advanced financial accounting advanced taxation roi

Advanced Taxation ROI2nd Year Examination

August 2019

Solutions, Examiners Comments & Marking Scheme

Advanced Financial Accounting 2nd Year Examination

May 2018 Solutions, Examiners Comments & Marking Scheme

Advanced Taxation ROI August 2019 2nd Year Paper

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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 2019 and may not be reproduced without permission of Accounting Technicians Ireland.

© Accounting Technicians Ireland, 2019


of 27 Advanced Taxation (ROI) A2019

Accounting Technicians Ireland

2nd Year Examination: August 2019

Paper: ADVANCED TAXATION (Republic of Ireland)

Thursday 15 August 20192.30 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, 2017. The provisions of the Finance Act 2018 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. 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)

**Please note: If more than the required number of questions are answered, then only those questions in the order presented will be marked. Please place a line through any answers you do NOT wish to be marked**



SECTION A

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

Question 1 (Compulsory)

Alan O’Connor (aged 29) is married to Elena (aged 27). They have been married since June 2017 and have no children. They are both Irish resident and domiciled. Alan carried on a trade as a landscape gardener since 1st October 2016. He found it difficult to be break into the market, as there are fewer people looking to have their gardens landscaped and therefore decided to cease trading as of 30th June 2018. Details of his trading results are as follows:

Adjusted Case I Income/(Loss)

Year-end 30th September 2017 €19,500Period end 30th June 2018 (€14,000)

Alan found employment with Green Fingers Ltd as a commercial landscape architect and began employment on 1st November 2018. Details of his employment package are as follows:

1. His annual salary is €57,000 and is paid monthly.

2. Company car which was bought second hand for €20,500 (its list price when new was €29,500). He expects to drive 48,000 kilometres a year, of which 60% relates to business.

3. In December, Alan received a holiday break at the Donegal Hotel free of charge. The market value of the break was €500, but his employer paid €100 for the break. The reduced rate was due to the relationship between Green Fingers Ltd and the Dublin Hotel Group, of which the Donegal Hotel is a member.

4. Alan has accumulated various loans totalling €30,000 from the time he was self-employed. On commencement of employment, Green Fingers gave Alan a loan of €30,000 charging him only 4% interest per annum. This loan remains outstanding.

Other information:

- Elena does not currently work outside the home. She takes care of her widowed mother who lives next door.

- Irish dividend income of €4,000 (net of dividend withholding tax) was received by Elena during the year.

- Elena receives UK rental income of €16,000. - Both the shares and the UK property were inherited by Elena from her father on his death in

2014. - Alan has paid €620 through the PAYE system in 2018.

Required:

a) Compute Alans’s assessable Case I income/ allowable loss for 2016, 2017 and 2018 using normal commencement rules.In addition, you are required to show (an offer a brief explanation of) any adjustments to these figures resulting from Alan ceasing to operate in business on 30 June 2018.

(7 marks)

b) Compute the income tax payable/(refundable) for Alan and Elena for the tax year 2018, on the basis that they have opted for joint assessment, making maximum use of loss relief.You are not required to calculate PRSI and USC (13 marks)

Total: 20 Marks




Alanna is Irish domiciled and resident and in 2018 she made the following disposals.

1. On 13th March she sold an antique bracelet, part of a jewellery set, for €1,900 to her friend. A few weeks later she sold the matching earrings and necklace to the same individual for €1,850 and €2,250 respectively. Alanna has original acquired this set at an auction in May 1983 paying €2,350 in total for the set. She paid €500 for the bracelet, €650 for the earrings and €1,200 for the necklace.

2. On 8th June she gifted her niece, on her wedding day, a rare stamp collection. Alanna bought the stamp collection in June 1995 for €3,400. The value has since fallen and at the time of the gift the market value was only €2,600.

3. On 12th July Alanna disposed of 1,400 shares in Ireland Bank plc for €6,300. Alanna’s dealings in Ireland Bank plc shares is shown below

Date Transaction type Shares Price Per Share1st May 1997 Purchase 2,200 €315th February1998 Purchase 500 €4

In December 2012 Alanna received €7,150 for selling 1,300 shares.

4. On 24th August Alanna sold 10 acres of land in Wexford, Ireland for €33,500. Alanna acquired the 10 acres from her brother in March 1996, for €6,500 when it was professionally valued at €14,000. She incurred fees of €3,350 on selling this land.

5. In December Alanna disposed of all the shares she owns in DFT Limited, a trading company, for €850,000. She acquired her 25% shareholding in 2011 for €120,000 and has worked on a full-time basis with the company as a managing director since 2012.

