C) CGT

Question 1

CGT - Basics: Due Dates, Rates, Calc, Indexation
A

Answer 1

15 Dec for disposals to 30 Nov
31 Jan for disposals in Dec

33% - Standard,
10% Reduced (Entr. Relief)

Calc: Proceeds - Cost

Index: Consumer Price Index
- Losses are monetary only, not by index
- Gains that become losses - No Gain or Loss
- Assets before 1974, use 7.528
- Index ends in 2003

Question 2

CGT - S 534
A

Answer 2

Part Disposals - Disposing anything less that the entire asset, either physical or interest stake.

Original Cost x (Proceeds/Proceeds + MV of retained portion)

Question 3

CGT - Partnership Disposal
A

Answer 3

1. Charged on partners separately
2. Partnership dealings in assets treated as dealings by partners, not the firm.

Question 4

CGT - Short- Lease Interest
A

Answer 4

Less than 50 years
Considered a “Wasting Asset”, therefore the allowable base cost is calculated using lease depreciation tables. S/P where S is years of lease Remaining and P is Total years of lease.

Question 5

CGT - Long Leasehold Interests
A

Answer 5

Long-hold leases (more than 50 years) is treated as a sale!
Any premium paid upfront is deducted from disposal proceeds.
A Long-lease becomes a Short-lease once 50 years or less in remaining!

Question 6

CGT - CG50 Tax Clearance Certificate
A

Answer 6

Required on the disposal of houses or flats with proceeds in excess of €1M (and other specified assets in excess of €500k) in order to AVOID 15% withholding tax.

Must be resident of state and no CGT must be due (or already paid)

Question 7

CGT - Spouses and Civil Partners
A

Answer 7

1. The assessable spouse is taxed on gains of the other spouse who lives with them (unless assessed separately)
2. Don’t forget annual exemption of €1,270 each
3. Only ONE PPR (unless dependent living rent-free in a house)
4. Losses are transferrable

Question 8

CGT - Territory
B

Answer 8

Irish Source Gains & Remittances:
NOT Domiciled/ YES Resident/ MAYBE Ordinarily Resident
Only Disposal of Irish Asset:
MAYBE Domiciled/ NO Resident/ NO Ordinary Resident

Depends where asset is physically located or the register of shares is kept.
-Gain on “Specified Asset” are always taxed here, regardless of Residency

Question 9

CGT - Specified Assets
B

Answer 9

a) Land and Buildings in the State (also leases)
b) Mineral Rights and Exploration Rights
c) Assets in the State used for trade by Non-Resident/Non-Ordinary Residents
d) Unquoted Shares based on at least 50% of a company invested in a) or b) above

Question 10

CGT - Transfer of Assets Abroad
B

Answer 10

Irish Assets transferred abroad before individual becomes resident in Ireland are fully taxable when individual becomes resident.

Question 11

CGT - Territory - Anti-Avoidance
B

Answer 11

Leaving the State to avoid gains on shares (Not Irish Specified)
- Payment due on return (within 5 years)
- Instead, wait 6 years

Question 12

CGT - Specified Assets
B

Answer 12

ALWAYS taxable here independent of residency.
NOT IRISH specified assets that are disposed (artwork perhaps), then leave country for 4 years and return to avoid Irish CGT.

Question 13

CGT - Remittance of Capital Gains
B

Answer 13

For non=domiciled individual selling Non-Irish assets taxes only on proceeds remitted to Ireland.

ASSUME Gain is the first to be remitted, then balance of proceeds

ASSUME Gain is taxable in “Year remitted”, not the actual disposal

ADVICE: Before you return to Ireland, dispose of foreign assets and lodge in Irish account while still Non-dom and non-res…this will avoid Irish CGT

No loss relief available to assets situated outside of Ireland for individuals assed by remittance basis.

Transfer to spouse and remittance still chargeable.

Question 14

CGT - Losses (6 rules)
C

Answer 14

• Gains less losses to find CGT
• Capital losses are carried forward indefinitely and deducted from gains.
• Losses with connected person only offset gains of connected person
• Only allow to carry back losses in Year of Death
• Losses on assets OUTSIDE Ireland for Non-domiciled person, no relief available
• You may not increase a loss through indexation. Only use base price.

Question 15

CGT - Debt Write-offs (BOOK)
D

Answer 15

FA2013 - Base cost of asset reduced by Borrowings that were written off.

