topical tax issues for reducing your irish income tax liability
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Topical Tax Issues that could change the way you approach
your clients tax returns
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Background Revenue eBrief No.21/15
Rent-A-Room Relief does not apply“Income from the provision of accommodation to occasional visitors for short periods, including, for example, where the accommodation is provided through online accommodation booking sites, does not qualify for relief as the visitors use the accommodation as guest accommodation rather than for residential purposes. Income from guest accommodation such as a bed and breakfast or a guesthouse operation is generally treated as trading income (Case I) and not rental income (Case V). This type of income, even where it is under the relevant limit, does not qualify for rent-a room relief.” Implicatio
ns Rent a Room relief does not apply to Airbnb Case I income means…Direct Expenses Indirect Expenses
• Airbnb booking fee • Cleaning
• Insurance• Internet
• Meals provided• Laundry
• Light & Heat• Mortgage Interest
• Mobile• Wear & Tear on household furniture
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Alternative approach to Case V Rental Income
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Proposal
Background
Migrate your Case V Rental Income to Case I Trading Income
Airbnb lettings can generate 50% more income than traditional long term lettings
Landlord receiving Case V Rental Income of €100k Landlord sets up a company Company rents the property off Landlord for €70k (one tenant i.e. reduced rent) Company generates €150k in turnover Pays 12.5% Corporation tax on €80k No Close Co. Surcharge Profits roll up in the company for 10 years Retirement relief after 10 years €750,000 VAT 9%
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Consider A SSAS
Proposal
Purchases property via SSAS Managed as an Airbnb property i.e. increased “rental”/B&B income Profits roll up the SSAS tax free Purchase annuity or ARF Arms length rules apply i.e. use an service company to manage the property
Background Small Self Administered Scheme (SSAS) Growing in popularity (ads on the radio) Members can take more control over their pensions Flexibility and ability to control costs
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Tax relief on pension contributions and the application of the Earnings LimitPension contributions are subject to two main controls
1. Earnings limit of €115,000 [S.790A TCA97] Tax Briefing 74
2. Age related percentage limit
Age Limits
Up to 30 years 15% of remuneration/net relevant earnings
30 – 39 20%
40 – 49 25%
50 – 54 30%
50 – 54 35%
60 and over 40%
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Schedule E: PAYE 100,000
Case I: Self-employed 100,000
Total Income 200,000
Age related percentage limit Age29 yo ( 115,000 @15%)
17,250
OPS Contributions madee.g. 10% of €10,000
(10,000)
Balance age related percentage limit 7,250
NB** only €5,000 of an AVC can be made to OPS(100,000 @ 15% =15,000) (15,000 – 10,000)
5,000
Scope to make an AVC to RAC/PRSA 2,250
Occupational pension scheme only
Contributions to One Pension Product
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Schedule E: PAYE 180,000Case I: Self-employed 100,000
Total Income 280,000
Age related percentage limit Age51 yo ( 115,000 @30 %)
34,500
Schedule E: 180 ,000 @30% Case I : No relief due
Capped@ 34,500
OPS Contributions madee.g. 10% of €180,000 PAYE
18,000
PRSA contributions madeThis should have been made to the OPS
16,500 (Not allowable)
Total Contributions (only €18k receives tax relief) 34,500
Contributions to Two Pension Products1. Occupation pension scheme and/or;
2. RAC/PRSA
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How to enter Pension Contributions on Form 11
1- PAYE/BIK/Pensions
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2- Allowable deductions in employment
How to enter Pension Contributions on Form 11
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How to enter Pension Contributions on Form 11 3- Don’t plug the balance
here
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WEEK 53
Implications
BackgroundOccurs when there 53 weeks in the year
HR/Payroll department give and extra week of tax credits etc
Affects Civil service clients e.g. Gardai
Results in an underpayment when F11 is filed
Revenue concessions to give the additional week tax credit, no statutory basis
Cannot be dealt with via Form 11
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Background
The Tax Appeal Commission
Commenced 21st March 2016 www.taxappeals.ie very basic website Appeals only in writing. Online facility in the summer months Hopefully online facility not the same as MyEnquiries
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The Tax Appeal CommissionImplications
No materiality threshold
Tax Appeals Commission have no jurisdiction to hear or determine appeals in relation to the imposition of late filing surcharges e.g. Error on ROS or force majeure;
Death of the “Without Prejudice” letter? e.g. underpayment of preliminary tax;
Will week 53 be dealt with by local office or tax appeal commission if there is no statutory basis?
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Treatment of Receipts by Children from their Parents for their Support, Maintenance or Education for CAT purposes.
Implications
Backgrounda. Children in receipt of monies or monies worth for support, maintenance and education
was exempt from CATb. Previously no age limit in relation to such benefitsc. Revenue were concerned that this was being abused in certain casesd. E Brief 109/2014 issuede. Cue Social media outrage
a. Support, maintenance and education is now restricted to the period during which the child is a minor or
b. In fulltime education andc. Under 25 years of age
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So what benefits/gifts/payments are still exempt?
01 The non-exclusive occupation of the family home by a child who is a family member.
02 Free use of a house by a child attending university who is not more than twenty five years old providing the support and maintenance falls within the “normal and reasonable” provision.