Alanna has losses forward from 2017 of €12,000.

Required:

a) Calculate the capital gains tax liability, if any, for Alanna for 2018 providing brief explanations of your treatment of each of the disposals. (17 marks)

b) Irrespective of residence/type of assets certain persons are not chargeable to CGT on any disposals. List THREE such persons.

(3 marks)

Total: 20 Marks




Mountainair Ltd is an Irish resident trading company that manufacture and sell hill walking equipment and clothing. Mountainair prepares accounts annually to the 31st December and the most recent results for the year ended 31st December 2018 are as follows:

Gross profit €361,000Less ExpensesPatent royalties 1 €45,600Interest payable 2 €9,120Depreciation €15,200Legal & professional fees 3 €10,184Rent, rates and advertising €9,500Sundry Expenses 4 €3,450Repairs and Maintenance 5 €2,280Client entertaining €1,520Car Leasing costs 6 €14,400Wages & salaries €112,480 (€223,734)

Other income Investment income 7 €3,496Profit on disposal of NCA 8 €22,800 €26,296Net Profit €163,562

Notes

1. The patent royalties were payable to South Race Ltd, an unconnected Irish resident company. During the period an amount of €32,000 was paid with the balance owing at year end paid on 1 February 2019.

2. The full amount of the interest relates to a loan that was used to purchase a new machine for use in the manufacture of Mountainair jackets.

3. Legal and professional fees include the following:

Legal fees on the sale of a retail shop no longer used by Mountainair €2,150Note 8 below refersAccounting fees relating to a standard Revenue audit €4,834Fees for pursuing outstanding debts €3,200

€10,184

4. Sundry expenses include an amount of €228 late filing penalty for VAT returns during 2018.

5. Repairs and maintenance include a figure of €600 for repairs to broken locks in the rental office.

6. Car leasing costs relate to the following cars:



Car registration Emissions category Annual Lease Payment Cost of equivalent

car to purchase 181D 244410 B €6,000 €22,000172D 325100 E €8,400 €41,500

7. Investment income is made up of the following

Small rental office space €3,000Dividend income –Irish resident company €496

€3,496

8. Due to increased competition from online competitors, Mountainair closed and sold a retail shop. Sales proceeds were €60,800, for a shop that they bought in June 2002 for €30,400. In 2006 Mountainair upgraded the roof to include solar panels at a cost of €7,600.

Capital allowances for the year ended 2018 have been corrected calculated as €38,000.

Required:

a) Compute the corporation tax payable by Mountainair for year-ended 31st December 2018.(15 marks)

b) Explain the term “Close Company” (1 mark)

c) Explain the tax consequences of:

i) Paying interest to directors (2 marks)ii) Providing loans to shareholders (2 marks)

Total: 20 Marks



SECTION B

Answer ANY TWO of the FOUR questions in Section B

Question 4 Answer all 10 questions (2 marks each). There is only ONE correct answer for each question.

PLEASE NOTE THAT THERE IS NO NEGATIVE MARKING FOR THIS QUESTION

1. Abbey has the following sources of income in 2018:

Self-employed income €48,000Case V €5,000Case IV (deposit interest received net) €1,260

Abbey’s USC liability for 2018 is:

a) €1,567.09b) €1,709.59c) €1,804.59d) €1,864.44

2. Tom is employed by Piotr Ltd and in 2018 he earned a gross salary of €60,000. In addition Tom has Irish rental income of €9,000. Tom paid €11,000 into an occupational pension through this employer.

What is Tom’s total PRSI liability for 2018?

a) €1,960b) €2,320c) €2,400d) €2,760

3. Cathy Dunne bought fourteen acres of land in August 2008 for €75,000. In May 2009, she sold nine acres of the land for €95,000, when the market value of the remaining land was €125,000. In November 2018, she sold the remaining five acres of the land.

What is the cost of the land sold by Cathy in November 2018 for capital gains tax purposes?

a) €32,386b) €42,614c) €43,750d) €75,000

4. Stephanie Murphy has gross Irish rental income of €11,300 in 2018 from a property she bought in 1st April 2018 and first let on the 1 July 2018. Her lease is registered with the Rental Tenancy Board (RTB) at a cost of €125. Stephanie had to repair a broken pipe at a cost of €200 in June 2018. The interest paid on the mortgage to purchase the property amounted to €12,000 in 2018.

Stephanie’s assessable Case V income for 2018 is:

a) (€825) Case V Loss b) €3,175c) €4,375d) €4,500



5. Michelle sold all her shares in Holdings plc.in July 2018 for €6.00 per share. Michelle has no other disposals in 2018. The following outlines the shares Michelle held in Holdings plc.

