rates of USC will be reduced as follows:

• For Income up to €12,012 – Rates reduced from 1.5% to 1%.

• Income from €12,013 to €18,668 – Rates reduced from 3.5% rate to 3%.

• The Income between €18,669 – 70,044 – Rates reduced from 7% to 5.5%

• Income between €70,045 – €100,000 – 8% (no change)

• PAYE Income in excess of €100,000 – 8% (no change)

• Self-employed income in excess of €100,000 – 11% (no change)

The top rate USC exemption will be retained for all medical card holders and individuals aged seventy years and older providing their total income does not exceed €60,000.

 Income Tax

There have been no changes to the income tax rates and bands.

 PRSI (Pay Related Social Insurance) 

Budget 2016 introduced a tapered PRSI tax credit for employees up to €624 per annum.

The entry point to the higher rate of employers’ PRSI of 10.75% will be increased to €376 per week.  This will be a welcome introduction by all employers.  The reason for this tapered PRSI credit being introduced, is to ensure low income earners benefit from the increase to the minimum wage, which will take effect in January 2016.

The credit applies to individuals earning between €18,304 and €22,048 per annum.  it will be subject to a maximum of €12 per week.

Earned Income Tax Credit

The government will be introducing an Earned Income Tax Credit of €550 per annum in 2016.  The aim is to equalise the tax treatment of the self employed with employees paid through the PAYE system.

This new tax credit will be available to individuals who are not eligible for the PAYE Tax Credit.  This includes:

(i) those earning self employed trading or professional income (subject to Income Tax under Cases I and II Schedule D)

(ii) individuals in receipt of Case III Schedule D income as well as

(iii) business owners who, up to now, didn’t qualify for a PAYE credit on their salary.

 Pensions

There was no reference made to tax relief on pensions in this Budget.

The “additional” pension levy of 0.15% will expire at the end of 2015.

Please be aware that the original 0.6% pension levy ended in 2014.

 Home Carer’s Tax Credit

The Home Carer’s Tax credit increased by €190 to €1,000 per annum.

1. An income tax credit worth up to €5,000 per annum for five years was introduced for family farming partnerships to facilitate the transfer of family farms to the next generation.

2. There was an extension of general and young farmers’ stock relief for a further three years.

3. Profits or gains from the occupation of woodlands are being removed from the High Earners’ Restriction.

New tax measures aimed at encouraging and supporting entrepreneurs and small business owners:

• The introduction of a Knowledge Development Box to provide for a 6.25% corporation tax rate on profits arising to certain IP assets which are the result of qualifying R&D activity that is carried out in Ireland. The Minister stated today that the KDB would add “a further dimension to our ‘best in class’ competitive corporation tax offering, which includes the 12.5% headline rate; the R&D tax credit; and the intangible asset regime.”

• The Start-up Relief from corporation tax is being extended for new start-ups commencing to trade over the next three years.  This relief applies where the total corporation tax payable for a period does not exceed €40,000 and the amount of relief available is linked to employer’s PRSI.

• The amendments to the Enterprise and Investment Incentive Scheme (EII) announced in Budget 2015 took effect from midnight. They have been pending EU State Aid approval for the past year.  These included an increase in the annual limit companies can raise to €5 million and an increase in the lifetime cap to €15 million. Investments in the extension, management and operation of nursing homes will also qualify for the EII.

• The cap on eligible expenditure for Film Relief is being increased from €50 million to €70 million subject to State Aid approval.

• The entry point to the top rate of employer’s PRSI increases by €20 per week to €376 per month.

• The scheme of capital allowances for the construction of facilities used in the maintenance, repair, and overhaul and dismantling of aircraft is being amended to comply with State Aid rules. The scheme is also being commenced with effect from Budget night.

 CAPITAL TAXES

• A 20% Capital Gains Tax rate will to apply to the disposal in whole or in part of a business up to an overall limit of €1million in chargeable gains.

• Other than the reduced rate of CGT which applies to the disposal of a business, there has been no change to the Capital Gains Tax rate of 33%.

• The Group A threshold for capital acquisition tax will be increased from €225,000 to €280,000 with effect from 14th October 2015. The Group A threshold typically applies to transfers between parents and their children. The current Class B and Class C thresholds remain unchanged and there has been no change to the CAT rate of 33%.

 Local Property Tax (LPT)

The Budget has extended the Local Property Tax revaluation date for the Local Property Tax from 2016 to 2019. This follows recommendations in the “Review of the Local Property Tax” report which has also recommended exemptions for properties significantly affected by pyrite.

NAMA is to deliver 20,000 houses between now and 2020. 90% of these in the Dublin area and 75% of the overall total will be starter homes.

OTHER CHANGES 

1. The Home Renovation Incentive is being extended until 31 December 2016.

2. The existing €5 Stamp Duty on Debit/ATM cards is to be replaced with a 12 cent charge for ATM transactions.  This is subject to a cap of €2.50 or €5 depending on the card type.

3. The reduced 9% rate for the tourism and hospitality sector will be retained.

4. There will be no changes to the reduced VAT rate of 13.5% or the standard VAT rate of 23% in 2016.

FINAL POINT

This is the first time since the Budget in April 2009 that the marginal rate for middle income earners has fallen below the 50% rate.

