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Advanced Taxation Republic of Ireland 2 nd Year Examination August 2015 Solutions

Advanced Taxation - Accounting Technicians Ireland. Taxation August 2015 2nd Year Paper Page 3 of 24 Adv. Taxation A2015 Accounting Technicians Ireland 2nd Year Examination: Autumn

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Advanced Taxation Republic of Ireland

2nd Year Examination

August 2015

Solutions

Adv. Taxation August 2015 2nd

Year Paper

2

NOTES TO USERS ABOUT THESE SOLUTIONS

The solutions in this document are published by Accounting Technicians Ireland. They are intended to

provide guidance to students and their teachers regarding possible answers to questions in our

examinations.

Although they are published by us, we do not necessarily endorse these solutions or agree with the views

expressed by their authors.

There are often many possible approaches to the solution of questions in professional examinations. It

should not be assumed that the approach adopted in these solutions is the ideal or the one preferred by us.

Alternative answers will be marked on their own merits.

This publication is intended to serve as an educational aid. For this reason, the published solutions will

often be significantly longer than would be expected of a candidate in an examination. This will be

particularly the case where discursive answers are involved.

This publication is copyright 2014 and may not be reproduced without permission of Accounting

Technicians Ireland.

© Accounting Technicians Ireland, 2014.

Adv. Taxation August 2015 2nd

Year Paper

Page 3 of 24 Adv. Taxation A2015

Accounting Technicians Ireland

2nd

Year Examination: Autumn 2015

Paper: ADVANCED TAXATION (Republic of Ireland)

Thursday 13 August 2015

2.30 p.m. to 5.30 p.m.

INSTRUCTIONS TO CANDIDATES

PLEASE READ CAREFULLY

For candidates answering in accordance with the law and practice of the Republic of

Ireland.

Candidates should answer the paper in accordance with the appropriate provisions up to

and including the Finance Act, (No. 2) 2013. The provisions of the Finance Act 2014

should be ignored.

Allowances and rates of taxation, to be used by candidates, are set out in a separate

booklet supplied with the examination paper.

Answer ALL THREE QUESTIONS in Section A, and ANY TWO of the FOUR questions

in Section B. If more than TWO questions are answered in Section B, then only the first

two questions, in the order filed, will be corrected.

Candidates should allocate their time carefully.

All workings should be shown.

All figures should be labelled as appropriate e.g. €s, units, etc.

Answers should be illustrated with examples, where appropriate.

Question 1 begins on Page 2 overleaf.

The following insert is included with this paper.

Tax Reference Material (ROI)

Adv. Taxation August 2015 2nd

Year Paper

Page 4 of 24 Adv. Taxation A2015

SECTION A

Answer QUESTION 1 and QUESTION 2 and QUESTION 3 (Compulsory) in this Section

QUESTION 1 (Compulsory)

Tony and Breda are married and jointly assessed.

Breda is an employee of ABC Limited and is paid a salary of €40,000 per annum. In addition to her

salary she receives the following benefits from her employer:

Use of a company van which had an original market value of €30,000 when purchased new in

2009. Breda’s annual travel is 14,000km and she maintains a log of her travel. She spends

30% of her time away from the office.

A laptop, which cost €2,000 in 2012. The laptop is mainly used for work purposes and any

personal use is purely incidental.

A loan of €10,000 which Breda required to renovate her home. She pays interest at 2% per

annum on the loan.

In addition to the benefits above, Breda is reimbursed by her employer for the following expenses:

Vouched expenses of €1,500 in relation to attending trade fairs and training courses.

A round sum allowance of €500 per night when Breda had to travel abroad to attend a trade

fair. In addition her employer paid her a flat rate subsistence allowance of €108.99 per night

for the 5 nights she was abroad attending the trade fair. This overnight rate is in line with the

approved civil service rates.

Tony stays at home to mind the couple’s 3 children who are all in primary school. Tony rents out two

properties he owns and the following details are relevant for 2014:

Property 1 – residential property in Dublin

Bought on 1 January 2014

Rented from 1 February 2014 to 31 December 2014

Rental income €1,000 per month

Interest for the year ended 31 December 2014 on

loan taken out to buy the property €3,024

Miscellaneous allowable expenses €1,500

Repairs to the property, carried out in January 2014 €8,000

Expenses incurred on letting agents in January 2014 €400

Property 2 – commercial property in Longford

Bought in June 2009

Rented from 1 January 2014 to 31 December 2014

Rental income €400 per month

Interest on monies borrowed to repair the property in 2011 €600

Miscellaneous allowable expenses €750

Adv. Taxation August 2015 2nd

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Page 5 of 24 Adv. Taxation A2015

Requirement

In respect of the 2014 tax year:

(a) Calculate Breda’s assessable Schedule E income.

7 marks

(b) Calculate Tony’s assessable Case V income.

5 marks

(c) Calculate Breda and Tony’s income tax, PRSI and USC liability.

8 marks

Total 20 Marks

QUESTION 2 (Compulsory)

Addition Limited (Addition), an Irish trading company, prepares accounts for a 12 month period to 30

June each year.