-1st January 1999 Purchased 1,500 shares for €3,750-1st October 2001 Purchased 3,000 shares for €11,550

In May 2010 she sold 1,600 shares at €4.10 per share.

What is Michelle’s capital gains tax liability for 2018?

a) €1,198 b) €1,318c) €1,579 d) €1,737

6. Which of the following are considered to be direct taxes?

1) Corporation tax 2) Income tax paid through payroll 3) Income tax paid through self-assessment system (ROS)4) VAT

a) 1, 2 and 3 b) 2 and 4 onlyc) 2 and 3 onlyd) 1 and 4 only

7. Tina has gross income of €90,000 for the tax year 2018. During 2018, she entered into a deed of covenant and agreed to pay €8,000 per annum to her mother, aged 70, for the next eight years. Tina also paid permanent health insurance of €1,400 during 2018.

What is the amount of the covenant on which Tina can receive tax relief in the tax year 2018?

a) €0b) €4,430c) €4,500d) €8,000

8. New PC Ltd is an Irish resident company which is registered for value added tax (VAT). New PC Ltd sold a computer to a private customer in the EU (Germany). The standard rate of VAT in Germany is 19%.

What is the rate of value added tax (VAT), if any, to be charged by New PC Ltd on the sale to the German customer?

a) Irish VAT at 23%b) German VAT at 19%c) Irish VAT at 0%d) None as the transaction is exempt from Irish VAT

9. Susan disposed of a painting for €2,000 during 2018. She had bought the painting in 2012 for €3,000 and had hoped that the artist would become famous quickly.



What is the amount, if any, of Susan’s allowable loss for capital gains tax on the disposal of the painting?

a) €0b) €230c) €460d) €1,000

10. Steve is a sole trader and prepares accounts to the 30th April each year. In March 2015 he purchased a van for €35,000. The emissions of van were 185g/km. On the 8th March 2018 he sold the van for €14,000.

What is Steve’s capital allowance position on this van for the 2018 tax year?

a) €0 b) €3,500 (Balancing allowance)c) €7,875 (Balancing allowance)d) €17,500 (Balancing allowance)

Total: 20 Marks

Question 5 (Part A)

Emily Fields is a self-employed architect. She accounts for VAT on a cash receipts basis, and prepares bi-monthly returns. Details of her transactions for March/April are as follows:

NoteFees invoiced VAT inclusive @ 23% €68,500Fees received €75,350Purchase of a car (1) €35,620Laptop (2) €959Equipment -Lease charge (3) €1,096Motoring expenses (4) €1,507

NotesThe figures given are all VAT inclusive.

1. Emily purchased the car, which is used 70% for business purposes, on 1st March 2018. The car is a category C car.

2. The laptop was bought by Emily and immediately given to her son Toby who is in college and he has said he will use it to complete course work.

3. Emily acquired some new printing equipment under a finance lease.

4. Motoring expenses comprise:

Diesel for Emily’s car which is used 80% for business purposes €493Petrol for an employee’s car which is used 70% for business purposes €575Repairs to Emily’s car carried out by a registered garage (VAT @ 23%). €438

Required:a) Compute Emily’s value added tax (VAT) liability/refund for the VAT period March/April 2018.

(12 marks)



b) State the due date for the VAT return and payment date for Emily. (1 mark)

c) List THREE circumstances in which a transaction is not deemed to be a supply for VAT purposes (3 marks)

Part B

Intra community supply involves either imports into or exports out of Ireland with another EU member state. A Spanish supplier has quoted the Irish VAT registration number on the invoice for goods sent to Ireland.

Required:

a) Explain the steps involved for the Irish VAT registered business to correctly account for VAT on the intra community supply in the VAT return; (3 marks)

b) Explain the impact to the VAT payable per the return of such a transaction. (1 mark)

Total: 20 Marks

Question 6

You work in an accountancy practice and a new client, Jim Phillips has come to you as he has been offered a contract with a builder as a subcontractor and asks you to outline:

a) The obligations of a principal contractor with regard to Relevant Contracts Tax (RCT). (8 marks)

b) The rates of RCT that can be applied by the Revenue and when these will be used. (9 marks)

c) The obligations of the subcontractor. (3 marks)

Total: 20 Marks



Question 7

Part A

Tegan O’Conner is Irish domiciled. She worked in Ireland until May 2015, at which time she became unemployed and went to America to work. In 2018 a work colleague from a previous employment contacted Tegan about a job opportunity in Ireland that might suit. Tegan was interviewed and successfully obtained the post. She returned to Ireland in October 2018 and now hopes to stay in Ireland indefinitely.