Capital Gains Tax (CGT) Payments, Disposal of an asset, Investment, Shares, Property, Business Sales.

If you’ve already made or about to make a disposal of a capital asset (e.g. if you have sold certain shares, an investment property, a business, etc.) anytime  between 1^st January and 30^th November 2014 you will be obliged to pay your Capital Gains Tax by 15^th December 2014.  If you decide to wait and dispose of your asset between 1^st December and 31^st December 2014 then your Capital Gains Tax (CGT) payment will be due by 31^st January 2015.

 What happens if you miss these deadlines?

 Interest of 0.0219% per day will be applied to all late payments of Capital Gains Tax.

 What happens if you make a gain in the first part of the year and a loss in the second part?

 Even if you’ve made an overall loss for the year, you will be obliged to pay the Capital Gains Tax arising on any gain you’ve made in the first part of 2014 by the specific payment date being 15^th December 2014.

 You can then submit your claim for a tax refund in January 2015 if a loss arises in the second part of the year.

 Any tax saving tips?

 Plan the timing of your disposals so that capital gains and capital losses arise in the same period thereby enabling you to offset the losses against the gains and effectively reduce any potential tax liability.

 This can be very useful from a cash flow point of view.

 What about filing obligations?

 You must include details of all your capital acquisitions and/or disposals made in 2013 in your 2013 Income Tax Return. 

 This Return must be filed with Revenue by 31^st October 2014.

 There is an extension to 13^th November 2014 if you are using the Revenue Online System (ROS).

 What happens to individuals who are not obliged to file an Income Tax Return?

 You may file a CG1 Form which can be downloaded from the Irish Revenue website www.revenue.ie

 As with the Income Tax Return, the due date for filing is 31^st October 2014.

 Please be aware, there is no facility to file this Form online which means the 13^th November 2014 extension does not apply to the CG1 Form.

Are there any penalties for late filing?

 If you are late filing your Tax Return but manage to do before 31^st December 2014 there will be a 5% surcharge of the amount of tax payable up to a maximum of €12,695.00.

 If you file your Return after 31^st December 2014 a 10% surcharge will be levied up to a maximum amount of €63,485.00.

For further information, please click: https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/index.aspx

For all your Capital Gains Tax advisory or compliance issues, please contact us on queries@accountsadvicecentre.ie.

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 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.

Capital Gains Tax. Income Tax Advice. Taxation of Compensation and Damages. Tax Reliefs. Personal Injury.

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 (i.e. Capital Gains Tax (CGT) or Income Tax (IT) of damages and compensation it is essential to establish what the payment actually relates to and to provide tax advice based on the facts of each individual situation.

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 themselves.
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) They must have been a Director for at least ten years prior to the date of the disposal, (c) They must have been a full time working Director for at least five of those last ten years years, (d) They must have held “qualifying” shares (i.e. they 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.

It is always essential to get tailor-made, bespoke tax advice in relation to your specific tax query.  As you can see, there’s no “one size fits all” in tax.

For further information, please click: https://www.revenue.ie/en/life-events-and-personal-circumstances/illness-and-injury/personal-injury-compensation-payments/index.aspx

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.

Contracts for Difference CFD, Income Tax, Capital Gains Tax, Corporation Tax, Badges of Trade, Offshore Funds, Business Tax

Recently I’ve received a number of queries relating to the Irish tax treatment of CFDs or Contracts for Difference – which business or personal tax system applies?  In particular, whether or not gains are taxed under Capital Gains Tax, Corporation Tax or Income Tax rules.  Although the information available is plentiful and appears to be straight forward, it’s important to be aware that each situation is different and as a result the tax treatment may vary considerably.

Firstly, what is a Contract for Difference?

Essentially it’s a contract between two parties i.e. the investor and the CFD Provider. At the close of the contract, the parties exchange the difference between the opening and closing prices of a specified financial instrument, including individual equities, currencies, commodities, market indices, market sectors, etc.  In other words, two parties take opposing positions on the difference between the opening and closing value of a contract i.e. the price will rise versus the price will fall.

Contracts for Difference offer wide access to different financial instruments from a single account for a fraction of the cost of buying shares.  They do not carry voting rights like ordinary stock and CFD trades on certain Irish stocks are not liable to Stamp Duty.

CFDs can be traded ‘long’ or ‘short’ to speculate on rising or falling markets i.e. the investor speculates that an asset price will rise by buying (long position) or fall by selling (short position).

CFDs do not confer ownership of the investment.  Instead the investor has access to the price performance which includes any dividend or corporate action equivalent.

What is the Irish tax treatment for profits / gains?

Contracts for Difference are treated as Capital Assets liable to Capital Gains Tax UNLESS they are deemed to be held in the course of a financial trade in which case the profits are liable to Income Tax under Case I, Schedule D.

According to Revenue eBrief No. 36/2007:

“The contracts require two parties to take opposing positions on the future value of a particular asset or index. Investments are often made on a margin of 20% of the contract amount. As well as the difference in value of the asset from beginning to end of the contract period, certain other notional income flows are taken into account in calculating the overall gain or loss.