The nominal value of the issued share capital of Addition is €2 and it is owned equally by two

shareholders, Frank and Marie. Marie and her husband Seamus are the directors of the company.

Frank is not an employee or a director of the company.

The results for the year to 30 June 2014 are summarised as follows:

Notes € €

Gross profit 750,000

Other income 1,2 100,000

Less Expenses

Depreciation 8,000

Salaries 175,000

Entertainment 3 10,000

Interest 4 2,000 195,000

Net profit 655,000

Notes

1. The figure for other income is made up as follows:

Gain on disposal of fixed assets (see note 2 below) 80,000

Dividend from Subtracts Ltd, an unconnected Irish resident company 15,000

Interest from Irish deposit account (received gross) 2,500

Interest from Italian deposit account (received gross) 2,500

2. Disposal of fixed assets

During the year Addition disposed of 3 assets as follows:

(a) A machine was disposed of for €2,500 in May 2014. The machine had cost €10,000 in 2005 and

had a tax written down value of Nil on 1 July 2013.

(b) A small premises was disposed of for €100,000 in January 2014. The premises cost €10,000 in

2012.

(c) A car was scrapped in June 2014. The car, with C02 emissions of 156g/km, had cost €30,000

when it was bought new in January 2010.

Addition Ltd had no other plant and machinery at year end.

3. Entertainment

The entertainment figure is made up of:

Staff Christmas party 1,000

Adv. Taxation August 2015 2nd

Year Paper

Page 6 of 24 Adv. Taxation A2015

Holiday in France for Marie 5,000

Holiday in Spain for Frank 4,000

4. Interest expense

The interest expense figure is made up of

Interest on bank debt 1,500

Interest paid to Marie 500

The interest paid to Marie is interest paid on a loan of €2,500 which Marie made to the company on 1

July 2013. The interest rate on the loan is 20%.

5. Other matters

At 30 June 2014 Addition had distributable reserves of €500,000.

Addition’s corporation tax payable for the accounting period ended 30th

June 2013 was €150,000.

Requirement

(a) Calculate the Corporation Tax liability of Addition for the accounting period ended 30 June 2014.

10 marks

(b) Calculate the close company surcharge that applies to Addition for the accounting period ended 30

June 2014.

5 marks

(c) Calculate the income tax payable (if any) by Frank and Marie as a result of their transactions with

Addition. You can assume they both pay income tax at the marginal rate of 41%.

2 marks

(d) State the due date for payment of the tax due as calculated at (a) above. You are required to state

the actual amount payable on each date.

Outline the tax consequences if Addition does not pay the tax due by the due date.

3 marks

Total 20 Marks

Adv. Taxation August 2015 2nd

Year Paper

Page 7 of 24 Adv. Taxation A2015

QUESTION 3 (Compulsory)

(a) Supplier Ltd provides you with the following information in relation to its purchases and sales for

January / February 2014:

Sales invoiced to Irish customers 55,000

Sales to business customers in the UK 15,000

Sales to customers outside of the EU 5,000

Purchases of inventory for resale from Irish suppliers 24,600

Purchases of inventory for resale from UK suppliers 30,750

Purchases of exempt goods 7,000

Purchases of new machine from outside the EU 36,900

The sales figures are net of VAT. The purchases include VAT at 23%, where applicable. All EU

customers have provided their VAT registration numbers to Supplier Ltd.

Requirement

(a) Calculate the VAT due / refundable for Supplier Limited for January / February 2014. You are

required to provide a brief explanation of your treatment of the sales to and purchases from outside

Ireland.

12 marks

(b) What records is a VAT registered person required to keep, and how long are they required to keep

those records?

2 marks

(c) A VAT registered person has an obligation to issue a valid VAT invoice. List eight specific pieces

of information that must be contained on a valid invoice.

4 marks

(d) Most businesses file bi-monthly VAT returns. In what circumstances can a business file returns

less regularly?

2 marks

Total 20 Marks

Adv. Taxation August 2015 2nd

Year Paper

Page 8 of 24 Adv. Taxation A2015

SECTION B

Answer ANY TWO of the FOUR questions in Section B

QUESTION 4

In October 2014 Linda sold 1,000 shares in MYK Ltd for €5 per share and in December 2014 she also

sold 500 shares in the same company for €5.50 per share.

Details regarding her share history with MYK Ltd is as follows:

No. € per share

January 2004 Bought 250 2

September 2004 Inherited 1,500 3 (market value)

Requirement

(a) Calculate Linda’s capital gains tax liability on the sale of the shares. State the due date for payment

of the tax due. You are required to state the actual amount payable on each date.

7 marks

(b) For the purposes of capital gains tax, what is a chattel?

Explain the capital gains tax treatment of the disposal of both wasting and non-wasting chattels.

5 marks

(c) Patricia bought 20 acres of land in Roscommon in 2004 at a price of €700 per acre.

In June 2014 Patricia sold two acres for a total of €1,000. The value of the remaining 18 acres was

€11,000.

In October 2014 Patricia sold 5 acres for a total of €3,000. The value of the remaining 13 acres was

€8,000.

Requirement

(d) Calculate Patricia’s chargeable gain or allowable loss for the 2014 tax year.

