Advanced Taxation 27.09.20 Virtual Lecture 1 Content / agenda 1. - - PDF document
Virtual Lecture 1 27.09.20 Advanced Taxation 27.09.20 Virtual Lecture 1 Content / agenda 1. Welcome 2. Overview Weeks 1 4 covering 1. Taxation system 2. Income tax computations 3. Schedule E 4. Passive/Investment income 1 Virtual Lecture 1
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Advanced Taxation – delivered by Stephanie Walshe – Overview of 6 Virtual lectures during the year Date Lectu re Covering Topic 27/09/ 20 1 1‐4 IT Tax bands,(SRCOP) credits, allowances, sources of income, PRSI/USC for EE 01/11/ 20 2 5‐8 IT Married couples, assessable Case1/11, PRSI/USC for S/E 29/11/ 20 3 9‐11 IT Capital allowances and losses 03/01/ 21 4 12‐16 CGT Basic right through to more advanced computations 07/02/ 21 5 17‐21 CT Basic to more advanced computations, capital allowances, loss relief
1.Taxation system Chapter 1 from your manual (Revision of types/classification/exempt income) Other detail covered in classes/virtual tutorials 2.Income Tax computations Chapter 2 – Revision of Standard Rate of Tax, Tax Credits, Allowances, Reliefs, Tax Relief at source, Relief for charges 3.Schedule E Chapter 3 – Section 3.1 – Income from Irish Employment 4.Passive/Investment income Chapter 3 – Section 3.2 – Schedule D Case III/IV/V and Schedule F
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Types of Taxation
* Examinable in Advanced Taxation (ROI) Income Tax * Charged on individuals income earned Corporation Tax * Charged to companies on profits earned Capital Gains Tax * Charged on capital profits arising on the disposal of assets Capital Acquisition Tax Charged on individuals on gifts or inheritances received Value Added Tax * Charged on the sale of goods or services Stamp Duty Charged on documents transferring assets – property or shares Customs Duty Charged on importation of goods into the EU Excise Duties Charged on the importation of goods into the EU
Schedule Income source Case I Income from a trade Case II Income from a profession Case III Investment income not subject to tax at source Foreign income – foreign employments, foreign rental income Case IV Irish Deposit Interest subject to DIRT Covenant income received Other miscellaneous income Case V Irish rental income Schedule E Irish employments, pensions and directors fees Schedule F Dividends from Irish resident companies
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Certain income is exempt from Income tax
specified exemption limits
Scheme
year which must be paid by the 31st October each year.
payment for the CURRENT tax year.
estimate)
and it cannot be used if the tax liability for the pre‐preceding tax year was NIL.
the 31st October, an interest rate of 0.0219% per day applies (effectively based
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year and pay any balance by the 31st October e.g. the balance of Income Tax for 2020 tax year must be paid by the 31st October 2021.
A chargeable person must file the Income Tax Return (Form 11 of Form 12) by the 31st October following the end of the year of assessment e.g. the Income Tax Return for 2020 tax year must be filed by the 31st October 2021. Example given page 19‐20
Surcharge for late filing of returns: 5% of the tax liability if filed within 2 months (subject to a max of €12,695) 10% of the tax liability if filed more than 2 months late (subject to a max of €63,485) Example page 22
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View template – or computation on page 36
Personal circumstances Tax year 2020 Single, widowed or a surviving civil partner without qualifying children €35,300 @20% Balance@40% Single, widowed or a surviving civil partner qualifying for Single Person Child Carer Credit €39,300 @20% Balance@40% Married or in a Civil partnership – one spouse or civil partner with income €44,300 @20% Balance@40% Married or in a Civil partnership – both spouses or civil partners with income €70,600 @20% (with a max increase of €26,300) Balance@40%
Examples page 39
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Non‐refundable tax credits Tax year 2020 Single 1,650 Married/Civil partners 3,300 Widowed parent with dependent child(ren) 1,650 Widowed person without dependent children 2,190 Home Carer 1,600 Employee (PAYE) Tax Credit 1,650 Earned Income Credit 1,500 Age Credit Single/Married 245/490 Incapacitated Child Credit 3 300
Every individual is entitled to a personal tax credit as follows: Single €1,650 Married/Civil Partnership €3,300 Widowed (no dependent children) €2,190 Single Person Child Carer +€1,650 Single Person Child Carer Credit (more detail page 41) Claimed by the parent the qualifying child resides with for all or greater part of the year This parent, Primary claimant (PC) must be the child’s parent or person responsible for caring for child PC is only entitled to claim one credit in respect of all qualifying children with his care PC may surrender the SPCCC to the Secondary Claimant (SC). However the SC must meet qualifying criteria and the child must reside with the SC for at least 100 days in the year. PC (or SC if credit is surrendered) must be single. hild b d i f ll i d i l
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Additional Widowed Parent Credit – Page 42 A widowed person is entitled to additional tax credits following the year
Tax credits in the year of bereavement – will be covered in Chapter 4 A widowed or surviving spouse/civil partner who has NO qualifying children is entitled to €2,190 A widowed or surviving spouse/civil partner who has qualifying child(ren) is entitled to a single personal tax credit plus an additional credit is available for the 5 years following the year of bereavement where the following conditions are satisfied
