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Conor Kennedy Barrister-at-law Law Library Four Courts Dublin 7. Web: www.conorkennedy.ie. Tax Issues – Solicitors May 2010. Irish Taxation System. Direct Taxes Income, Corporation & Capital Gains Penal Statutes- Strict Interpretation Common Law Guidance Notes – Legitimate Expectation

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conor kennedy barrister at law law library four courts dublin 7 web www conorkennedy ie
Conor KennedyBarrister-at-lawLaw LibraryFour CourtsDublin 7.Web: www.conorkennedy.ie

Tax Issues – Solicitors

May 2010

irish taxation system
Irish Taxation System
  • Direct Taxes
    • Income, Corporation & Capital Gains
    • Penal Statutes- Strict Interpretation
    • Common Law
    • Guidance Notes – Legitimate Expectation
  • EU Treaty
      • 4 Fundamental Freedoms
        • 1. capital 2. persons 3. services 4. goods
  • Indirect Taxes
    • VAT
    • Recast directive
    • ECJ Jurisprudence
capital acquisitions tax
Capital Acquisitions Tax
  • Discretionary Trust
  • Gift Splitting
  • Dwelling Relief
  • Finance Act 2010
  • Reporting Requirements
  • Same event
capital acquisitions tax1
Capital Acquisitions Tax
  • Discretionary Trust
    • property is held on trust to accumulate the income or part of the income of the property,
  •  6% initial charge
  • 1% annual
  • 20% income tax charge
capital acquisitions tax2
Capital Acquisitions Tax
  • Gift Splitting
  • 3 yr restriction
  • Prevents transfers to avail of higher thresholds
    • Grandfather
    • Son
    • Grandson
capital acquisitions tax3
Capital Acquisitions Tax
  • Dwelling Exemption
    • Dwelling House
    • Beneficiary occupies – 3 yrs before gift/inheritance
    • If gift - disponer cannot be still in property
    • No entitlement to any other dwelling at that time
    • To avoid clawback – reside for 6 yrs
      • Form of rollover relief
capital acquisitions tax4
Capital Acquisitions Tax
  • Finance Act 2010
    • Secondary accountability abolished
    • Pay & File procedures
      • Val date - Jan-Aug – pay by 31st Oct in same yr.
      • Val date Sept – Dec – pay by 31st Oct in following yr.
    • Grant of probate
      • No need to procure Inland Revenue Affidavit in advance
    • CAT charge on property unless Revenue certifies is abolished
    • Joint bank account – limit increased to €50,000
    • Non resident beneficiaries – may require Irish solicitor
capital acquisitions tax5
Capital Acquisitions Tax
  • Same event
    • Happening of same event
      • Parent gifts shares to child
        • CGT for parent
        • CAT for child
      • Retention period of 2 yrs
  • Reporting requirements
    • 80% of relevant threshold exceeded
    • New pay and file procedures – FA 2010
capital gains tax
Capital Gains Tax
  • What is a disposal
  • Section 613 Exemptions
  • Interaction with CAT
    • Assets passing on death
    • Valuation date
  • Credit relief
      • Happening of same event
      • Anti-Avoidance – 2 yr retention
  • Foreign Disposals
slide10
VAT
  • Sale of a business
  • Licence Agreements
  • VAT on Property
  • Invoice in accordance with Regs
vat on property
VAT on Property
  • Everything is taxable unless specifically exempt
    •  Is the property exempt?
      • The property must not have been developed
      • If already completed, must not be further developed within 5 yrs prior to the current supply
      • If sold to an unconnected party & thereafter occupied in aggregate for a continuous 24 mths
      • 5 yr old building which has had no significant development or not materially altered
      • Less than5 yr old building sold to an unconnected party & thereafter occupied for a continuous 24 mths and has had no significant development or not materially altered
vat on property capital good scheme cgs
VAT on PropertyCapital Good Scheme (CGS)
  • CGS - mechanism for regulating deductibility over the “VAT-life” of a capital good.
  • VAT life
    • 20yrs for new buildings
    • 10yrs for refurbishment
slide13

