Advanced Taxation Republic of Ireland

Transcription

1 Advanced Taxation Republic of Ireland 2 nd Year Examination May 2016 Exam Paper, Solutions & Examiner s Comments Page 1 of 30

2 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 2016 and may not be reproduced without permission of Accounting Technicians Ireland. Accounting Technicians Ireland, 2016 Page 2 of 30

3 Accounting Technicians Ireland 2 nd Year Examination: Summer 2016 Paper: ADVANCED TAXATION (Republic of Ireland) Thursday 12 May 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, The provisions of the Finance Act 2015 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. If more than TWO questions are answered in Section B, then only the first two questions, in the order filed, will be corrected. 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) Page 3 of 30

4 SECTION A Answer QUESTION 1 and QUESTION 2 and QUESTION 3 (Compulsory) in this Section QUESTION 1 (Compulsory) Joe and Sharon were married on 29 June 2010 and are jointly assessed. Joe is a self-employed electrician. He commenced to trade on the 1st July 2013 and has been registered for VAT since that date. Sharon has been trading as an engineer for several years and also holds a part-time employment with the City Council. Joe s details are as follows: Tax adjusted profit: Period ended 30 April ,000 Year ended 30 April ,000 Year ended 30 April ,000 He purchased the following assets:- 1/7/13 Van 24,600 (including 23%) 1/7/13 Tools 4,000 (excluding VAT) 10/7/14 Lap top computer 2,500 (excluding VAT) 12/9/15 Trailer 5,000 (excluding VAT) He received gross dividends from an Irish resident company 10/7/2015 1,760 in respect of the year ended 31 December /7/2016 1,440 in respect of the year ended 31 December 2015 Joe has a daughter Olivia born 5 August Olivia lives with her mother Naomi but stays with Joe and Sharon for 2 full weeks and six weekends in the year. Olivia lives with Naomi for the remainder of the year. Joe pays 4,800 maintenance to Naomi each year for Olivia s maintenance. Sharon s details are as follows: Accounts for the 12 months ended 31 December 2015 show: Gross Profit 64,000 Car Lease 5,000 Other allowable expenses 4,800 Net Profit 54,200 She leased a car (category D for CO2 emissions) from 1 November 2014 at an annual lease charge of 5,000. The list price of the car was 30,000. She uses the car 100% for business purposes. Her P60 from City Council shows a salary of 5,000. PAYE of 2,600 was deducted at source. Under a deed of covenant, she pays 6,000 gross to her uncle Jimmy. Jimmy is 70 years old. She pays 700 per annum in respect of Permanent Health Insurance. Requirement: (a) Calculate Joe s assessable Case I income after capital allowances for 2013, 2014 and marks (b) Calculate Joe and Sharon s income tax liability for For the purpose of answering this question you can ignore PRSI and USC. 11 marks (c) Explain your treatment of Joe s payment of 4,800 to Naomi for Olivia s maintenance. 1 mark Total 20 Marks Page 4 of 30

5 QUESTION 2 (Compulsory) Swings Ltd is an Irish company whose business consists of the sale of children s novelty furniture to retail customers. It commenced trading in 2007 and has always prepared its accounts for each year to the 31 December. The accounts for the 12 months ended 31/12/2015 show the following: Notes Sales 2,331,818 Cost of Sales (1,854,909) Gross Profit 476,909 Other Income (1) 34, ,000 Less Expenses Depreciation 80,000 Rent & Insurance 10,000 Travel (3) 5,000 Bank Interest (4) 20,000 Light & Heat 18,000 Salaries & Wages (5) 191,000 Motor Expenses (6) 50,000 Subscriptions (7) 15,000 Repairs (8) 30, ,000 Net Profit 92,000 NOTES 1. Other Income Rental Income... (a) 6,000 Investment Income..... (b) 15,000 Profit on disposal of shares... (c) 13,091 (a) Rental Income arose from a storage unit belonging to the company. It is let monthly at 500 and has been let since 1/1/2015. There are no loans outstanding on this property. The 500 rent due in December 2015 was not received until the 15 January (b) Dividend from Zebra Ltd, an Irish resident company 10,000 Bank deposit interest received gross 5,000 15,000 (c) The shares were purchased in June 2007 for 20,000. Fees on selling the shares amounted to 4,000. Fees incurred on the purchase amounted to 1,909. They were sold in October 2015 for 39, The shareholding of the company is made up as follows: Leo Jones (Director) 1,000 Elaine Doyle (Director) 1,000 Larry Ryan (Not a Director or employee) 1, On 7/7/2015 Swings paid Thrifty Travel 5,000 for Larry Ryan in respect of his summer holiday to Florida. Page 5 of 30