• The first of these is notional interest, calculated on the non-margined value of the underlying asset for the contract duration.
• The second is the notional income which would have been earned by the asset during the contract period.

Where the contract is long (expectation of a rise in price), notional interest is a deduction and notional income a credit in the calculation.

Where the contract is short (expectation of a fall in price), notional interest is a credit and notional income a deduction.

The chargeable gain will be calculated on the gain or loss resulting from the computations above and including a deduction for all necessary broker fees incurred in the full contract.

Actual interest paid, if any, on the margin amount put up will be chargeable under Case III  in the ordinary way and does not come into the CGT calculation.”

What’s the difference between holding Capital Assets and operating a financial trade?

The concept of a “trade” is a matter of interpretation and is usually determined by a number of factors known as “badges of trade.”

For example, a once off transaction would not normally be considered a “trade.”  Depending on the circumstances and the timing it may be liable to Capital Gains Tax or indeed may be exempt from tax.  If, on the other hand, the investor was involved in a large number of transactions throughout the year of assessment then this activity would be most likely be considered to be a trade and therefore liable to Income Tax.

What are the “Badges of Trade”?

There are a number of factors which will determine the existence of a “trade”. There is, however, no decisive test and no legislative definition.  There is considerable case law concerning this issue and in 1954 a Royal Commission was set up in the United Kingdom to consider what factors should be taken into account in deciding whether a trade exists.  A report was published outlining the “Badges of Trade” which are as follows:

1.      THE SUBJECT MATTER OF THE SALE.

While almost any form of property can be acquired to be dealt in, those forms of property, such as commodities or manufactured articles, which are normally the subject of trading, are only very exceptionally, the subjects of investment.

Again, property, which does not yield to its owner an income, or personal enjoyment merely by virtue of its ownership is more likely to have been acquired with the object of a deal than property that does

2.      THE LENGTH OF PERIOD OF OWNERSHIP.

Generally speaking, property meant to be dealt in is realised within a short time after acquisition. But there are many exceptions from this as a universal rule;

3.      THE FREQUENCY OF SIMILAR TRANSACTION.

If realisations of the same sort of property occur in succession over a period of years or there are several such realisations at about the same date a presumption arises that there has been dealing in respect of each;

4.      SUPPLEMENTARY WORK.

If the property is worked on in any way during the ownership so as to bring it into a more marketable condition, or if any special exertions are made to find or attract purchasers, such as the opening of an office or large-scale advertising, there is some evidence of dealing. When there is an organised effort to obtain profit there is a source of taxable income. But if nothing at all is done, the suggestion tends the other way;

5.      THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REALISATION.

There may be some explanation, such as a sudden emergency or opportunity calling for ready money that negates the idea that any plan of dealing prompted the original purchase;

6.      MOTIVE.

There are cases in which the purpose of the transaction and sale is clearly discernible. Motive is never irrelevant in any of these cases and can be inferred from surrounding circumstances in the absence of direct evidence of the seller’s intentions.

In Summary

1. If goods or services are provided regularly with a commercial motive this will generally indicate the existence of a trade.
2. The length of ownership of the asset can be relevant but not conclusive in determining the existence of a trade.
3. The frequency and number of similar transactions by the same person should also be considered.
4. Making the items more marketable or improving them is generally considered to be an indication of a trade.
5. The intention of making a profit makes the transaction or transactions more likely to be a trade.
6. The nature of the asset may not be relevant in deciding whether or not trade is involved. The purchase/sale of land and/or shares can often be viewed as trading activities once the above factors have been taken into account.

Say an individual is employed in an investments role by day and makes considerable CFD profits in his/her spare time based on a significant number of transactions, how would this income be taxed?

Although opinions published by Revenue in the context of financial services are primarily concerned with group financing and treasury operations I believe they have direct relevance to this situation and should certainly be taken into consideration in ruling in favour of Income Tax Treatment.

In one such case, Revenue believed that the company was trading on the basis that the company was actively managing the business and making strategic decisions regarding financing and treasury operations. Despite the fact that the activities of the company were outsourced (i.e. no individuals were employed in the company), the outsourcing arrangement was managed and controlled by Irish resident directors with the appropriate level of specialized expertise in this area.

In this example, as the individual’s Irish PAYE employment relates to the area of financial services/investments, it would be difficult to see how Revenue could treat his/her C.F.D. activities as anything other than trading activities liable to Income Tax.

In summary, as the C.F.D. relates to a large number of transactions with a profit motive which requires a considerable amount of skill and expertise, it would be highly probable that this income would be liable to Income Tax and not Capital Gains Tax.

IN CONCLUSION

1. Capital Gains Tax will arise on CFD Gains.
2. Capital Gains Tax will arise on the difference between opening and closing values of an asset.
3. Income Tax will arise on deposit interest earned on margin.
4. The margin is the initial equity investment which is usually up to 20% to show the investor can complete the contract on closing.  If there are significantly negative market variations then additional capital will be required by investors so as to avoid forfeiting or losing the full margin deposit.
5. The ‘non-margin’ is defined as the balance which is leveraged or borrowed to purchase the position at the outset of the CFD.
6. Income Tax will arise on the accounting profits if the CFDs are held in the course of a trade.