Required:

a) State Tegan’s residence and ordinary residence status, in each of the years from 2015 – 2018, paying attention to any possible split-year residency. You are required to provide a brief explanation for your answer. (5 marks)

Part B

Explain THREE conditions that must be satisfied to claim capital allowances (6 marks)

Part C

Max Power is an accountant, who works for White & Blue Co. On 6th October 2018, Max and Gina got married. Max has the following sources of income in 2018

Schedule E – Salary €59,000Irish deposit interest (net) €4,095Net Case V Rental Income €8,000PAYE deducted €16,200

Gina works for as an administrative assistant in a dental practice and earns a salary of €29,500 per annum. Gina’s only other source of income is dividends received net from an Irish resident trading company of €580.

Gina’s employers have deducted €4,400 PAYE in 2018.

Required:

Calculate Max and Gina’s final Income tax liability (ignore PRSI and USC) for 2018, on the basis that they elect for year of marriage relief. You are required to calculate the tax refund (if any) due to Max and Gina as a result of the claim for year of marriage relief.

(9 marks)

Total: 20 Marks

End of Exam paper



Accounting Technicians Ireland

2nd Year Examination: August 2019

Paper: ADVANCED TAXATION (Republic of Ireland)

SOLUTIONS

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 QuestionQuestion No. 1 2 3 4 5 6 7Average Mark (%) 51% 41% 46% 43% 42% 55% 51%Nos. Attempting 201 201 201 148 114 140 201

Statistical Analysis - OverallPass Rate 46.54Average Mark 44.96Range of Marks Nos. of Students0-49 8550-64 6465-79 980 and over 1Total No. Sitting Exam 159Total Absent 26Total Approved Absent 9Total No. Applied for Exam 194

General comments:

The well prepared student had no issues dealing with the questions on this paper, some students clearly presented as less than prepared for this paper and this showed through in the calibre of some of the scripts. It is disappointing to see the basics of some of the questions not being dealt with in an appropriate manner. There are four major taxes on the course, Income Tax, Capital Gains Tax, VAT and Corporation Tax. A brief review of past papers will show at least one question from each of the four core areas. All students should be comfortable dealing with these four topics in an examination regardless of the order in which these questions are presented.



Examiner Comments on Question One

Part A

For 7 marks students were asked to set out assessment using normal commencement rules as well as some additional work for a short lived business. Normal commencement most students were able to deal at a basic level with this component, however almost none of the students picked up on the short-lived business rules and as a consequence this section was not well answered.

Part B

Students were asked to complete a basic income tax computation. Most students struggled to cor-rectly classify and gross up sources of income for Schedule F and Schedule D Case IV. Some students automatically gave the SRCOP as €69,100 and taxed this amount even though this couple’s income was well below this amount.

A lot of students were unable to correctly lay out the income tax computation, some students deduct-ing non-refundable tax credits from gross income and then taxing the balance, clearly displaying a lack of knowledge and preparation for the examination.

Question 1- Part ANormal Commencement Rules MarksTax Year Basis of assessment Amount

Actual 2016 1/10/2016 - 31/12/2016

3/12 x €19,500 €4,875 1

2017 12 month set of accounts30th September 2017 €19,500 1

2018 Actual 1/1/2018 - 30/06/20186/9 x (€14,000) (€9,333) 1

Short lived business Actual for Each Year 2016 3/12 x €19,500 €4,875 1

2017 Actual 1/1/2017-31/12/2017€19,500 x 9/12 €14,6253/9 x (€14,000) (€4,667)

€9,958 1

2018 Actual 1/1/2018 - 30/06/20186/9 x (€14,000) (€9,333) 1

As this is a short-lived business the trader is assessed each year on an actual basis rather than the normal rules of assessment for commencement. (1 mark)



Workings BIK €29,500Rate (km based) 24% 0.5Annual BIK €7,080 0.52 months €1,180 1

Perf Loan 13.50%Rate 13.5% €30,000Annual Interest €4,050 0.52 Month Interest €675 0.5Charge 4% x 2 months (€200) 0.5BIK €475

Question 1 – Part B

Alan MarksSchedule E Salary (2 months €57,000/12 x 2) €9,500 0.5BIK - Car (W1) €1,180BIK - Preferential interest (W1) €475BIK - Holiday break €100 1

€11,255Schedule D – Case I Loss Relief (Part A) (€9,333) 1.5

€1,922 0.5ElenaSchedule D Case III €16,000 0.5Schedule F €4,000/0.80 €5,000 €21,000 1Taxable Income €22,922