6 4. Bank interest was made up of: Interest on company bank overdraft 5,000 Interest on loan to purchase new investment property. This property was first rented on 1 February ,000 20, Salaries & Wages includes 50,000 in respect of Swing s contribution to a staff pension scheme for ,000 of this was unpaid at 31/12/ Motor Expenses are made up as follows: Vouched expenses paid to staff for use of their own cars for business 20,000 Running expenses of company van 15,000 Car lease charge for managing director s car 11,000 Running expenses for managing director s car 4,000 50,000 Leo Jones is the managing director. The car was leased from 1 February The retail value at that date was 30,000. It is a category C car. It is estimated that 20% of Leo s travel is private use. 7. Subscriptions are made up of: Trade subscriptions 4,000 Support to elect local counsellor 3,000 Approved Registered charity 2,000 Staff social club 5,000 15, Repairs include a provision of 5,000 to replace machinery parts. 9. Motor Vehicles. (a) On 1/4/2015 the company purchased a category A car costing 27,750. Swings Ltd. paid 22,000 cash plus 5,750 being the trade in value of the car referred to at (b) below. (b) The car that was traded in on 1 April was a category D car which was purchased on 1/9/2011 for 28,000. (c) The company van is used exclusively by the sales representative. He brings the van home with him at night and it is estimated that private use amounts to 10%. The van was purchased on 7/10/2012 for 25, Fixtures & Fittings were purchased on 1/2/2012 for 50,000 VAT exclusive. Requirement: (a) Calculate the corporation tax liability for Swings Ltd. in respect of the accounting period ended 31 December marks (b) Explain the tax implications for Swings Ltd in respect of the 5,000 paid to Thrifty Travel and state the date any resulting tax is payable by the company. 3 marks Total 20 Marks Page 6 of 30

7 QUESTION 3 (Compulsory) (a) Sam and his wife Geraldine are Irish resident and domiciled. They are jointly assessed for Capital Gains Tax. In 2015 they had the following disposals of jointly owned property: (i) On 30 April 2015 they sold a house and garden of half acre in Dublin for 450,000. Selling fees were 3,000. They purchased the house from Sam s aunt on 1 May 1980 for 20,000. Its market value at 1 May 1980 was 30,000. Legal fees incurred on purchase amounted to 1,400. (ii) They lived in the house from date of purchase until 30 April 1985 when Sam s employer transferred him on a temporary basis to Cork. They rented an apartment in Cork and let the house in Dublin. (iii) On 1 May 1990 they returned to Dublin and moved back into the house and continued living there until 31 January 2015 when they moved out and put the house up for sale. (iv) On 10 September 1997 they built on an extension to the house at a cost of 70,000. (b) On 1 August 2015 they sold a holiday home in Spain for 150,000. Selling fees amounted to 2,400. They purchased the home on 1 September 2011 for 100,000. Legal fees on purchase amounted to 4,000. Throughout the period of ownership they only stayed in the house for a total of 6 months. In September 2015 they deposited 100,000 of the proceeds of the sale into a Spanish bank account and remitted the balance to Ireland. (c) Geraldine has an unused capital loss of 5,000 carried forward from Requirement: (a) Calculate Sam and Geraldine s capital gains tax liability for (b) In relation to the disposal of the holiday home explain your treatment of that disposal. 14 marks 4 marks (c) State the date any capital gains tax due for 2015 is payable and the date a return must be filed. 2 marks Total 20 Marks Page 7 of 30