Calc: Reduce base cost of asset by lesser of:
a) the debt written off
b) the loss that would arise otherwise

Example: Bought for 100k, sold for 80k, write-off of 50k.
Loss on Disposal: 80k - 100k = (20k loss) NOT 50k - 100k = (50k loss)

Ensures proper economic losses. Will never result in a gain.

Calculation depends on if write-off occurs before, during or after period of disposal
Before or During: Use Proceeds - (Base cost - write-off)
After: Prepare as usual (Proceeds - Base) in year of disposal, then the write-off amount will be considered a chargeable gain in the next period.

Question 16

CGT - Development Land - Notes
E

Answer 16

1. Enhancement Expenditure isn’t Indexed
2. All costs in value of the Development is deductible, but ONLY Current Use Value is Indexed. Purchase expenses are apportioned.

Losses: 1. From Non-Development land not offset against gain on Development land
2. From Development Land may be offset against gains of both.

Special: Disposal of Development Land <€19,050, restrictions to indexing and loss relief do not apply. Only for individuals

Question 17

CGT - Development land - Definition
E

Answer 17

Market Value of land (at disposal Date) is greater that Value in Use

Question 18

CGT - Advantages/Disadvantages of being Sole Trader
F

Answer 18

Sole Trader becomes Limited Company - Cessation of Individual (determine last of income tax)

Advantages:
1. Current year losses offset against other income (S318 and Schedule E)
2. Business Assets remain in ownership of individual
3. Only one annual tax return

Disadvantages:
1. Profits liable to Marginal Rate Taxes (incl PRSI and USC)
2. Cannot raise capital through EIIS or SURE
3. Restriction on tax deductibility of pension investment.

Question 19

CGT - Advantages/Disadvantages of being Incorporated
F

Answer 19

Advantages:
1. Corporation Tax is 12.5% for trade income
2. Limited Liability
3. No limit on tax deductability of Pension investment (Not treated as BIK for EE or Dir.
4. Ability to raise capital through EIIS and SURE

Disadvantages:
1. Close company implications
2. More filing requirements
3. Withdrawing cash by Dirs/Shldrs has tax implications

Question 20

CGT - Incorporation (Cessation rules)
F

Answer 20

Income tax cessation rules apply when a business is transferred from sole trader to Company

Question 21

CGT - Extracting Cash from Company
F

Answer 21

1. “Sell” the sole tradership to the “Company”. New Company “Owes ST” for the assets. A “Loan” is created that the company pays back from it’s profits. Repayment is tax free.

Question 22

CGT - Tax consequences of Sole trader to Ltd. - “Incorporation Relief”
F

Answer 22

1. The transfer of assets(goodwill, buildings, machinery) is a DISPOSAL and CGT is due.
   2, That CGT may be deffered IF value of assets is taken as shares in new company (S600)
   3.Any value taken as cash (or cash eq, ie Liabilities taken over or a loan to director), that portion is taxed NOW.

Question 23

CGT - Calculation for Incorporation Relief
F

Answer 23

(Value of shares taken / Total Consideration) x Gain on assets = Deferred Tax

Question 24

CGT- Conditions for Incorporation Relief (S600)
F

Answer 24

1. Must be a transfer from person to Company
2. Business must be a going concern
3. ALL Business assets (except cash) including land and buildings
4. Must be at least partly for shares in the company. The part that is not shares causes a restriction in the deferral.
5. Transfer must be Bona Fide commercial reason and not to avoid tax.

Side-effects: Liabilities of the trade are taken over by company are treated as CASH CONSIDERATION. Reduces benefit of relief.

Downside of incorporation: Chargeable gain on sale of shares. Corporation tax on sale of property by company.

Question 25

CGT - Should Sole Trade become Ltd?
F

Answer 25

What are the profits?
- Small profits, then withdraw majority of profits from Company to fund lifestyle by way of dividend or salary. They would pay income tax on that drawing so benefit of lower CT is lost. Pension contributions are also limited, but only to the limit of profits of the company, so they may not need to incorporate.
MOST SUITABLE FOR VERY PROFITABLE COMPANIES.