Additional credits are a follows: Bereaved in 2019 €3,600 Bereaved in 2016 €2,250 B d i 2018€3 150 B d i 2015€1 800
Home Carer Tax Credit – Page 43 Credit available to a married couple/civil partnership who are jointly assessed and one spouse/partner works at home to look after young children or a dependant person, referred to a home carer. The home carer may earn some income outside of the home and still qualify for the credit or part of the credit Conditions
(€1,600), over €10,400, no credit, however income between €7,200 and €10,400 the credit is restricted: Formula: €1,600 less {(Income ‐ €7,200) X ½}
di ddi i l SRCOP
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Age Credit = €245/€490 , no change from last year PAYE Credit = Max €1,650, no change from last year Earned Income Credit – Maximum €1,500 Maybe claimed by individual who has earned income – trade, professional or employment income eg proprietary director If individual qualifies for both Employee and Earned income credit – the maximum amount claimed is €1,650 Individual must have earned at least €7,500 to qualify for full credit of €1,500 If less is earned the credit is restricted to: Earned income X 20% Examples page 47 Incapacitated Child = €3,300, no change from last year Dependent Relative Credit = €70, relatives income limit has increased to €15,060 (in TRM)
Credit for fees paid in Third Level Education (no change from last year) Step 1: Determine the amount of qualifying fees paid (Lower of amount paid or €7,000) Step 2: Deduct €1,500 (part time) or €3,000 (full time) Step 3: Multiply the amount after step 2 X 20% Medical Expenses (no change from last year) Routine dental and ophthalmic costs not allowed Qualifying medical expenses paid X 20% Home Renovation Incentive Scheme (not change from last year) Repairs/renovations must carried out prior to 31/12/2018 Must spend at least €4,405 net (€5,000 gross), tax credit on maximum expenditure of €30,000 net Min Tax Credit = €4,405 X 13.5% = €595, Max Tax Credit = €30,000 X 13.5% = €4,050 Tax credit claimed over two years are year the work was completed, therefore di ill b il bl f i di id l 2020 i
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Refundable tax credit are deducted from the income tax liability remaining after non‐refundable credits are deducted, any excess can be refunded to the individual
Exercise 1
remarried.
€55,000
incurred medical expenses of €1,750
renovation costs of €20,000 converting garage to a downstairs bedroom.
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Exercise 1
€1,650
€1,650
€3,150
€1,650
€350
Exercise 2
remarried.
time course costing €5,000 Calculate his non‐refundable tax credits for 2020?
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Exercise 2
€1,650
€1,650
€3,300
€3,600
€1,500
Employing a carer to look after incapacitated person – up to €75,000, cannot claim tax credits as well Permanent Health Insurance – allowance of 10% of total income Pension contributions – NRE X relevant % (based on individuals age) Employment Investment Incentive Scheme (new to Adv Tax) This scheme allows tax relief for the cost of purchasing new shares in certain companies – ‘relevant trading activity’ An individual is allowed to deduct the cost of eligible / qualifying shares from their total income up to a maximum of €250,000. The shares must be held for 4 years, Relief increased to €500,000 if share held for seven years Relief will be clawed back if the shares are not held for the required period
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Deed of covenant The limited circumstances in which covenants qualify for tax relief are as follows: 1. A covenant to a permanently incapacitated child from someone other than their parent. 2. A covenant to a permanently incapacitated adult . 3. A covenant to adult over 65 years – limited to 5% of the total income of the payer. Impact of covenant 1. The payer withholds tax at 20% on the monies paid to the recipient. The 20% withheld is added to the tax liability of payer. 2. The recipient (person receiving) the payment is taxed on the GROSS amount of the covenant under Schedule D Case IV. 3. The recipient gets a refundable tax credit for the amount of the tax withheld by the payer. Page 63
Patent Royalties
Payments made for the use of a patent 1. Amount paid is subject to the deduction of the standard rate of tax at source 2. The gross amount is deducted as a charge in calculating the income of the person making the payment 3. The tax deducted from the patent must be paid over to Revenue
liability by this amount 4. The person receiving the payment is taxed on the gross amount received and gets a credit for the tax already deducted
Exempted Individuals (same as last year) – example on Marginal relief
page 65 Over 65 years, married if one person is over 65 Total income does not exceed the relevant limits Single €18 000 Married €36 000
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Exercise 3 Exercise 4
Exercise 5 Exercise 6
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All income earned from an Irish employment is taxed under Schedule E Employed or Self employed? Employee is engaged under a contract of service * Self‐employed is engaged under a contract for services
(*Case I/II – Chapter 6 Badges of Trade)
Look at the factors but also consider the job as a whole, including working conditions. Why is it so important?