Taxation €22,922 x20% €4,584 0.5

Less Non-Refundable Tax Credits Married Person €3,300 0.5PAYE Credit €1,650 0.5Dependent Relative Credit €70 0.5Home Carers Credit €0 €5,020 0.5

€0Less Refundable Tax Credits PAYE Paid €620 0.5DWT (€5,000 x 20%) €1,000 0.5Tax Due/(Refund) (€1,620) 1



Examiner Comments on Question Two

Question 2

Capital Gains Tax Summary MarksJewellery Set (W1) €1,293Stamp Collection (W2) €0Shares (W3) €724Land (W4) €12,272

€14,289Loss forward (€12,000) 1

€2,289Less Annual Exemption (€1,270) 0.5Taxable Gain €1,019Capital Gains tax x33%

€336

DFT Shares Gain €730,000Entrepreneurial Relief (see explanation note) 10% €73,000 2.5Final Capital gains due/(refund) €73,336

Workings

Jewellery Set (W1)Sales ProceedsBracelet €1,900 0.5Earrings €1,850 0.5Necklace €2,250 0.5

€6,000Less Costs Index Bracelet, Earrings and Necklace €2,350 2.003 €4,707 1.5

€1,293

Explanation:

Jewellery Set - If non-wasting chattels form part of a set (for example, an antique jewellery set consisting of a necklace, earrings and bracelet), the sale of the set is treated as one disposal if the assets are dis-posed of to the same person, a connected person or persons acting together. This is an anti-avoidance measure to ensure that a set of non-wasting chattels are not disposed of separately in order to avail of the €2,540 proceeds exemption

(1 mark for explanation)

Part A

Students were asked to calculate capital gains tax on disposal of a number of chargeable assets, in-cluding Entrepreneurial Relief at the reduced rate of 10%. Most students were not prepared for this relief and tax the gain at 33%.

Many students did not use the loss forward prior to granting the annual exemption. Additionally many students failed to deal correctly with loss to connected individuals and previous share disposal in 2013. An alarming number of students tried to take the calculations from 2013 into the capital gains tax computation for 2018.



Stamp Collection (W2)Market Value €2,600Less Costs (€3,400)Loss (€800) 1

Explanation:

This is a connected person loss and can only be used against gains to the same individual 1

Shares (W3)Shares – Holding 1900 x €4.5 €4,050 0.5Less Costs €2,700 1.232 €3,326 0.5

€724Shares – Holding 2500 x €4.5 €2,250 0.5Less Costs €2,000 1.232 €2,464 0.5

-€214Explanation: FIFO is used. The disposal of 1,400 shares is treated as a disposal of two assets. 1

Holding 2 is a no gain/no loss item 1 Land (W4)Sales Proceeds €33,500Less Disposal fees (€3,350) 1Less Market Value1 €14,000 1.277 (€17,878) 1

€12,272DFT Shares (W5)Sales Proceeds €850,000 0.5Less costs (€120,000) 0.5Entrepreneurial Gain2 €730,000

Explanation notes 1 The deemed cost of the land is the market value at the date it was acquired i.e. €14,000. The actual cost of acquiring the land from her brother is ignored.

2 Finance Act 2015 introduced a new Entrepreneur’s Relief from Capital Gains Tax. Capital gains up to €1m arising on the disposal of chargeable business assets by a relevant individual will qualify for a lower rate of Capital Gains Tax. The Capital Gains Tax rate was initially reduced to 20% (instead of the normal rate of 33%) and Finance Act 2016 further reduced this to a rate 10% on gains up to €1m.

The reduced rate of 10% is effective for qualifying disposals from 1 January 2017. The relief applies to gains arising on the disposal of assets used for the purpose of the individual’s qualifying business (gen-erally a trading business). The individual must have owned the asset for at least 3 years in the 5 years prior to the disposal of the assets. Gains arising on the disposal of shares in a (trading) company will also qualify if the individual spent at least 50% of his working time providing managerial or technical services to the company as a director or employee and had done so for a continuous period of 3 years in the 5 years prior to the disposal of the shares. Investment assets, development land and non-chargeable assets will not qualify for Entrepreneur’s Relief. The limit of €1m is a lifetime limit applying to the dis-posal of chargeable business assets by the individual.