Question 26

CGT - Exemptions (name 5)
G

Answer 26

Gains not taxable, Losses not allowable

1. Capital losses on sale of assets that had Capital Allowances are allowed. Only where loss exceeds Capital Allowances
2. A site disposed to a Child or Child’s Spouse if:. < 1 acre, Child build PPR, Lives there for 3 years. Else, chargeable gain taxes to parent.
3. Gain on disposal of PPR as long as it was occupied.
4. Gains on land and buildings between 07 Dec 11 and 31 Dec 2014 and held 4-7 years and reduced proportionally there after.
5. €1,270 per person, not transferrable to spouses (ALWAYS deduct from CGT calc) Not for companies.

Question 27

CGT - Entrepreneur Relief
H

Answer 27

Gains on Disposal of Business Assets after 01 January 2017 liable to REDUCED rate of CGT of 10%.

Limit €1M lifetime chargeable gain, Standard rate of 33% to any gains in excess of €1M

MAY ALSO APPLY TO FARMS.

Question 28

CGT - Entrepreneur Relief - Exclusions
H

Answer 28

ER does not apply to:
- Shares, securities held as investments
- Development land (You cannot get relief if you sell farm land as development land)
- Assets on which no chargeable gain arises
- Goodwill disposed of to a Connected Company
- Assets personally owned outside of the company
- Shares or securities where the individual remains connected to the company after disposal

Question 29

CGT - Entrepreneur Relief - Conditions
H

Answer 29

1. Must have owned Chargeable Business Assets for 3 of the last 5 years.
2. In case of shares, owned for a continuous period of at least 3 years at any time prior to disposal.
   Must own more that 5% in qualifying company.
   Must be director or employee of the qualifying company in a managing or technical capacity
   Must spend 50% or working time at company
   Must served in that capacity for continuous 3 of 5 past years prior to disposal
   
   • Does not apply to dormant companies. Must be removed from Group prior to disposal

Question 30

CGT - Entrepreneur Relief - When to apply ER in strange cases.
H

Answer 30

1. Share buybacks
2. Company Liquidations: Must have been in business up to appointment of liquidator and liquidated within 2 years.
3. Double Holding Company: A holding company holds a holding company which holds a trading company
4. Partnership assets: Interest of an individual of a partnership where those assets were used by the partnership and individual was actively involved.

Question 31

CGT - Retirement Relief - Definition
I

Answer 31

Relief on disposal of farm or business assets by an individual aged 55 or older

Question 32

CGT - Retirement Relief - Conditions of Sole Trader
I

Answer 32

1. Must be aged 55 or older
2. May dispose of business to child, potentially
3. Limits attached to age and disposal party (next card)
4. Marginal relief for 3rd party disposal, the lower of:
   
   • 50% of excess consideration over proceeds limit
   • The actual tax computation
5. No annual exemption (€1,270) in year RR is availed of! EXAM NOTE
6. Must be for genuine commercial reasons, not tax avoidance.
7. You can avail to both child and 3rd party reliefs

Question 33

CGT - Retirement Relief - Age and party limits
I

Answer 33

55 - 65 Disposing to Child: Full Relief
55 - 65 Disposing to non-child: 750k - Lifetime limits

Over 66 Disposing to Child - 3M - Lifetime limits - No marginal Relief
Over 66 or older disposing to non-family: 500k - Lifetime limits

Transfers to spouse reduce 500k and 750k limits once they reach 55

Question 34

CGT - Retirement Relief (Disposal of Farm or Business) CLAWBACK
I

Question 35

CGT - Define Chargeable Business Assets
I

Answer 35

1. Assets used for the trade
2. NOT FARMHOUSES
3. Must be used for 10 years by date of disposal (not including moveable machinery)
4. Wasting assets like moveable machinery may not carry a chargeable gain
5. Typicall ARE goodwill, building and important machinery.
6. Investments and stocks or debtors/creditors are not subject to CGT and ignored by RR. They are NOT used for business.
7. Exclude goodwill where the individual is still connected after the sale. (FA2017)
   8.

Question 36

CGT - Retirement Relief - Conditions of Incorporated Company
I

Answer 36

1. Shares must be UNQUOTED Family business
2. Owned for 10 years at date of disposal
3. Been director for 10 years and full-time director for 5 years.
4. Use same 3rd Party rules for limits
5. Apportion Chargeable and Non-chargeable assets and apply to proceeds
   Chargeable Business Assets / Total Assets x %

Question 37

CGT - Retirement Relief - Family Incorporated Business
I

Answer 37

Individual owns 25% or more of voting rights or 10% or more voting rights where his family owns 75% of voting rights

Family includes any direct relatives