8 marks

Total 20 Marks

QUESTION 5

Eugene and Claire are married and jointly assessed. Eugene is 70 years old while Claire is 63. Claire

does not have a medical card. Eugene is the assessable spouse.

Eugene and Claire have the following income and deductions for the 2014 tax year:

Eugene Claire

€ €

Schedule E remuneration Nil 40,000

Case II profits 30,000 Nil

Pension contributions (500) (600)

Case V rents 2,500 2,500

Schedule F dividend (gross amount) 300 100

The following amounts were correctly deducted from Claire’s Schedule E remunerations, through the

PAYE system:

PRSI 1,600 .00

USC 2,118.80

Income tax 5,740.00

Total 9,458.80

Adv. Taxation August 2015 2nd

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Page 9 of 24 Adv. Taxation A2015

Requirement

In respect of the 2014 tax year:

(a) Calculate the PRSI payable by Eugene and Claire under the self-assessment system after giving

credit for the PRSI deducted under Schedule E.

5 marks

(b) Calculate the USC payable by Eugene and Claire under the self-assessment system after giving

credit for the USC deducted under Schedule E.

4 marks

(c) Calculate the income tax payable by Eugene, as assessable spouse, assuming joint assessment

applies.

6 marks

(d) Calculate the preliminary tax payable by Eugene if his total tax liability for 2013 amounted to

€22,000.

3 marks

(e) State the due dates by which Eugene must pay his 2014 tax liability in order to avoid an interest

charge?

2 marks

Total 20 Marks

Adv. Taxation August 2015 2nd

Year Paper

Page 10 of 24 Adv. Taxation A2015

QUESTION 6

The following multiple choice question consists of TEN parts, each of which is followed by FOUR

possible answers. There is ONLY ONE right answer in each part.

Requirement:

Indicate the right answer to each of the following TEN parts.

1. Thomas earned €40,000 Case I income and a salary of €4,000 in the 2014 tax year. Thomas is

entitled to an employee tax credit amounting to:

(a) €1,650

(b) €1,600

(c) €800

(d) None

2. Percival, aged 40, has assessable Case I income of €50,000 and Case IV deposit income of €3,000

for the 2014 tax year. He made contributions to a Revenue approved pension scheme of €16,000

during the tax year. The maximum amount of relief for pension contributions that Percival can claim

in the 2014 tax year amounts to:

(a) €6,000

(b) €10,500

(c) €11,250

(d) €12,500

3. Which of the following tax credits is a non-refundable tax credit for an individual who is 67 years of

age?

(a) Personal tax credit

(b) Professional Services withholding tax

(c) Tax deducted under PAYE system

(d) DIRT withheld on deposit income

4. Joe and Linda have two children and are legally separated. Joe has custody of the children. Which

of the following statements is not true.

(a) If Joe and Linda opt to be jointly assessed, then no adjustment is made to taxable income in respect

of maintenance payments.

(b) If Joe and Linda are singly assessed, then Linda can claim a tax deduction for all maintenance

payments made on foot of a legally enforceable separation agreement.

(c) If Joe and Linda are singly assessed, then Linda can claim a tax deduction for maintenance

payments made to Joe, excluding any amounts that relate specifically to their children.

(d) If Joe and Linda are singly assessed, then Linda cannot claim a tax deduction for any voluntary

maintenance payments made to Joe.

Adv. Taxation August 2015 2nd

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Page 11 of 24 Adv. Taxation A2015

5. Jarleth commenced trading on 1 July 2013 and prepared accounts for the 8 months to 28 February

2014 which showed an assessable profit of €2,000. He prepared accounts for the 11 months to 31

January 2015 showing an assessable profit of €5,000. He wants to know what his assessable profits are

for the 2014 year of assessment.

(a) €2,000

(b) €5,000

(c) €5,045

(d) €7,000

QUESTION 6

6. Which of the following is not exempt from capital gains tax if the disposal takes place in the 2014

tax year?

(a) A gain by a charity

(b) A gain from the transfer of Irish land to a civil partner

(c) A gain from the sale of Government securities

(d) A gain from the sale of property in an EEA State in 2010

7. Larry made a gain on the disposal of an asset on 1 October 2014. The due date for the payment of

the CGT due is:

(a) 31 October 2014

(b) 15 November 2014

(c) 15 December 2014

(d) 31 January 2015

8. Davy’s pizzeria is offering special deal to its customers whereby they can pay €12 for a pizza and a

beverage. €8 of the selling price is attributable to the pizza while €4 is attributable to the beverage.

The amount of VAT chargeable on the sale amounts to:

(a) Nil

(b) €0.99

(c) €1.41

(d) €2.24

9. Sarah had a Case I loss carried forward from the 2013 tax year amounting to €10,000. Her

assessable income for 2014 consists of: Case I profits of €5,000, Schedule E income of €3,000 and

Case IV deposit interest of €10. The Case I loss carried forward to the 2015 tax year amounts to:

(a) €1,990

(b) €4,990

(c) €5,000

(d) €2,000

10. Dillon first came to Ireland on 1 January 2012. During 2012 he spent 251 days in Ireland. In 2013,

Dillon was resident here for the month of June (30 days in total). In 2014, he spent 150 days in Ireland.