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

Finance Bill – Capital Gains Tax. Income Tax. Corporation Tax. Stamp Duty. VAT. Personal Tax Reliefs

On 24^th October 2013 the Finance (No. 2) Bill 2013 was published which confirmed the measures introduced by the Budget.  It includes details on new income tax reliefs (a)the Home Renovation Incentive and (b) the Start Your Own Business Relief.  There have also been changes to VAT, Capital Gains Tax (CGT), Stamp Duty and a change to Tax Residency Rules for Stateless Companies.

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

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.

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.

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.

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.

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.

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:

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.

HOME RENOVATION INCENTIVE

This is a new Income Tax 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 Income 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.

For further information, please click: https://www.irishstatutebook.ie/eli/2013/act/41/enacted/en/html

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.

Income Tax, Corporation Tax, Capital Gains Tax, Value Added Tax, Stamp Duty and Capital Acquisitions Tax. Business and Personal Taxes

Finance Act 2013 contains the legislative provisions for a number of changes to the Irish personal and business tax system under all the main tax heads including Income Tax, Corporation Tax, Capital Gains Tax, Excise, Value Added Tax, Stamp Duty and Capital Acquisitions Tax.  Due to the amount of changes it is not possible to detail each individual provision so I decided to focus on a cross section of amendments to give a general overview.  The legislative provisions I have selected will have an affect on most if not all Irish individuals whether resident and domiciled or resident and non-domiciled; employed or unemployed; retired or still working; self employed or PAYE workers; corporate structures or individuals, etc.:

1. Universal Social Charge
2. The Remittance Basis for Income Tax
3. The Remittance Basis for Capital Gains Tax
4. Taxation of certain Social Welfare Benefits
5. Mortgage Interest Relief
6. Donations to approved bodies
7. Farm Restructuring Relief
8. FATAC – The US Foreign Account Tax Compliance Act
9. Close Company Surcharge
10. Stamp Duty

1. UNIVERSAL SOCIAL CHARGE

Finance Act 2013 introduced legislation to eliminate the 4% rate of Universal Social Charge applicable to individuals aged seventy years and over where their aggregate or combined income exceeds €60,000.00.

According to Section 3 Finance Act 2013, individuals aged seventy years or over will be subject to the normal rates of Universal Social Charge where the individual’s aggregate income exceeds €60,000; in other words:

• 2% on first €10,036
• 4% on next €5,980
• 7% on the balance (10% where the relevant income exceeds €100,000.00)

No marginal relief will be available.  This means that in situations where the individual’s income exceeds the threshold amount, the higher rate of the Universal Social Charge will apply to the entire income and not just to the excess over €60,000.00.

How is “Aggregate Income” defined?

 “Aggregate Income” includes the aggregate of all “relevant emoluments” including pensions, employment income and benefit-in-kind if applicable and “relevant income” including rental income, dividend income, income from a trade or profession, etc.

It does not include:

• Social Welfare Payments or
• Deposit Interest subject to DIRT (Deposit Interest Retention Tax)

 What about the Medical Card holders?

 Previously medical card holders were entitled to avail of the special reduced Universal Social Charge rate of 4%.

According to this new amendment, individuals holding medical cards will be liable to pay Universal Social Charge at the normal rates if his/her aggregate income exceeds €60,000.00.

This will mainly affect individuals with high earnings from other E.U. member states who transfer to Ireland but have social security arrangements in their own country.  Under E.U. law these individuals qualified for medical cards in Ireland and prior to Finance Act 2013 they would have been entitled to the reduced USC rate of 4%.

 2. THE REMITTANCE BASIS FOR INCOME TAX

This legislative amendment was introduced as an anti-avoidance measure to ensure that an individual who is resident and/or ordinarily resident in Ireland but non-domiciled cannot avoid paying the correct tax on the remittance of income into Ireland.

Under the remittance basis an individual is only liable to Irish Tax on income they bring into Ireland.  If the income is from an “earned” source then Income Tax, Universal Social Charge and PRSI are levied.

The changes to the Taxes Consolidation Act are most easily explained in an example:

• Sean Murphy is Irish resident for the past three years but is U.S. domiciled.
• He earned €200,000 rental income from his investment properties located in the U.S. over a two year period.
• He did not remit any of this income into Ireland.
• Instead he invested this €200,000 in a property in Spain.
• In January 2013 he gave the Spanish property to his wife Mary, as a gift while on holiday there.
• Mary is also Irish resident but U.S. domiciled.
• On 1^st March 2013 Mary sold the property for €250,000.
• On 1^st May she lodged the proceeds into her Irish bank account which was opened in her sole name.
• The lodgement of €250,000 by Mary into her own bank account is treated as a remittance by Sean because it occurred after 13^th February 2013.
• John is liable to pay Income Tax on the remittance, being the lodgement of funds into Mary’s Irish bank account.
• Mary will also be liable to Capital Gains Tax on €50,000, being the gain in value on the Spanish property because she remitted the gain into Ireland in May 2013.