8 SECTION B Answer ANY TWO of the FOUR questions in Section B QUESTION 4 There are two parts to this question. Both parts should be answered. Part (a) John Walsh is an accountant and has been running the business from an office in his home since The office represents 1/8 of his home. He is registered for VAT and accounts for VAT on the cash receipts basis. The following information relates to the two month period March/April Note VAT at 23% applies to all fees charged. Sales invoices issued (VAT exclusive) Accountancy fees charged 80,000 Cash Received Accountancy fees 90,000 Expenses (VAT exclusive) Invoice Date Date Paid Notes VAT Rate 20/3/ /3/2015 Conference 9% /4/ /4/2015 Electricity 13.5% 2,000 20/4/ /7/2015 Stationery 23% 5,000 Staff wages paid by cheque March/April 14,000 Expenses (VAT inclusive) 29/4/2015 2/5/2015 Diesel Account 23% 1,760 Notes (a) John issued an invoice for 1,000 VAT inclusive on 28/3/2015 to Lucky Ltd. On 1/4/2015 Lucky Ltd went out of business and John has been advised by the Liquidator that he will not recover any amount owing to him. (b) The conference is a qualifying conference. It was a conference on new financial reporting standards. The bill is broken down between accommodation 400 and food 100. (c) The electricity bill is for his entire house. (d) On reviewing purchase invoices for stationery John noticed that one invoice for 500 VAT exclusive is recorded in the above figure of 5,000 as 615. (e) John has a fuel account with the local garage. He receives a two monthly bill six times a year for his own car. 85% of travel is for business. Requirement: (a) Calculate John s VAT liability for the period Mar/Apr marks (b) Explain your treatment of the invoice referred to in note (a). 1 mark (c) Outline the conditions which must be satisfied in order for a trader to qualify for the cash receipts basis and state how a trader gets permission to use this basis. 3 marks Page 8 of 30

9 QUESTION 4 - Continued Part (b) Sell It Ltd accounts for VAT on the invoice basis. All goods sold are chargeable at the 23% rate of VAT. For the two month period January/February 2015 it had the following transactions: Sales invoices issued (VAT exclusive) Irish based customers 200,000 UK based business customers. 120,000 All UK business customers have provided Sell It Ltd with their VAT registration number. Purchase invoices (VAT exclusive) Irish based suppliers 50,000 UK based suppliers 90,000 All UK suppliers have been provided with the Sell It Ltd VAT registration number. Requirement: Calculate Sell It Ltd VAT liability for the two month period January/February 2015 showing all workings and stating the amounts to be included in T1(VAT on sales) and T2 (VAT on purchases) boxes of the form VAT 3. Note you are not required to complete a VAT 3 Form. 7 marks Total 20 Marks Page 9 of 30

10 QUESTION 5 There are two parts to this question. Both parts should be answered. Part (a) Johnny Penton owns several rental properties. Details of his rental income from these properties and the letting terms are as follows:- Property A: John s principal private residence From 1/1/2015 he let 2 rooms in his principal private residence to 2 work colleagues. He charged 6,000 for one room and 8,000 for the other. Property B: Residential Acquired on the 30th of April 2015, and let for the first time on the 1st of November 2015, at an annual rent of 21,000, payable on the 1 st day of each month. A bank loan was raised to help purchase the property and interest of 8,000 was paid to 31st December Both property A and B were correctly registered with the Private Residential Tenancies Board. Property C: Commercial Let on 1 May 2014 at an annual rent of 6,000 payable on the 1 st day of each month. On 30 April 2015 the tenant would not agree to renew the lease. The property was vacant until the 1st of October 2015 when it was let again on a 21 year lease at a full rent of 12,000 per annum, payable monthly, and a premium of 25,000. During the year ended 31st of December 2015, the following expenses were incurred:- Property B 31st May Dry rot repairs th September Window broken by vandals 80 31st December Storm damage 235 Property C 20th April Blocked drains 90 31st July repainting th September Advertising for tenant 130 Requirement: Compute Johnny s assessable Schedule D Case V income for marks Part (b) Fin Ltd has been trading for several years and prepared accounts for each 12 month period ended 30 June. They changed the accounting period end to the 31 December and have prepared accounts for the 18 months ended 31 December These accounts show an adjusted taxable profit under Sch. D Case 1 before capital allowances of 750,000. Details of assets in use for the purpose of the trade at 1 July 2014 was: a. Plant and machinery T.W.D.V 37,500. Cost 50,000. b. Fixtures and fittings T.W.D.V. 26,250. Cost 30,000. Requirement: Compute the assessable Case 1 Income for Fin Ltd for all Corporation Tax periods covered by the accounts for the 18 months ended 31 December marks Total 20 Marks Page 10 of 30