For the 2014 tax year Dillon is:

(a) resident and ordinarily resident

(b) resident but not ordinarily resident

(c) not resident but ordinarily resident

(d) neither resident nor ordinarily resident.

Total 20 Marks

Adv. Taxation August 2015 2nd

Year Paper

Page 12 of 24 Adv. Taxation A2015

QUESTION 7

(a) It can sometimes be difficult to determine whether someone is an employee or self-employed. List

7 factors that would be considered when trying to determine whether or not an employment existed.

7 marks

(b) What are the differences, from an income tax and PRSI perspective, of being treated as an

employee compared to being treated as self-employed?

5 marks

(c) List 4 benefits that an employee can receive from an employer without tax being charged as a

benefit in kind.

4 marks

(d) Stan is an employee and on the 28 January 2014 he received a bonus in respect of 2013. In what tax

year is the bonus taxable? You should refer to any Revenue practice if relevant.

4 marks

Total 20 Marks

Adv. Taxation August 2015 2nd

Year Paper

Page 13 of 24 Adv. Taxation A2015

2nd Year Examination: August 2015

Advanced Taxation ROI

Suggested Solutions

and

Examiner’s Comments

Students please note: These are suggested solutions only; alternative answers may also be deemed to

be correct and will be marked on their own merits.

Statistical Analysis – By Question

Question No. 1 2 3 4 5 6 7

Average Mark (%) 50 25 55 51 52 54 50

Nos. Attempting 76 76 76 44 11 64 33

Statistical Analysis - Overall

Pass Rate 43%

Average Mark 47%

Range of Marks Nos. of Students

0-39 21

40-49 22

50-59 21

60-69 11

70 and over 1

Total No. Sitting Exam 76

Total Absent 25

Total Approved Absent 3

Total No. Applied for Exam 104

General Comments:

Overall students tended to perform consistently over the paper, which showed that those who were

successful had a good level of knowledge across the syllabus. In general, students scored better in

questions where they were able to give practical examples to show they understood the issues. The self-

assessment rules (payment dates, amounts etc.) are very important and warrant further study. A

worrying number of people applied income tax rules to a company and corporation tax rules to

individuals so this distinction is an important study point.

Adv. Taxation August 2015 2nd

Year Paper

Page 14 of 24 Adv. Taxation A2015

Examiner’s Comments on Question One

SECTION A

Answer QUESTION 1 and QUESTION 2 and QUESTION 3 (Compulsory) in this Section

QUESTION 1 (Compulsory)

(a) Calculate Breda’s assessable Schedule E income for the year.

Schedule E Salary

40,000 [0.5 mark]

BIKs:

Van 1 1,500

Laptop 2 Nil

Preferential loan 3 200

Vouched expenses 4 Nil

Civil service rate subsistence 4 Nil

Round sum allowances 5 2,500

44,200

Note 1

BIK [0.5 mark]on a Van is 5% OMV[0.5 mark]

Note 2

The Laptop is provided for business use and any personal use is merely incidental.

[1 mark]Therefore, no BIK arises.

Note 3

Preferential loan is to renovate her home. Therefore, the benchmark rate is 4%.[0.5 mark]

Breda's loan is at 2% so a BIK arises.

The BIK is calculated as the benchmark rate less the rate paid times the loan.

So (4% - 2%) * €10,000 = €200[1 mark]

Note 4

Vouched expenses [1 mark]and subsistence payments [1 mark]that are in line with civil

service rates are not taxable.

Note 5

Round sum allowances are taxable as salary. 500 * 5 nights = €2,500[1 mark]

(b) Calculate Tony’s assessable Case V income for the year.

Property 1

Rent (1-Feb-14 to 31-Dec-14) 11,000 [0.5 mark]

Interest (limited to 75%)

-2,079

Most students did well in the tax part of this question with most students addressing the issue of home carers

tax credit v’s increased tax band. However, there was some confusion as to the correct treatment of vouched

expenses, round sum allowances and civil service rates. Many students did the PRSI and USC on a joint

assessment basis.

Adv. Taxation August 2015 2nd

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Page 15 of 24 Adv. Taxation A2015

Allowable expenses

-1,500 [0.5 mark]

Letting agent - pre-letting

-400 [0.5 mark]

7,021

The repairs were carried out before the property was let, and therefore are not an allowable deduction

against rental income. [1 mark]

1/12 of the interest was paid pre-letting and is therefore not an allowable deduction [0.5 mark]. €3,024

* 11/12 = €2,772 is therefore the interest paid post letting. 75% [0.5 mark] of this is allowable as this

is a residential letting, meaning that €2,772 * 75% = €2,079 is the allowable interest deduction.

Property 2

Rental income

4,800 [0.5 mark]

Interest

-600 [0.5 mark]

Allowable expenses

-750 [0.5 mark]

3,450

Assessable Case V profits

10,471

(c) Calculate Breda and Tony’s income tax liability for 2014.