Summary of the main points

Where there is an application of income from foreign securities or possessions by an Irish resident or ordinarily resident individual who is non-domiciled who then:

a)      makes a loan to his/her spouse or civil partner or

b)      transfers money to his/her spouse or civil partner or

c)      acquires property that is subsequently transferred to his/her spouse or civil partner

It will be deemed to be a taxable remittance for Income Tax purposes for that Irish resident, non-domiciled individual where the sums are received in the state on or after 13^th February 2013 from any of the following sources:

a)      Remittances payable in the state

b)      Property imported

c)      Money or value arising from property not imported

d)      Money or value received on credit or account in relation to such remittances, property, money or value.

3. THE REMITTANCE BASIS FOR CAPITAL GAINS TAX

As with the Income Tax legislation, this new Capital Gains Tax subsection provides that where an Irish resident, non-domiciled individual makes a transfer outside the state, of any chargeable gains, which would otherwise have been liable to Capital Gains Tax on the remittance basis, to his/her spouse or civil partner, any amounts remitted into Ireland on or after 13^th February 2013 deriving from that transfer will be treated as having been remitted by the individual who made the transfer to his/her spouse or civil partner.

It is important to remember that the Capital Gains Tax provisions apply to a remittance by the spouse or civil partner on or after 13^th February 2013 which means that any chargeable gains historically transferred are within the scope of the new provisions of Finance Act 2013 where the remittance into Ireland occurs on or after 13^th February 2013.

All decisions relating to the transfer of funds to Ireland should take account of the potential Irish taxes applicable.

 4. TAXATION OF CERTAIN SOCIAL WELFARE BENEFITS 

From 1^st July 2013 certain Social Welfare Benefits not previously chargeable to Income Tax will come into the Income Tax net including:

1. Maternity Benefit
2. Adoptive Benefit
3. Health & Safety Benefit

Revenue will now be permitted to amend tax credit certificates and standard rate cut off points to collect the tax arising on these benefits.

These benefits are not liable to the Universal Social Charge.

What happens if the salary is paid by the Employer during Maternity Leave?

Previously the employer paid the full salary to the employee less an amount representing the maternity benefit.  The net salary was liable to Income Tax, Universal Social Charge and PRSI while the employee received the Maternity Benefit tax free.

The employer received a tax saving on employer’s PRSI for the amount of the Maternity Benefit received by the employee.

From 1^st July 2013 onwards the employee will pay up to 41% Income Tax on the amount of the Maternity Benefit.

5. MORTGAGE INTEREST RELIEF

Prior to Finance Act 2013 Mortgage Interest Relief was due to expire at the end of 2012.

Section 9 Finance Act 2013 introduced transitional provisions in relation to mortgage interest relief which allows certain loans taken out in 2013 to be deemed to have been taken out in 2012.  These include:

• A loan taken out to purchase a site for which planning permission has been obtained on or before 31^st December 2012 and in respect of which a qualifying residence is built on that land or
• A loan taken out by an individual on/after 1^st January 2012 and on/before 31^st December 2012 which has been used for the construction of a residential premises on the site/land which the individual purchased on/after 1^st January 2012 and on/before 31^st December 2012.
• A facility agreement or loan agreement which was in place on/after 1^st January 2012 and on/before 31^st December 2012 to provide a loan to an individual which is partly drawn down in 2012 with the remainder being drawn down in 2013.  The loan must be for the repair, development or improvement of a residential premises which is the individual’s qualifying residence.

It is important to remember that where planning permission is required, it must have been granted prior to 31^st December 2012 for the relief to apply.

6. DONATIONS TO APPROVED BODIES

Prior to the Finance Act 2013, tax relief for donations was given in two ways:

1. The self employed individuals and companies received a tax deduction for donations made to approved bodies subject to certain conditions.
2. PAYE workers (employees paid through the PAYE system) did not obtain a tax deduction.  Instead the approved body applied to Revenue for a repayment as if the PAYE worker had made the donation net of tax at the individual’s marginal tax rate i.e. 41%.

The new provisions have resulted in:

1. The distinction between self employed individuals and PAYE workers has been removed.
2. The approved body (i.e. the Charity) can reclaim a specified amount of the donation rather than the self employed individual receiving a tax deduction for the donation through the self assessment system.
3. The specified rate is 31% now instead of the individual’s marginal tax rate of 41%.
4. There is a cap of €1,000,000 on the aggregate qualifying donations in any year of assessment from any individual donor to approved bodies.
5. There is still a 10% restriction for donations to approved bodies with which the individual donor is associated.
6. Certification by donors is being simplified.
7. Donors no longer need to provide “appropriate certificates” instead they will provide annual or enduring certificates that can be renewed.
8. Enduring Certificates will apply for five consecutive years of assessment and can be renewed.

What does this mean?

1. The net cost to a self-employed individual making the minimum donation of €250.00 has increased from €148.00 (i.e. €250 x 41%) to €250.00.
2. Since self employed individuals with earnings taxed at the marginal rate are more likely to make donations of €250.00 than self employed individuals taxed at the standard rate then this is likely to result in a significant shortfall in donations for approved bodies.

Final Points

1. Corporate donations are not affected by the new reclaim procedures for individuals or the annual cap of €1,000,000 on relevant donations.
2. The relief is only available in respect of donations made by Irish resident individuals.
3. Donations from non-resident individuals do not qualify regardless of the amount of tax paid by them in Ireland which doesn’t appear to make any sense especially since non resident companies can obtain a tax deduction for donations.