11 QUESTION 6 The following multiple choice questions consist of TEN parts, each of which is followed by FOUR possible answers. There is ONLY ONE correct answer in each part. Candidates should answer this question by ticking the appropriate boxes on the special answer sheet which is contained within the answer booklet. Requirement: Indicate the correct answer to each of the following TEN parts. Each part carries equal marks. 1. Alan commenced trading on the 1st January In the year ended 31st December, 2015 his turnover including VAT at 23% amounted to 460,000 and his closing debtors were 26,200. If Alan accounts for VAT on a cash receipts basis the amount of VAT due on sales for the year ended 31st December, 2015 would amount to: a. 6,026 b. 81,117 c. 99,774 d. 96, On 5 June 2015 Amy sold an antique necklace for 2,500. She inherited it from her grandmother in February 2010 when the market value was 3,000. Her grandmother bought the necklace at a market in August 2004 for 2,200. What is the amount of gain or loss for capital gains tax at June 2015 before using Amy s annual personal exemption? a. 460 loss b. 500 loss c. 800 gain d. No gain/no Loss 3. Alan and Alicia are married and jointly assessed for income tax purposes. For 2015 Alan s salary is 65,000 and Alicia s is 20,000. What is the amount of their lower rate tax band for the 2015 tax year? a. 42,800 b. 53,800 c. 62,800 d. 51, Jenny is provided with a company car which cost her employer 20,000 after trading in another car for 8,000. The original market value of the car was 30,000. She refunded her employer 500 for the road tax. She travelled 50,000kms in 2015 of which 5,000 were private. What is the BIK charge for 2015? a. 3,600 b. 1,800 c. 1,900 d. 3, XYZ Ltd prepares accounts for each 12 month period ending 31 December. On 30 December 2015 they paid 5,000 patent royalty. The correct tax treatment is: a. 5,000 is an allowable expense for corporation tax b. 5,000 is deducted from Case 1 income as a trade charge c. 5,000 is deducted from total profits d. There is no tax relief for patent royalty payments Page 11 of 30

12 6. Danny who commenced trading in 2000, bought a specialist machine on 1/9/2013 for 50,000 and put it into use immediately for the purpose of the trade. He prepares his accounts each year for the 12 months ended 30 September. He sold the machine on 16/9/2015 for 55,000. The disposal gives rise to a balancing charge of: a. 12,500 b. 5,000 c. 17,500 d. 11, Tiny Ltd is a small company for the purposes of corporation tax and prepares accounts for the 12 months ended 31/12/2015. To avoid interest charges they must pay preliminary tax on 23/11/2015 of: a. At least 45% of the estimated corporation tax liability for the current period, or 50% of the corporation tax for the preceding accounting period b. At least 90% of the estimated corporation tax liability for the current period, or 100% of preceding accounting period c. At least 50% of the estimated corporation tax liability for the current period, or 100% of preceding accounting period d. At least 90% of the estimated corporation tax liability for the current period, or 90% of preceding accounting period 8. Annette ceased trading on 30/6/2015 She made up accounts to 30 June each year. Tax adjusted profits are as follows: Year ended 30/6/ ,000 Year ended 30/6/ ,000 Her Schedule D Case 1 assessable income for the 2014 tax year isa. 12,000 b. 10,000 c. 6,000 d. 11, Charlie is Irish tax resident and ordinarily resident in Ireland but not domiciled. He is taxable in Ireland on: a. His worldwide income b. His Irish sourced income only c. His worldwide income excluding foreign investment income up to 3,810 d. His Irish sourced income, foreign income remitted to Ireland and employment income where the duties are carried out in Ireland 10. Which of the following are deemed not to be a supply for VAT purposes? a. The transfer of goods from a vatable activity to an exempt activity b. The temporary transfer of ownership of goods as security for a loan or a debt c. A self-supply d. A gift of a taxable good in the course of business that cost the business 25 excluding VAT Total 20 Marks Page 12 of 30