Schedule E

44,200 [0.5 mark]

Case V 10,471 [0.5 mark]

Total income

54,671

Taxable income

54,671

41,800 @20%

8,360

10,471 @ 20% Note 1 2,094

2,400 @41%

984

Tax chargeable

11,438

Less non-refundable tax credits

Personal tax credit (married) - 3,300

[0.5 mark]

Home carer tax credit Note 1 0

Employee tax credit

- 1,650 - 4,950 [0.5 mark]

Tax Payable

6,488 [0.5 mark]

Note 1

Jointly assessed couples with two incomes must choose between claiming an increased standard rate

cut off point and the home carer tax credit. [1 mark]

The home carer tax credit is available if the home carer – in this instance Tony as he stays at home to

mind the couple’s 3 children – has total income of less than €5,080. Tony’s total income is greater than

the threshold. [1 mark]

Therefore, the couple could claim an increased standard rate cut off point, such that €10,471 would be

taxed at 20% instead of at 41%. [1 mark].

Adv. Taxation August 2015 2nd

Year Paper

Page 16 of 24 Adv. Taxation A2015

PRSI & USC

Breda:

Breda has an insurable employment. She is an employed contributor and PRSI is chargeable on her

reckonable emoluments. In this instance, her reckonable emoluments and her gross income, for USC

purposes are the same amount. [0.5 mark]

Reckonable emoluments (PRSI) and gross income (USC) [0.5 mark] 44,200

PRSI @ 4% 1,768

USC:

First 10,036 @ 2% = 200.72

Next 5,980 @ 4% = 239.20

Balance – 28,184 @ 7% = 1,972.88[0.5 mark] 2,413

Tony:

Tony is a self employed contributor for PRSI purposes. His reckonable income is €10,471. His gross

income for USC purposes is the same amount. As his gross income is in excess of the threshold of

€10,036, he is liable to pay USC. [0.5 mark]

PRSI @ 4% 419

Minimum PRSI 500

USC:

First 10,036 @ 2% = 200.72

Next 435 @ 4% = 17.40 [0.5 mark] 218

Examiner’s Comments on Question Two

QUESTION 2 (Compulsory)

(a)

Notes € €

Profit before tax 655,000

Addbacks:

Depreciation [0.5 marks] 8,000

Interest paid to participator 1 500

Expenses treated as distributions to participators 2 4,000 12,500

Deduct:

Other income: [1 mark]

Profit on disposal of fixed assets 80,000

Franked Investment Income [0.5 marks for FII] 15,000

Case III interest income - Italian 2,500

Case III Irish interest income 2,500

Capital allowances 3 3,500 103,500

Case II profits 564,000

Case III Italian Interest [0.5 marks] 2,500

Case III Irish Interest [0.5 marks] 2,500

Chargeable gain (re-grossed) 4 [1 mark] 237,600

Taxable income 806,600

@ 12.5% [564,000 + 237,600] [0.5 mark] 100,200

@ 25% [2,500 + 2,500] [0.5 mark] 1,250

Students generally seemed unsure as to what this question was asking, with many charging the corporate

profits to income tax, taxing the ‘other income’ twice and providing details of the late filing surcharge instead

of the close company surcharge. Most students displayed a good knowledge of the treatment of the payments

to the participators.

Adv. Taxation August 2015 2nd

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Page 17 of 24 Adv. Taxation A2015

Total 101,450

Note 1:

As Marie is a director who owns more than 5% of the share capital of the company, the amount of

interest that Addition Ltd can get a tax deduction for is limited to the lower of:

13% of the nominal amount of the issued share capital [13% of €2 = €0.26]

OR

13% of the loans from the directors [13% of €2,500 = €325]

As the company paid her €500 it is limited to €0.26 and therefore the full €500 must be added back.

[1 mark]

Note 2:

Holiday in Spain for Frank 4,000 [0.5 mark]

Total 4,000

Marie will be charged a BIK on the holiday in France. Therefore it is not disallowed. [0.5 marks]

Note 3:

Balancing allowance / charge calculations

Machine Proceeds 2,500

TWDV Nil

Balancing charge 2,500[0.5 mark]

Car Proceeds Nil

TWDV(workings) 6,000

Balancing allowance 6,000

Total 3,500

Workings

Cost €30,000

Category D&E cars – cost deemed to be 50% of the lower of cost and €24,000 [0.5 mark]

Deemed cost - €24,000 * 50% = €12,000 [0.5 mark]

4 years W&T allowances claimed [12,000 @ 12.5% * 4 yrs] = 6,000

TWDV = €12,000 - €6,000 = €6,000 [0.5 mark]

Note 4:

Capital Gains tax computation

Chargeable gain – on disposal of small premises

Proceeds 100,000

Cost 10,000

Chargeable Gain 90,000 [0.5 mark]

@ 33% 29,700

Re-gross to 12.5% [0.5 marks] 237,600

(b) Close company surcharge

Investment income 5,000[1 mark]

Less CT on investment income (1,250) [1 mark]

Plus FII 15,000 [1 mark]

18,750

Less trading deduction (7.5%) 1,406 [1 mark]

Less distributions made 4,500 [0.5 mark]