7. FARM RESTRUCTURING RELIEF

This new relief announced in the 2013 Budget enables individual farmers to obtain relief from CGT (Capital Gains Tax) where there is a sale or exchange of agricultural land where other agricultural land is being purchased or acquired under an exchange.

This is subject to Ministerial Order to take effect.

To qualify for the relief the following conditions must be fulfilled:

1. The sale / purchase and exchange of land is between farmers (i.e. both parties must be farmer) who spend not less than 50% of that individual’s normal working time farming and
2. A farm restructuring certificate must be issued by Teagasc making the agricultural land qualifying land and
3. Where the qualifying land is purchased / acquired / exchanged in joint names, each joint owner must be a farmer in his/her own right.  This excludes spouses and civil partners and
4. The first sale or purchase must occur in the relevant period (i.e. between 1^st January 2013 and 31^st December 2015) with the matching purchase or sale taking place within two years from that date or
5. Where there is an exchange both transfers under the exchange must take place between 1^st January 2013 and 31^st December 2015 and
6. The consideration for the qualifying land being purchased or exchanged must equal or exceed the proceeds from the sale of the qualifying land for the relief to be granted in full.  In other words, relief is given in full where the value of the land sold/exchanged is less than or equal to the value of the land purchased / acquired by exchange.
7. Where the consideration for the qualifying land purchased or exchanged is less than the consideration on the sale of the qualifying land then the relief is granted by reducing the chargeable gain by the same proportion that the acquisition costs bear to the sale/exchange proceeds for the qualifying land.

Can the Relief be clawed back?

1. The relief can be clawed back if the qualifying land is sold within five years from the date of purchase or exchange.
2. The clawback will not arise in the case of compulsory acquisition.

8. FATAC – US FOREIGN ACCOUNT TAX COMPLIANCE ACT

The US Foreign Account Tax Compliance Act 2010 comes into effect in 2014.

The aim of this legislation is to ensure that US citizens pay US tax on income arising from overseas investments.

The Finance Act 2013 introduced legislation which allows for the Irish Revenue Commissioners to make regulations for the purpose of implementing this Ireland US agreement.

The regulations will require that certain financial institutions register and provide a return of information on accounts held, managed or administered by the financial institution.  A return of information on payments must also be made.

The financial institutions will be required to obtain a US TIN from account holders.

Finance Act 2013 empowers Revenue officers to enter the premises of the financial institution at all reasonable times to ensure the correctness and completeness of a return and to examine the administrative procedures in place for the purposes of complying with the financial institution’s obligations under the regulations.

Section 891E(10) authorises Revenue to communicate the information obtained to the Secretary of the U.S. Treasury within nine months of the end of the year in which the return is received, notwithstanding Revenue’s obligation to maintain taxpayer confidentiality.

Section 32 of the Finance Act 2013 that introduced the new s.891 is enabling legislation.  The regulations will contain their own commencement provisions.

9. CLOSE COMPANY SURCHARGE

Finance Act 2013 increases the de minimis amount of undistributed investment and rental income from €635 to €2,000 which may be retained by a Close Company without giving rise to a surcharge.

A similar amendment is being made to increase the de minimis amount in respect of the surcharge on undistributed trading or professional income of certain service companies.

The aim of these changes is to improve cash flow of close companies by increasing the amount a company can retain for working capital purposes without incurring a surcharge.  Although it’s difficult to imagine how undistributed income of €2,000 could possibly make that much of a difference!

10. STAMP DUTY

Finance Act 2013 introduced anti-avoidance measures to target “resting in contract” and other structures used in relation to certain land transactions.

The main points are as follows:

1. Where a contract or agreement for the sale of land or an interest in land is entered into where (1) 25% or more of the consideration is paid under the contract or agreement and (2) an electronic or paper return along with the relevant stamp duty payable hasn’t been filed and paid within thirty days then the contract or agreement is chargeable to stamp duty as if it were a conveyance or transfer of interest in the land.
2. Where stamp duty is paid on a contract and a conveyance is ultimately completed there is a provision for crediting the stamp duty paid on the contract against any stamp duty that would be payable on the conveyance.  The conveyance must be made “in conformity with the contract.”
3. If the contract or agreement is rescinded or annulled, the stamp duty will be returned provided this is shown to the satisfaction of the Revenue.
4. There are no exclusions from the charge for tax incentive properties.
5. Where a landowner (1) enters into an agreement with another person that allows that individual to enter onto the land to carry out developments on the land and (2) 25% or more of the market value of the land is paid to the landowner other than as consideration for the sale or all or part of the land, then the agreement is chargeable with stamp duty as if it were a conveyance.
6. An agreement for land leases exceeding thirty five years will be stampable as if they were actual leases made for the term and consideration mentioned in the lease agreements where 25% or more of the consideration specified in the agreement for lease has been paid.
7. This legislation is applicable to all instruments executed on or after 13^th February 2013 with the exception of instruments executed solely “in pursuance of a binding contract or agreement entered into before 13^th February 2013.”
8. Where the agreement for lease has been stamped, stamp duty on the lease will be limited to €12.50.

What is meant by developments?