Part B

Irrespective of residence/type of assets, etc. certain persons are not chargeable to CGT on any disposals.These are:

- Trade unions - Local Authorities- County Councils- Health Service Executive and VECs- Regional tourism authorities- Miscellaneous government agencies. (1 mark each- Max 3 marks)



Examiner Comments on Question Three

Question 3 Marks

Net Profit €163,562Addbacks Patent royalties €45,600 1Depreciation €15,200 0.5Client Entertaining €1,520 0.5Interest payable €0 1Legal fees €2,150 0.5Sundry Expenses €228 1Repairs €600 0.5Leasing costs (W1) €5,426 €70,724

€234,286Less Deductions Investment Income €3,496 0.5Profit on disposal of shop €22,800 0.5Capital allowances €38,000 0.5

€169,990Less Trade Charges (€32,000) 1Tax adjusted Case I €137,990Irish Dividend income (Franked investment income) Exempt €0 0.5Case V - Rental income (W2) €2,400Total Income €140,390Adjusted capital gains (W3) €50,582Total profit €190,972

Corporation tax payable 12.5% x (€137,990+€50,582) = €188,572 €23,572 0.525% x €2,400 €600 0.5Income Tax on Patent Paid (€32,000 x20%) €6,400

€30,572

Part A

Students were asked for a basic corporation tax computation, which included some standard addbacks. Most students seemed to find the Category B car addback to be a challenge, not realising that a car costing less that €24,000 qualifies for a negative addback or a deduction.

Parts B & C

In general this section was not well answered by students with a wide range of incorrect answers being given to both parts of this question.



Workings Leasing costs (W1)Category B = €6,000 x €22,000-€24,000)/€22,000 (€545) 1Category E = €8,400 x €41,500-€12,000)/€41,500 €5,971 1

€5,426

Case V - Rental income (W2)Rental income €3,000 0.5Less repairs €600 0.5Net Case V Rental Income €2,400

Adjusted capital gains (W3)Sales proceeds €60,800Less professional fees (€2,150) 0.5Less Costs €30,400 x 1.049 (€31,890) 0.5Less Enhancement (no index because of year) (€7,600) 0.5

€19,160

Adjusted capital gains €19,160 x 33/12.5 €50,582 1.5

Part B

A Close Company is an Irish resident company controlled by:

1. 5 or fewer participators, or

2. Any number of participators, who are also directors of the company.

A participator has an interest in the capital or income of the company, usually the shareholders.

Broadly speaking this would mean five or fewer people having a combined interest in more than 50% of the share capital of the company.

(1 mark for explanation of close company)

Tax consequences of paying interest to directors

Where the company pays interest to directors (who own more than 5% of the share capital) in respect of loans to the company, there is a maximum amount of interest that can be treated as a tax deductible expense of the business. Any amount in excess of this maximum amount is treated as a distribution.

The maximum amount of interest allowed as a business expense is the lower of: 13% of the nominal amount of the issued share capital and share premium of the company, OR 13% of the loans from the directors or their associates.

Very often a company will have a low level of share capital and this will limit the amount of interest that can be allowed for tax purposes in respect of interest paid on directors’ loans.

(2 marks)

Tax consequences of providing loans to shareholders

Where a close company lends money to participators or their associates the company must pay an ad-ditional amount of tax to the Revenue Commissioners in relation to this.

This is Income Tax payable by the company.



The amount of tax is calculated as follows: Loan given to shareholders x 20 / 80

A shareholder of a close company is given a loan of €30,000 by the company.

In the Corporation Tax return for that accounting period the company must account for the following additional amount of tax:

€30,000 x 20 / 80 = €7,500 (2 marks)



Examiner Comments on Question Four

This question was the worst answered question on the paper with the average mark achieved by stu-dents being less than 8 marks. The well prepared students performed well on this question. Quite a few students did not answer all parts. It is written on the examination booklet that there is no negative marking for incorrect answers, yet all parts are not being attempted.

Question 4

Q1 – (C)

2018 - USC Rates€12,012 0.50% €60.06€7,360 2% €147.20

€33,628 4.75% €1,597.33€53,000 €1,804.59

Correct calculation does not include Case IV as this is exempt from USC.

Q2 - (D)

Q3 – (B)

Part disposal €75,000 x €95,000/(€95,000 + €125,000) = €32,386 (cost of part disposal) Cost remaining (€75,000 - €32,386) = €42,614

Q4 - (C) - €11,300 – €6,800 = (€12,000 x 85% x 6/9) = €6,800. €200 on broken pipe is a pre-letting expense and not allowed as a deduction against Case V -€125 RTB fees = €4,375

Q5 – (B)

Sales Proceeds (2,900 x €6) €17,400Less Cost (€11,550/3,000 x 2,900) x 1.087 (€12,136)Gain €5,264Less Annual Exemption (€1,270)Taxable Gain €3,994Capital gains tax at 33% €1,318Q6 (A)

Q7 (C)

Q8 (A)

Q9 (C)

Q10 (C)

€35,000 X 12.5% = €4,375 x 3 (2015, 2016 & 2017) = €13,125. TWDV (€35,000 - €13,125) = €21,875 - €14,000 (Sales Proceeds) = €7,875 (Balancing allowance)



Examiner Comments on Question Five

Part A & B

This was a standard format – Cash receipts basis VAT return and due date for payment. Most students performed well on this question and gained valuable marks towards their pass mark.