13 QUESTION 7 There are five parts to this question. All parts should be answered. (a) In relation to the Home Renovation Incentive Scheme: i. Describe the property or properties in respect of which work must be carried out to qualify for the credit. 2 marks ii. Sean spent 10,000 VAT exclusive qualifying expenditure on 1 July Write a brief note to outline the amount of the credit due to Sean and when Sean will benefit from the credit. 3 marks (b) The Revenue Commissioners will confirm the rate of Relevant Contract Tax to be applied to each payment made to a subcontractor in connection with a relevant contract. Give three examples of when that rate will be 35%. 3 marks (c) Once a Principal Contractor has registered on Revenue s Online Service and enters into a Relevant Contract with a subcontractor, outline the steps he must take before making any payment. 4 marks (d) Name the three industries within which Relevant Contracts Tax operates. 3 marks (e) From 1 January to 30 April 2015 Celine s employer rented an apartment on her behalf paying 1,100 per month to her landlord directly. On 1 May 2015 Celine moved into her new home which she purchased and on that same date her employer gave her 20,000 as a loan to furnish and carpet her new home. The rate of interest payable by Celine on the loan was 5%. The first repayment was payable 25 May 2015.This loan was repaid by Celine in March Celine was provided with a company car by her employer from 1 July Her employer bought the car 2 nd hand for 22,000 but the original market value was 30,000. The employer paid all of the running expenses of the car. At the end of each month Celine reimbursed her employer 40 for private fuel used. From 1 July 2015 to 31 December 2015 Celine travelled 15,000kms on company business. Requirement: Calculate Celine s benefit in kind charge for the 2015 tax year. 5 marks Total 20 Marks Page 13 of 30

14 2nd Year Examination: May 2016 Advanced Taxation ROI Suggested Solutions and Examiner s Comments 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 Question Question No Average Mark (%) 61% 55% 61% 64% 66% 57% 53% Nos. Attempting Statistical Analysis - Overall Pass Rate 74% Average Mark 60% Range of Marks Nos. of Students and over 195 Total No. Sitting Exam 617 Total Absent 87 Total Approved Absent 25 Total No. Applied for Exam 729 General Comments: GENERAL COMMENTS ON THE PAPER OVERALL: It is encouraging to note the number of students scoring 60% or higher thereby being awarded a merit grade. This category included some excellent students who displayed a thorough understanding of the course. These students also tended to present excellent workings presenting a professional overview of their work. In general, the layout of computations was very clear with very good working notes. However, it is a matter of concern that a number of students struggled with topics already covered in year 1. This included the layout of an Income Tax computation, tax rate bands and refundable versus non-refundable tax credits. Students should be reminded to write the question number at the top of each page in answer book and to start every question on a new page. Page 14 of 30

15 Examiners Comments on Question One A number of students struggled with Part (a) which required them to calculate the Case 1 income after capital allowances for the first 3 basis periods of trading. Many who handled the tax year 2013 correctly did not calculate the correct figure for 2014 and Capital allowances caused a difficulty for most students with only a small number recognising that only 6 months due for first year of trading. Surprisingly a number of students granted capital allowances for the van and tools in 2013 then failed to allow for subsequent years. In general, working for capital allowances were very difficult to follow. Many would benefit from using a schedule of fixed assets. Schedule F was generally badly handled with most students including the amount received in 2016 rather than the amount received in Others regressed the amount given even though the question pointed out this was the gross amount. Many students did not restrict the amount allowed in respect of the deed of covenant to 5% of Sharon s Total Income. A number of students failed to recognise that they needed to carry out a basic add back computation to arrive at Sharon s Case 1 income. While many applied the correct formula for the car lease they allowed the amount that should have been added back. Many students could not produce what was covered in Year 1. That included: Married rate bands Calculation of Employee Tax Credit Separating refundable and non-refundable tax credits. While most said that there was no relief for the maintenance Joe pays for his daughter, they allowed it anyway. Solution 1 (a) Calculation of Joe s assessable Schedule D Case 1 Income after capital allowances Tax Year Total Marks Allocated Notes From date trade started to 31/12/2013 Basis Period 1/7/ /12/ ,000 X 6/10 Tax Adjusted Profits No 12 month set of accounts ending in Therefore, use actual. 35,000 X 4/10 = 14,000 1/1/ /4/2014 1/5/ /12/ ,000 X 8/12 = 25, months ending 30/4/ , ,333 * , Less Capital Allowances (1,500) (3,313) (3,313) See below for 3 Marks Assessable Case 1 after Capital Allowances 19,500 36,020 34, each * As year 2 is already actual no adjustment required. Page 15 of 30