Basis of assessment
Tax is charged on actual amounts of emoluments paid from employment during the tax year Treatment of Expenses Reimbursed/vouched expenses Where employer reimburses an employee for expenses incurred on the basis of vouched receipts, this amount will not be treated as taxable income Flat rate Expenses/Allowances An employer can pay allowance/flat rate expenses to employees for travel and subsistence. If the amounts paid are the civil service rates/revenue approved mileage and subsistence rates, the expenses will not be treated as taxable income Round Sum Expenses Round sum expenses are normally a set amount paid to an employee that can be disbursed in any way the employee wants, these are not based on receipts Treated as additional taxable income
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Exemptions 1. Provision of living accommodation for employee required to live on premises because of the nature or tradition of the trade 2. Provision of free or subsidised canteen meals provided to all staff 3. Expenses incurred by an employer in providing a monthly bus
4. Provision of a bicycle and equipment to an employee, up to a maximum cost of €1,000. 5. Small benefit up to maximum value of €500. An employers can give one annual non‐cash benefit to an employee up the value
non‐cash and if it exceeds €500, full value will be taxable 6 Subscriptions paid for employee related to their
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Exercise 7 Exercise 8
Schedule D Case III Amount to enter Credit union interest on regular share accounts Amount received Interest from Irish government securities Amount received UK dividends Amount received (UK credit is ignored) Foreign income Amount received
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Schedule D Case IV Amount to enter Irish deposit interest from a bank, building society, credit union (DIRT 33%) Gross interest goes under Case IV (net amount received ÷0.67) Remember when working out the Gross Income Tax Liability , Gross Interest at 33% Subtract DIRT (33% x Gross interest) As a non‐refundable tax credit (under 65) As a refundable tax credit (over 65) Qualifying covenants Received Taxed Gross Amount as Case IV Minus tax at 20% after refundable tax credit
Schedule D Case V Amount to enter Irish Rental Income (Earned in year) Page 84 Page 82 Rents from the property ‐ All expenses * on the property ‐ Capital Allowances of 12.5% on cost ‐ 100% of Mortgage Interest (on residential property) if registered with PRTB But you cannot deduct the following Capital Expenditure Pre‐letting expenses (except legal and advertising costs which you can deduct) Pre‐letting expenses allowed where a property was vacant for at least 12 months, is let as a Residential premises from tax year 2018 to 2021 ‐ expenses allowed to value of €5,000 Premiums on Short Leases Additional rent = Premium X (51 – No of years of lease)/50
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Schedule F Amount to enter Irish Dividends (Amounts received date
Gross dividend (net dividend ÷0.80) goes under Schedule F Subtract Dividend Withholding Tax equal to 20% x gross dividend as a Refundable Tax Credit
If given Net DIRT in a Question, take Net amount and divide by 67%
If given Net Dividend in a Question, take Net amount and divide by 80% Calculate the following Gross Income ? 1) DIRT received Net = 670 2) DIRT received Net = 2,010 3) Dividend received Net = 800 4) Dividend received Net = 1,920
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Solutions: 1) DIRT received Net = 670
2) DIRT received Net = 2,010
3) Dividend received Net = 800
4) Dividend received Net = 1,920
F
Exercise 9 Exercise 10
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01/11 /20 2 5‐8 IT Married couples, assessable Case1/11, PRSI/USC for S/E Virtual tutorial 1 – tomorrow night at 8.00 pm – The taxation system in more detail