1. The construction, demolition, extension, alteration or reconstruction or any building on the land or
2. Any engineering or other operation in, on, over or under the land to adapt it for materially altered use.

CONCLUSION

This has been a very comprehensive Finance Act with many far reaching amendments. Over the next few weeks I will be focusing on areas significantly affected by the 2013 Finance Act as they deserve more detailed explanations to properly outline the changes to the Irish tax system.

For further information, please click: https://www.oireachtas.ie/en/bills/bill/2013/102/

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.

Rental Income Tax. Personal Taxes for landlords. Corporation Tax. Business Tax. Property Taxes

Rental income is calculated on the gross amount of rents receivable. A profit or a loss is calculated separately for each rental source. The rental income which is liable to Income Tax is the aggregate of the profits as reduced by the aggregate of the losses.

When completing an Income Tax Return, rental income from property situated in the Republic of Ireland is chargeable to tax under the provisions of Case V Schedule D while rental income from property situated outside the State is chargeable to tax under the provisions of Case III Schedule D.

It is important to remember that losses from one source cannot be written off against profits from the other. In particular, Irish rental losses cannot be written off against profits from foreign rental properties and vice versa.

Rental Income liable to Income Tax

The types of rental income liable to Income Tax can be more diverse than you might imagine. The following income is considered to be rental income, taxable under Case V, Schedule D:

• The letting or rental of residential, commercial and/or agricultural property.
• Easements.
• The granting of sporting rights and permits.
• Insurance payments received to compensate for non payment of rent.
• Certain Premiums.
• Improvements carried out by the tenant which is not required by the lease and for which he/she is not reimbursed, etc.

Deductible Rental Expenses

For rental expenses to be deductible there are three main rules:

1. It must be incurred by the landlord.
2. It cannot be of a capital nature.
3. It must be incurred during the period in which the landlord is entitled to receive rental income. In other words, it cannot be considered pre or post trading expenses.

Specific Expenses include:

• Rent, rates and insurance paid by the landlord.
• Repairs & Maintenance costs paid by the landlord including water charges, electricity, satellite/cable television, cleaning and maintenance services, painting and decorating, replacing tiles and slates, damp treatment, fixing broken showers, windows, doors, etc.
• Management Charges.
• Letting Expenses
• Advertising
• Legal Fees including the drawing up of leases or debt collection.
• Accountancy charges in relation to preparing rental income accounts and tax returns.
• Interest on money borrowed to purchase, improve or repair the rental property.
• Allowances for capital expenditure – These are known as Capital Allowances.

Please be aware you can never claim a deduction for your own labour. If you carry out repairs or gardening yourself, you cannot include this as a deductible expense against rental income.

The NPPR and Household charges are not allowable expenses against rental income.

Mortgage Interest

Broadly speaking, interest on money borrowed to purchase, improve or repair a rental property is deductible in calculating your rental income for tax purposes, subject to certain conditions.

The allowable deduction for interest accruing on loans used to purchase, improve or repair rented residential property is restricted to 75% of the total interest accruing.

This 75% restriction does not apply to non-residential property. In the case of offices, warehouses, etc. 100% of the interest is allowable against rents receivable.

A further restriction was introduced in 2006. Unless the landlord has complied with the registration and payment requirements of the PRTB (Private Residential Tenancies Board) in relation to each and all tenancies in the rented property then the interest on monies borrowed for the purchase, improvement or repair or rented residential properties will not be an allowable deduction against rents receivable.

If the loan to purchase the rental property includes stamp duty, legal fees, auctioneers’ fees, etc. then the interest on the loan must be apportioned. Only the interest relating to the actual cost of purchase, repair or renovation of the property is allowable.

Interest incurred prior to the first letting is not allowable (pre-letting expense) neither is the interest incurred after the final letting (post letting expense). Interest incurred during a period in which the landlord occupies the property is not allowable.

Capital Expenditure – Wear & Tear Allowance

Wear and tear allowances are available in respect of capital expenditure incurred on fixtures and fittings provided by the landlord for the rented residential property. This includes furniture, showers, kitchen appliances, etc.

The rate is 12½% over eight years.

What Expenditure is not allowable?

• Pre-letting expenses – expenses incurred prior to the date on which the premises was first let. There are exceptions to this rule and they include auctioneer’s letting fees, advertising fees and legal expenses incurred on first lettings.
• Interest on money borrowed incurred in the period following the purchase of the property up to the time the first tenant enters into a lease and after the final letting.
• Post-letting expenses – expenses incurred after the final letting,
• Capital expenditure incurred on additions, alterations or improvements to the premises unless allowable under an incentive scheme or incurred on fixtures and fittings.
• Expenses incurred on lettings that are exempt under the Rent-a-Room provisions.
• NPPR
• Household Charge
• The landlord’s own labour

Rent-a-Room Relief

If an individual rents out a room in his/her sole or main residence as residential accommodation and receives up to €10,000 per annum this amount will be exempt from Income Tax, PRSI and the Universal Social Charge providing conditions are met.

The €10,000 limit includes rent, utility bills, laundry, food, etc.