12,844

Close company surcharge (20%) 2,569[0.5 mark]

(c)

Adv. Taxation August 2015 2nd

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Page 18 of 24 Adv. Taxation A2015

Frank: Deemed distributions on holiday of 4,000 @ 41% = 1,640 [1 mark]

Marie:

BIK on holiday in France of €5,000 [0.5 mark]

Interest on loan of €500 [0.5 mark]

@ 41% = €2,255

(d)

Addition’s tax payable for the y/e 30 June 2013 is less than the €200,000 threshold which means that it

is a small company [1 mark] for the purposes of calculating the preliminary tax due. As a small

company, it must have paid either 90% of €101,450 or 100% of €150,000 by 23rd

May 2013 [1 mark],

with the balance of tax due when Addition files its tax return on 23rd

March 2015. Failure to pay the

tax on time results in interest accruing. [1 mark]

Examiner’s Comments on Question Three

SECTION A

QUESTION 3 (Compulsory)

(a)

Sales to Irish customers [55,000 @ 23%] 12,650 [1.5 mark]

The place of supply for sales to UK business customers is the UK - [1 mark]

No VAT applies on sales to customers outside of the EU - [1 mark]

From UK suppliers [30,750 – reverse charge] 7,073[2 mark]

Total 19,723

Purchases

From Irish suppliers [24,600] 4,600 [1.5 mark]

From UK suppliers [30,750 – reverse charge] 7,073 [2 mark]

Purchases of new machine from outside the EU [36,900] 8,487 [2 mark]

Exempt goods [7,000] nil [1 mark]

Total 20,160

Balance refundable (437)

(b)

A VAT registered person is required to keep a full and true record of all transactions which affect or

may affect that person’s VAT liability or an entitlement to a deduction [1 mark]. Records must be

kept for 6 years [1 mark], other than those that relate to property transactions which must be kept for

20 years.

(c)

Date of issue, full name, address and VAT registration number of person making supply, full name and

address of the customer, quantity and nature of the goods being supplied, date of supply, price

excluding VAT, VAT rate applicable, amount of VAT payable. [0.5 marks for each of any 8]

Generally a well answered question. Common mistakes included incorrect re-grossing and treating all foreign

dealings as both inputs and outputs. When students are asked to list a set number items, it would be a good

idea to list more than that number, as some students listed items that were very closely linked and therefore did

not warrant additional marks.

Adv. Taxation August 2015 2nd

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Page 19 of 24 Adv. Taxation A2015

(d)

If a VAT liability is less than €3,000 in a 12 month period [0.5 mark], a VAT registered person may

file two returns covering 6 months each. [0.5 mark]

For liabilities between €3,001 and €14,000, a VAT registered person may file 3 returns each covering

four months. [0.5 mark]

These reduced filings are only available if agreed with Revenue. [0.5 mark]

Total 20 Marks

SECTION B

Answer ANY TWO of the FOUR questions in Section B

Examiner’s Comments on Question Four

QUESTION 4

(a)

January 2004 250 €2

September 2004 1,500 €3

October 2014 disposal

Proceeds [1,000 * €5] 5,000 [0.5 mark]

Cost– 1,000 shares – FIFO basis

Jan 04 [250 @ €2] 500 [0.5 mark]

Sept 04 [750 @ €3] 2,250 2,750 [0.5 mark]

Gain 2,250 [0.5 mark]

Less annual exemption 1,270

980

@ 33% 323 [0.5 mark] payable on 15th

December 2014 [0.5 mark]

December 2014 disposal

Proceeds [500 * €5.5] 2,750 [0.5 mark]

Cost– 500 shares – FIFO basis

Sept 04 [500 @ €3] 1,500 [0.5 mark]

Gain 1,250

Total gain 3,500 [1 mark]

Less annual exemption 1,270 [0.5 mark]

2,230

@ 33% 736

Less tax paid in December (323) [0.5 mark]

Payable on 31st January 2015 [0.5 mark] 413 [0.5 mark]

(b)

A chattel is tangible moveable property. [1 mark] A wasting chattel is one that has a predicted useful

life of less than 50 years. [1 mark]These assets are exempt from CGT [0.5 marks], unless they are

used for the purposes of a trade. [0.5 mark]

Most students correctly identified FIFO for the shares and correctly identified what tax was payable when.

Most students answered part (b) well, with some using examples to show they understood the difference

between wasting and non-wasting chattels. In part (c) many students wrote down the formula, but then did not

know how to use that formula.