03 The cost of family functions paid by a parent. For example, a wedding paid by a parent.
04 Payments to cover the child’s normal costs associated with attending college including rent, food, clothing, educational material, tuition fees, transport costs, pocket money, etc. to a child under the age of twenty five years.
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4 Changes to FA14 that could directly impact your clients tax returns(Form 11 2015 = Finance Act
2014)
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Summary
Background
1- Start up Refunds for Entrepreneurs
Replaces the old Seed Capital Scheme which was perceived to benefit self employed “Mainly” PAYE Income in Previous 4 years Element of the Tale wagging the dog A lot of qualifying criteria e.g. Investor, company, clawback etc Reduces the taxable income in one of the previous six years by making a qualifying investment
Previous 6 years prior to investment
Income can be from any source in preceding year
Hold 3 years
“Mainly” PAYE Income in Previous 4 years
The relief does not apply to USC or PRSI Maintain 15% for 12 months
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Example 1: Qualifying Investment2009 2010 2011 2012 2013 2014 2015
Income 80,000 80,000 100,000 75,000 60,000 30,000 30,000Tax Paid 21,496 21,496 29,532 20,562 14,412 2,700 2,700
2015 Investment €100,000
2011 Income €100,0002011 taxable income NILRefund €29,532
Start up Refunds for Entrepreneurs
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Example 2: Non Qualifying Investment
Year 2009 2010 2011 2012 2013 2014 2015PAYE 25,000 27,000 18,000 35,000 20,000 15,000 23,000
Rental Income 15,000 18,000 20,000 19,000 23,000 27,000 27,000Total Income 40,000 45,000 38,000 54,000 43,000 42,000 50,000
Tax Paid 6,212 7,852 5,392 11,952 7,442 7,032 14,100
Mainly PAYE Income in the 4 previous years 2013 Rental income exceeds PAYE Income Investment does not qualify
Start up Refunds for Entrepreneurs
Potential Pitfalls For Practitioners Stamp duty applies at 1% to the consideration paid for a transfer/conveyance of shares SDCA 1999 Sch 1 CONVEYANCE or TRANSFER on sale of any stocks or marketable securities.
Does not apply to scenarios where a sole trade has been transferred to a company
The relief does not apply to USC or PRSI
Watch out for the valuation placed on shares
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2. Company Residence – Corporation Tax
Non-resident directors IT contractors. Tendency to be mobile and non domiciled
Who is Effected
BackgroundFrom 1 January 2015, a company that is incorporated in Ireland, is to be regarded as tax resident in Ireland unless the application of a DTA determines otherwise
Implications Irish incorporated Director of Irish company = Irish office Irish office = Irish source income Irish source income = Irish tax irrespective of where the employment duties are performed
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3.Works of Arts “Wasting Assets”
Section 603 TCA 1997 provides that an asset that is tangible movable property and a wasting asset is exempt from CGT - except where it is used in a trade or profession and eligible for capital allowances.
Section 560 TCA is being amended to ensure that works of art (which generally increase in value with age) do not qualify for exemption from CGT on disposal as “wasting assets” which could occur in certain circumstances where such works are regarded as items of plant
Works of Art can no longer be “sold” into a company and qualify for CGT exemption
Background
Implications
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What about transferring property into a company? Large salary being drawn down to service mortgages on rental properties
Transfer the property into the trading company
GCT and arm’s length rules apply
Creates a liability owed to the director
Draw down the loan tax free rather than salary
Property remains within the control of the director
Close company surcharge on rental income in the company applies
Potentially avoid surcharge by setting up a UK hold Co
Beware of S806 Transferring Assets Abroad
Does EU Treaty Article 56 take precedence?
3.Works of Arts “Wasting Assets”
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Background
4. Artist exemption Section 195 TCA 1997 provides for an exemption for certain earnings of writers, composers and artists
Prior to FA 2014, the exemption only applied to - Individuals resident in the State and not resident elsewhere, or - Individuals ordinarily resident and domiciled in the State and not resident elsewhere. The restriction of the exemption in this regard may have contravened EU law as being a state aid, as it did not extend to residents of other EEA countries.
Cap on the exemption of €40,000 for any year of assessment.
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New Provisions Section 5 FA 2014 amends section 195 TCA 1997 as follows:The requirement that an individual is resident in the State and not resident elsewhere or ordinarily resident and domiciled in the State and not resident elsewhere is relaxed. The amendment confirms that the exemption will now be available to individuals:
• Resident in any one or more EU Member States or another EEA State, or• Ordinarily resident or domiciled in any one or more EU Member States or another EEA State. However, the requirement that an individual is not resident elsewhere (i.e. outside the EU/EEA) must additionally be addressed in each case.
Definitions for the purposes of defining an EEA State are also inserted in section 195 TCA 1997.
4. Artist exemption
Exemption LimitExemption has increased to €50,000
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5 Tools that could make your ROS filing deadline less stressful
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#1.Adobe ESign Services
$1.99 Signing ROS Agent link
Financial Statements
Form 11
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#2-CRM/Client list
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#3-Toggl
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#4.Bullet
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#5.Up Work
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QUESTIONS?!
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