Sale of “old” property

  • Example
  • Ms Fit Retires & sells building- 1st July 2019
  • Acquired building 1st May 2009 for €1 million
  • Reclaimed VAT - €675,000 (13.5% x €1 million)
  • No significant development work
  • Firm of accountants offer €10 million
slide14

Capital Goods Scheme

  • VAT life = 20yrs
  • Held for = 10yrs
  • Therefore partial clawback of initial VAT deducted
  • Formula

B x N

T

Where B = Total Reviewed Deductible Amt

N = No. of full yrs remaining + 1

T = Total no. of intervals in adj period

slide15

CGS - Example

B = Tot Revd Deductible Amt = €675,000

N = No. of full yrs remaining + 1 = 9 + 1

T = Total of intervals in adj period = 20

€675,000 x (9 + 1) = €337,500

20

Clawback = €337,500

slide16

Example – Avoid Clawback

  • Avoid clawback
  • Joint option to tax sale
  • Vat charged on €10 million = €1,350,000
  • Accountant self accounts for VAT
  • Reverse charge
  • Accountant’s initial interval = 1st July 2019
ongoing business
Ongoing Business
  • Steps to be taken – Continuing entitlement
    •  Review entitlement to VAT after 1st 12mths
    • If the proportion of taxable use in 1st 12 mths (‘initial interval’) differs from the proportion of the VAT claimed - adjustment is required.
    • Too much has been deducted, the taxpayer must pay back the excess.
ongoing business1
Ongoing Business
  •  Accountants
  • Acquired building for €10 million on 1st July 2019
  • Price - €10 million plus VAT of €1,375,000
  • Use 70% of property for accountancy services
  • Use 30% for exempt financial services business
  • Year end is 31 December 2019.
ongoing business2
Ongoing Business

1st 12 mths

Total tax incurred = €1,375,000

Total revd ded amt (70%) = € 962,500

Refund to Revenue = € 412,500

2nd & Subseq intervals

Total tax incurred = €1,375,000

Base tax amt (€1,375K/20) = € 68,750

Ref ded (€962,500/20) = € 48,125

Int ded amt (ditto) = € 48,125

Adjustment = Nil

vat on property cgs
VAT on Property - CGS
  • Steps to be taken – Continuing entitlement
    • Too little initially deducted, claim the deficiency as an input credit.
    • Quantified VAT entitlement for the first twelve months is the benchmark figure
    •  Annual review of the vatable use of the property
    • Any change in the proportional tax use compared with the use during the initial 12 mths - an adjustment required
transitional properties
Transitional Properties
  • Property in existence prior to July 2008
  • Sale – possibly exempt
  • CGS
  • Legacy leases
    • Assignment or surrender
    • Taxable if entitled to recover VAT
    • Not taxable if not entitled to recover VAT
      • Option to tax
corporation tax
Corporation Tax
  • Surcharge – Professional Firms
    • 15% tax on 50% of undistributed profits
  • Start up Companies – exemption
    • Tax less than €40,000
    • Period of 3 years
income tax
Income Tax
  • Section 811
    • Permits Revenue to recharacterise a transaction
    • McGrath v McDermott
    • O’Flynn Construction
  • Section 806
    • Transfer of Assets abroad
    • Foreign Property – Rented holiday home
  • Section 817
    • Liquidation of companies
    • No significant reduction in ownership
miscellaneous
Miscellaneous
  • Legitimate expectation
    • Keogh v CAB
  • Appeal Commissioners
    • Menolly Homes
    • Importance of setting out facts
  • Internal review
  • Statutory Interpretation
  • EU Influences
take nothing for granted
Take nothing for granted
  • Limited partnerships & land losses
  • CGT loss relief not against dev gains
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