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Conversely, a non-wasting chattel has a predicted useful life of more than 50 years. If a non-wasting

chattel is disposed of for less than €2,540 then any gain is exempt from CGT. [1 mark] Where the

proceeds are slightly higher, marginal relief may apply. [1 mark]

(c)

June 2014

Proceeds [2 acres] 1,000 [0.5 mark]

Cost – part disposal

Cost of asset * proceeds / (proceeds plus market value of remaining asset)

(700 * 20 = 14,000) [1 mark] * 1,000 [1 mark]/ (1,000 + 11,000) [1 mark] (1,167)

Loss (167)

October 2014

Proceeds [5 acres] 3,000 [0.5 mark]

Cost – part disposal

Cost of asset * proceeds / (proceeds plus market value of remaining asset)

(14,000 – 1,167) [1 mark] * 3,000 [1 mark]/ (3,000 + 8,000) [1 mark] (3,500

Loss (500)

Total loss 667[1 mark]

Examiner’s Comments on Question Five

QUESTION 5

(a)

Eugene Claire

Total

Marks

Allocated

Schedule E remuneration Nil 40,000 0.5

Case II profits 30,000 Nil 0.5

Case V rents 2,500 2,500 0.5+0.5

Schedule F dividend 300 100 0.5+0.5

Reckonable income /

emoluments 32,800 42,600

@ 4% 1,312 1,704 0.5+0.5

Less deducted through PAYE -1,600 1

Total PRSI Payable 1,312 104

(b)

Income liable to USC 32,800 42,600 0.5+0.5

First 10,036 200.72 200.72 0.5

Next 5,980 239.2 239.2 0.5

Balance Eugene @ 4%: 16,784 671.36

0.5

Balance Claire @ 7%: 26,584

1,860.88 0.5

Total 1,111.28 2,300.8

Again, joint PRSI and USC calculations caused students to lose marks. Nothwithstanding that error, most

students did identify that Eugune did not pay any USC at 7% and take account of the PAYE already paid. The

preliminary tax aspects of this question were the weakest, with many students mentioning only the preliminary

tax or final tax payment date.

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Less deducted through PAYE -2,118.8 1

Total USC Payable 1,111.28 182

Gross Income for USC purposes is the same as reckonable income / emoluments in this instance.

(c)

Eugene Claire

Joint Total Marks

Allocated

Schedule E remuneration Nil 40,000 40000 0.5

Pension contributions -600 0.5

Case II profits 30,000 Nil 30000 0.5

Pension contributions -500

0.5

Case V rents 2,500 2,500 5000 0.5

Schedule F dividend 300 100 400 0.5

Total income 32300 42000 74300

41,800 @ 20%

8360 0.5

23,800 @ 20%

4760 0.5

8,700 @ 41%

3567 0.5

16687

Personal tax credits

-3300

Age tax credit

-490 0.5

Employee tax credit

-1650

PAYE deducted at source

-5,740 0.5

DWT deducted -80 0.5

Total income tax payable

5,427

(d)

Preliminary tax must be 100% of the prior year tax liability (including PRSI and USC) or 90% of the

current year liability. Eugene must therefore either pay 100% of €22,000 [1 mark]or 90% of

Eugene Claire Total Marks

PRSI 1,312 104 1,416 0.5

USC 1,1118 182 1,293 0.5

Income tax

5,427 1

Total

8,136

90%

7,322

(e) Preliminary tax must be paid by 31 October 2014 [1 mark], and the balance of tax must be paid by

31 October 2015 [1 mark] to avoid interest. Revenue generally grant a ROS extension to mid-

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November. If Eugene files his returns through ROS and pays all tax due through ROS, then the

preliminary tax and balance of tax are due on the ROS extension date rather than on 31 October.

Examiner’s Comments on Question Six

QUESTION 6

The following multiple choice question consists of TEN parts, each of which is followed by FOUR

1. Thomas earned €40,000 Case I income and a salary of €4,000 in the 2014 tax year. Thomas is

entitled to an employee tax credit amounting to:

(a) €1,650

(b) €1,600

(c) €800 [Maximum allowable is €1,650 or the amount of tax due on employment income. Thomas has

Sch E income of €4,000. Tax at 20% is €800. The employee tax credit is therefore restricted to this

amount.]

(d) None

2. Percival, aged 40, has assessable Case I income of €50,000 and Case IV deposit income of €3,000

for the 2014 tax year. He made contributions to a Revenue approved pension scheme of €16,000

during the tax year. The maximum amount of relief for pension contributions that Percival can claim

in the 2014 tax year amounts to:

(a) €6,000

(b) €10,500

(c) €11,250

(d) €12,500

Net relevant earnings [the Case I amount] 50,000. Only earned income can be taken into account.

Max pension contribution @ 25% 12,500

Actual pension contributions 16,000

Maximum pension contributions 12,500

3. Which of the following tax credits is a non-refundable tax credit for an individual who is 40 years of

age?

(a) Personal tax credit

(b) Professional Services withholding tax [this is always refundable]

(c) Tax deducted under PAYE system [this is always refundable]

(d) DIRT withheld on deposit income [when an individual or their spouse / civil partner is over

65, DIRT is refundable]

4. Joe and Linda are legally separated and Joe has custody of the children. They want to know which

of the following is not true.

(a) If Joe and Linda opt to be jointly assessed, then no adjustment is made to taxable income in respect

of maintenance payments.

(b) If Joe and Linda are singly assessed, then Linda can claim a tax deduction for all

maintenance payments made on foot of a legally enforceable separation agreement. [Linda can

only claim a deduction for maintenance payments made to Joe, and not for the benefit of the children]

(c) If Joe and Linda are singly assessed, then Linda can claim a tax deduction for maintenance

payments made to Joe, excluding any amounts that relate specifically to their children.