Part B

Again this section was by and large well answer with students scoring well overall on this question.

Question 5

a)

Output VAT Marks VAT Inclusive VAT Amount

VAT on sales €75,350 €14,090 1.5VAT on invoice items €0 1.5

Input VAT Purchases VAT Amount Car Purchase (€35, 620)/123% x 23% x 20% €35,620 €1,332 1.5Laptop - Non input credit allowed €0 1.5Equipment (€1,096 /123%x 23%) €1,096 €205 1Diesel for own car (€493 x 80%) = €395 €395 €74 1.5Petrol - Not allowed €0 €0 1.5Repairs to car (€438 x 80%) = €351 €351 €66 1Total €1,677

Total Output VAT €14,090Total Input VAT €1,677VAT Due €12,413 1

b) Due date for return and payment is 23rd May 2018. (1 mark)

c) A circumstance in which a transaction is not deemed a supply:

1. The temporary transfer of ownership of goods as security for a loan or debt.2. The transfer of a business where the assets transferred constitutes an undertaking (or part there-

of) capable of being operated on an independent basis.3. Goods acquired by an insurance company from the owner of those goods in connection with the

settlement of an insurance claim and in respect of which there was no entitlement to claim an input credit.

(1 mark each) – Max 3 marksPart Ba)

1. The Irish company must self -account for VAT amount.2. They will increase the amount of VAT on sales by the VAT required to be self-accounted for. 3. On the same VAT return, they will also include a deduction for the VAT on the purchase. The

amount of the deduction is the amount of VAT they have charged themselves.(1 mark each) – Max 3 marks

b) The net effect of the transaction in such cases would be “nil”. (1 mark)



Examiner Comments on Question Six

This question was very well answered by the majority of students that tackled this question. It was a full theory question, which required specific knowledge of RCT.

Question 6

a) The principal contractor must:

1. Register on Revenue Online Service (ROS) as a principal contractor

2. Notify the Revenue Commissioners through ROS when he enters into a relevant contract with a subcontractor. [Referred to as contract notification] The principal contractor should establish the identity of the subcontractor engaged on a relevant contract. It is the principal contractor’s responsibility to take sufficient care to ensure the proper identify of all subcontractors. The Rev-enue Commissioners will acknowledge the contract notification. A Site Identifier Number will be issued through ROS which will be used to identify the site/project. The principal contractor will be advised of the rate of RCT applicable to the subcontractor.

3. Notify the Revenue Commissioners through ROS immediately before making a payment to the subcontractor under the relevant contract. This notification should include details of the gross amount to be paid [Referred to as payment notification]. The Revenue Commissioners will acknowledge the payment notification and confirm the rate and amount of RCT to be deducted from the payment by the principal contractor [Referred to as deduction authorisation].

4. File periodic (monthly/quarterly) returns (this will be pre-populated online by the Revenue Commissioners based on payment notifications and deduction authorisations) and submit pay-ment of RCT to the Revenue Commissioners.

(2 marks each)b)

There are three rates of RCT that the Revenue Commissioners can apply to payments, 0%, 20% and 35%. (2 marks)

As mentioned above, the Revenue Commissioners will confirm the rate of RCT on the deduction authori-sation issued to the principal contractor. (2 marks)

In general, the rate advised will depend on the subcontractor’s tax compliance record. A subcontrac-tor, who has a good compliance record and previously qualified (prior to the introduction of the online system) for the 0% rate, will continue to receive payments with 0% RCT deducted. (2 marks)

The Revenue Commissioners will apply 35% RCT in the following cases: 1. No tax reference number is provided by the subcontractor to the principal contractor 2. The subcontractor is not known to the Revenue Commissioners 3. Where there are serious compliance issues to be addressed by the subcontractor. In all other

cases, the Revenue Commissioners will apply 20% RCT.(3 marks)

c)A subcontractor is not required to register on ROS. (1 mark)