If the individual receives in excess of €10,000, the Rent-a-Room exemption will NOT apply and the entire rent receivable will be liable to income tax, PRSI and the Universal Social Charge

An individual cannot avail of rent-a-room relief in respect of payments for accommodation in the family home by a child of the landlord under any circumstances. There is no restriction where rent is paid by other family members, for example, nieces and nephews.

The relief does not affect an individual’s entitlement to mortgage interest relief i.e. Tax Relief at Source.

The relief does not affect the individual’s entitlement to Principal Private Residence Relief from capital gains tax on the sale or disposal of the property.

You can opt out of the relief for a year of assessment by making an election on or before the return filing date for the year of assessment concerned.

Non Resident Landlords

If your landlord resides outside the Republic of Ireland and you pay rent directly to them or electronically transfer the money into their bank account either in Ireland or abroad, you must deduct income tax at the standard rate of tax (currently 20%) from the gross rents payable.

Failure to deduct tax may leave the tenant liable for the tax that should have been deducted.

At the end of the year you are obliged to complete a Form R185 showing the tax deducted from the gross rents which you should then give to your landlord. The landlord can then submit this form to the Revenue Commissioners and claim this amount as a credit.

If, on the other hand the non-resident landlord has an agent who is resident in the state, then there is no obligation for the tenant to deduct tax from the rent. Instead the tenant should pay the gross rent to the agent.

The agent is then liable to pay income tax on the rents received from the tenant in the capacity of Collection Agent for the landlord. The agent is then required to register as self employed and submit an annual tax return and account for the tax due.

Foreign Rental Income

In general, rental income from property located outside Ireland is calculated on the full amount of rents receivable, irrespective of whether or not it has or will be remitted into Ireland.

Broadly speaking, the same deductions are available in calculating the taxable rental income as if the rents had been received in Ireland.

Income tax on these rental profits is chargeable under Case III of Schedule D.

In the case of an individual who is not domiciled inIreland, the taxable rental income is computed on the full amount of the actual sums received in the State without any deductions or reliefs for expenditure incurred.

Rental losses from the letting of property outside the State cannot be offset against rental income from the letting of property in the State and vice versa. Such losses can only be offset against future rental income from property outside the State.

For further information, please click: https://www.oireachtas.ie/en/debates/question/2013-04-16/263/

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.

Tax Resident, Ordinarily resident and Domiciled Ireland

Introduction

Your residency affects your tax treatment in Ireland.  As an Irish resident, ordinarily resident and Irish domiciled individual you will be taxed on your worldwide income wherever it arises.  You will be taxed on all Irish and foreign source income in full and where possible you will be entitled to a tax credit for any foreign tax paid on foreign source income.

Residence

You will be considered to be Irish tax resident if you are present in the state for:

a) 183 days during the tax year in question or

b) 280 days or more over a period of two consecutive tax years.

Notwithstanding b), if you are present in Ireland for 30 days or less in a tax year you will not be treated as resident for that year unless you elect to be resident.

If you are not tax resident in the year of arrival under the above rules, you may elect to be tax resident for the year of arrival.

If you have any queries relating to whether or not you should elect to become Irish resident, please contact us.

Ordinarily Resident

You will be considered ordinarily resident if you have been resident in the state for the previous three consecutive years.

Regardless of whether or not you are actually resident in the state in the fourth year, you will be considered ordinarily resident for the fourth year.

If you leave Ireland, you will cease to be ordinarily resident when you have been non resident for three consecutive years. You will not be considered to be ordinarily resident from the fourth year.

Domicile

Domicile is a general legal concept.

It is relevant to you in relation to how certain foreign source income will be taxed in Ireland.

Under Irish law, every person acquires a domicile of origin at birth. In most cases this is the father’s domicile, however, in situations where the parents are unmarried or the father has died prior to the individual’s birth, the domicile of the mother is taken.

Your domicile can change if you acquire a domicile of choice.

Tax Treatment

As a non resident, but ordinarily resident and Irish domiciled individual you will be taxed on all Irish and foreign sourced income in full.

The following income is exempt:

a) Income from a trade or profession, all duties of which are exercised outside Ireland.

b) Income from an office or employment, all duties of which are performed outside the state.

c) Foreign income providing it does not exceed a threshold amount of €3,810 in a tax year.

As a non resident, non Irish domiciled but ordinarily resident individual, you will be taxed on all Irish source income in full and foreign source income to the extent that it has been remitted into Ireland.

Again, the following income is exempt:

a) Income from a trade or profession, all duties of which are exercised outside Ireland.

b) Income from an office or employment, all duties of which are performed outside the state.

c) Foreign income providing it does not exceed a threshold amount of €3,810 in a tax year.

As non resident, non domiciled and non ordinarily resident, you will be taxed on Irish source income in full and on foreign source income in respect of a trade, profession, employment or office where the duties are exercised in Ireland.

As an Irish resident and ordinarily resident but non Irish domiciled individual, you will be taxed on Irish source income in full and on remittances of foreign source income.

For further information, please click: https://www.revenue.ie/en/jobs-and-pensions/tax-residence/index.aspx

as well as:

https://www.revenue.ie/en/jobs-and-pensions/tax-residence/resident-for-tax-purposes.aspx

Should you have any queries in relation to residency, ordinary residency or domicile, we would be delighted to discuss them with you.

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.