(b) If Joe and Linda are singly assessed, then Linda cannot claim a tax deduction for any voluntary

maintenance payments made to Joe.

5. Jarleth commenced trading on 1 July 2013. He prepared accounts for the 8 months to 28 February

2014 which showed a profit of €2,000. He prepared accounts for the 11 months to 31 January 2015

Many students provided workings and explanations which are of no benefit in this question. On question 3

marks were awarded for answers of either (a) or (d) as their was an error in the question.

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showing a profit of €5,000. He wants to know what his assessable profits are for the 2014 year of

assessment.

(a) €2,000

(b) €5,000

(c) €5,045 [as there is no 12 month accounting period ending in the second year of trading, the profits

on which Jarleth is assessable are the actual profits for the year. These are calculated as: €2,000 * 2

months /8 + €5,000 * 10months /11 = 5,045]

(d) €7,000

6. Which of the following is not exempt from capital gains tax if the disposal takes place in the 2014

tax year??

(a) A gain by a charity

(b) A gain from the transfer of Irish land to a civil partner

(c) Government securities

(d) Property bought in an EEA State in 2010 [the exemption for does not apply for properties

acquired in 2010. It only applies for properties acquired from December 2011 onwards.

7. Larry made a gain on the disposal of an asset on 1 October 2014. When is the CGT on the gain due

for payment?

(a) 31 October 2014

(b) 15 November 2014

(c) 15 December 2014 [CGT due on disposals made before 30 November in a year is due for payment

by 15 December that year.]

(d) 31 January 2015

8. Davy’s pizzeria is offering special deal to its customers whereby they can pay €12 for a pizza and a

beverage. €8 of the selling price is attributable to the pizza while €4 is attributable to the beverage.

The amount of VAT chargeable on the sale amounts to:

(a) Nil

(b) €0.99

(c) €1.41 [The pizza is chargeable to VAT at the rate of 9% while the beverage attracts VAT at 23%.]

(d) €2.24

9. Sarah had Case I losses forward of €10,000 into 2014. During 2014 she had Case I profits of €5,000,

Schedule E income of €3,000 and Case IV deposit interest of €10. What Case I loss relief will Sarah

carry forward into 2015?

(a) €1,990

(b) €4,990

(c) €5,000 [Sarah can only claim relief against the Case I profits in 2014, meaning she can only use

€5,000 of her loss in 2014 and must carry €5,000 forward to 2015 for use against the Case I profits in

that year.]

(d) €2,000

10. Dillon first came to Ireland on 1 January 2012. During 2012 he spent 251 days in Ireland. In 2013,

Dillon spent only the month of June (30 days in total) in Ireland. In 2014, he spent 150 days in Ireland.

For 2014, what is Dillon’s residence situation?

(a) resident and ordinarily resident

(b) resident but not ordinarily resident

(c) not resident but ordinarily resident

(d) neither resident nor ordinarily resident. [Where a person spends 30 days or less in Ireland in a

year, then that year is not counted when determining the person’s residence. Therefore, Dillon was not

resident in Ireland in 2013. For 2014 Dillon has only spent 150 days in Ireland which is less than the

183 days required to become resident.

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Examiner’s Comments on Question Seven

QUESTION 7

(a) [1 mark for 7 factors from the following list, or other good factor]

1. Does the individual work under the control of another person?

2. Does the person supply labour only?

3. Does the person not supply materials or equipment?

4. Can the person subcontract the work?

5. Are they paid a fixed hourly / weekly / monthly rate and entitled to holidays?

6. Can they profit from sound management?

7. Are they obliged to work fixed hours?

8. Are they subject to dismissal or redundancy?

9. Are they registered for VAT?

10. Is there a requirement on the person to have insurance, for example, professional indemnity

insurance?

11. Is the person taking a financial risk? Could they incur a loss?

(b)

For employees, tax and social welfare contributions are collected through the PAYE system, [1 mark]

whereas self employed individuals must file tax returns and pay preliminary tax. [1 mark]

Employer’s must operate employer’s PRSI for employees. [1 mark]

Certain social welfare entitlements are dependent upon the class of PRSI that a person has paid.

[1 mark]

Employees are entitled to the PAYE tax credit. [1 mark]

(c) [1 mark for 4 of the following]

1. The provision of accommodation for an employee required to live on the premises because of the

nature of the trade.

2. Expenses incurred on the provision of free or subsidised canteen meals provided to all staff.

3. Expenses incurred in providing monthly or annual bus or train passes.

4. The provision of a bicycle and equipment to an employee to enable them cycle to, or part of the way,

to and from work.

5. employer pension contributions

6. Reimbursement of travel and subsistence based on civil service rates

(d)

Strictly speaking, a Schedule E charge for 2013 [1 mark] applies as the basis of assessment for

Schedule E is on the amount of emoluments earned [1 mark]during the tax year. However, Revenue

practice is to allow for the bonus to be taxed in the year in which it is received [1 mark]to avoid

taxpayers having to file tax returns[1 mark].

Many students gave very good, practical answers to this question. Some students listed only 7 items one or

two of which were wrong, so it is advisable to list extra items in questions like this.