The Revenue Commissioners will notify a subcontractor of a relevant contract (when received from the principal contractor) and will advise of any changes to the RCT rate applicable to payments to be made to the subcontractor. (1 mark)

The subcontractor should also obtain a copy of deduction authorisations from the principal contractor, although the Revenue Commissioners will automatically credit to the subcontractors tax record any RCT deducted from payments under a relevant contract. (1 mark)



Examiner Comments on Question Six

Part A

Asked for students to discuss the rules for residence and ordinary residence and based upon those rules, explain the tax position of the taxpayer. In general there were no issues with this section of this question. Part B

This section asked for students to explain the criteria necessary to claim capital allowance and most students tackled this well, however a surprising number of students explained the rules of capital gains tax and when capital gains tax would be chargeable, clearly showing that they did not read the question carefully.

Part C

This section asked students to deal with single assessment in the year of marriage and any savings available to this couple as a result of getting married. A lot of students went straight to joint assess-ment, again indicating that they had not read the question requirement carefully and again the same issues grossing up sources of income.

Question 7

Part A

2015

Resident – Combined 280 days between 2015 and 2014 (0.5 mark)

Ordinarily resident – Tegan has been resident for each of the three immediately preceding tax years (0.5 mark)

2016

Not Resident – Tegan has been present for less than 183 days in 2016 and therefore not resident.(0.5mark)

Ordinarily resident – She will be ordinarily resident until she has three full consecutive tax years not be-ing resident in Ireland (0.5mark)

2017

Not Resident – Tegan has been present for less than 183 days in 2017 and therefore not resident. (0.5 mark)

Ordinarily resident – She will be ordinarily resident until she has three full consecutive tax years not being resident in Ireland (0.5 mark)

2018

Not Resident – Tegan has been present for less than 183 days in 2018 and therefore no longer resident.(0.5 mark)

Ordinarily resident – She will be ordinarily resident until she has three full consecutive tax years not being resident in Ireland (0.5mark)

Tegan could apply for Split year residency in 2018 (1 mark)



Part B

In order to claim wear and tear allowances on an asset, each of the following conditions must be satisfied:

1. The expenditure must be incurred for the purpose of carrying on a trade or profession.

2. The asset must be owned by the individual. Therefore a trader will not be entitled to capital allowances on leased assets, as they do not own these assets. 3. The asset must be in use in the trade at the end of the basis period. Where an individual incurs expendi-ture on an asset for use in the trade that asset must be put into use in carrying on the trade by the last day of the accounting period in order for capital allowances to be claimed in respect of that year

(Max 2 marks each)

Part CIncome Tax Max Power Schedule E - Salary €59,000Schedule D- Case IV(€4,095/0.63) €6,500 0.5Net Case V- Rental Income €8,000Total Income €73,500

Taxation €34,550 x 20% €6,910€6,500 x 37% €2,405€32,450 x 40% €12,980 €22,295 0.5

Less NRTC Single €1,650PAYE €1,650DIRT paid €2,405 €5,705 0.5

€16,590Less PAYE paid €16,200Tax Due (Refund) €390 0.5

Income Tax GinaSchedule E €29,500Schedule F (€580 /0.80) €725 0.5

€30,225Taxation €30,225 x 20% €6,045 0.5

Less Non- Refundable Tax Single €1,650PAYE €1,650 €3,300 0.5

€2,745Refundable Tax Credits PAYE paid €4,400DWT paid €145Tax Due (Refund) (€1,800) 0.5



Joint - Max & Gina Total Income €103,725

TaxationGina €30,225 x 20% €6,045 1Max €38,875 x 20% €7,775Case IV €6,500 x 37% €2,405Balance 40% = €28,125 €11,250Total Tax €27,475

Less Non-refundable tax credits Married €3,300PAYE (Max & Gina) €3,300DIRT €6,500 x 37% €2,405 (€9,005)

€18,470

Less Refundable Tax Credits PAYE Paid - Max €17,900PAYE Paid - Gina €4,400DWT €145 (€22,445)Tax Due/(Refund) (€3,975) 1

Single Assessment Max - Tax Due €18,995Gina - Tax Due €2,745

€21,740Joint Assessment Tax Due €20,875Difference €865 0.5

ProofSingle 20% Rate bands (€34,550 + €30,225) €64,775Married couple 20% rate band €69,100Extra 20% rate band €4,325Tax saving at 20% €865

Saving as a married couple €865 x 3/12 (€216) 1.5

Refund Max (€216 x €18,995/€21,740) (€189) 0.5Refund Gina (€216 x €2,745/€21,740) (€27) 0.5

(€216)

advanced financial accounting advanced taxation roi

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