16 Calculation of W&T Asset Van Tools Laptop Total Total Marks Allocated Cost 20,000 4,000 W&T 6 (1,250) (250) 1,500 1 months 2013 TWDV 1/1/ ,750 3,750 Addition 2,500 10/7/2014 W&T 12 (2,500) (500) (313) 3,313 1 months 2014 TWDV 16,250 3,250 2,187 1/1/2015 W&T 12 (2,500) (500) (313) 3,313 1 months 2015 TWDV 1/1/ ,750 2,750 1,874 Capital Allowances Basis periods for Capital allowances /7/13 to 31/12/13-6 months /1/14 to 31/12/14-12 months /5/14 to 30/4/15-12 months VAN 24,600 x = 20,000 VAT exclusive 2013 is first year of trade. As we only use 6 months accounts then capital allowances can only be allowed for 6 months. Page 16 of 30

17 (b) Joe and Sharon- Income Tax Computation for the Year 2015 Schedule D Case 1 Joe Less Capital Allowances Notes Joe Sharon Joint Total Marks Allocated 38,000 (3,313) 34,687 34, Schedule D Case ,200 57,200 1 Sharon Schedule E 5,000 5, Schedule F 1,760 1, Gross Income 36,447 62,200 98,647 Less Charges Deed of Covenant 2 (3,110) 1 Net Statutory 95,537 Income Less Allowances/Reliefs PHI 3 (700) 1 Taxable Income 94,837 Taxed as follows 20% 13, % 10, Total Tax 24,415 Less Non Refundable Tax Credits Married Persons (3,300) 1 PAYE 4 (1,000) 1 Tax Deducted from Deed of Covenant 20,737 Less Refundable Tax Credits PAYE (2,600) 0.5 DWT 5 (352) 0.5 Tax Due 17,785 Note 1: Sharon Net Profit 54,200 ADD Back Car Lease 5,000 X [(30,000-12,000)/30,000] = 3,000 3,000 Tax Adjusted Profit 57,200 Note 2: Uncle is aged > 65 years. Sharon pays the covenant. Therefore, relief is restricted to 3,110 Tax deducted 20% = 622 Page 17 of 30

18 Note 3: Relief for PHI is restricted to 10% of Sharon s Total Income. Sharon Schedule D Case 1 Income 57,200 Schedule E 5,000 Gross Income 62,000 Less Deed of Covenant ( 3,110) Total Income 58,890 Relief based on lower of: 700, or ( 10%) = 5,889. Allow 700 Note 4: Schedule E emoluments 20% = 1,000 Note 5: DWT 20% = 352 (c) There is no provision for tax relief in respect of maintenance of a child. 1 Mark Total 20 Marks Page 18 of 30

19 Examiners Comments on Question Two Question 2 was a standard Close Company computational question. While many students struggled with capital allowances a number decided to ignore them completely. In some instances, students calculated wear and tear due to date from the time the asset was acquired and allowed the cumulative amount in Only a small number of the better students handled the balancing allowance well. A number calculated wear and tear on the VAT inclusive figure. Most students picked up marks from the many adjustments, although a number started with Gross Profit. In general, the layout was poor. Some calculated the car leasing adjustment correctly but restricted it further to account for the Managing Director s 20% personal usage. The adjusted chargeable gain was well handled. Most students recognised that this was a Close Company and correctly added back the 5,000 paid on behalf of Larry, but were unsure how to explain the tax implications for the company for a further 3 marks. A number wasted time outlining the implications for Larry which was not asked for and in respect of which no marks were awarded. Solution 2 Swings Ltd (a) Total Marks Allocated Notes Net Profit 92, ADD BACK Depreciation 80, Interest 15, Travel 1 5,000 1 Salaries & Wages 2 20,000 1 Motor Expenses 3 2,200 1 Subscriptions 3, Provision in repairs 5, , ,200 DEDUCT NON TRADE INCOME Rental Income 6,000 Franked Investment 10,000 Income Bank Deposit Income 5,000 Profit on disposal of 13,091 (34,091) 1 shares Tax Adjusted Profits 188,109 Less Capital (15,911) 0.5 location Allowances 4 Case 1 Income 172,198 Note 1: As the 5,000 paid is in respect of a shareholder who is not an employee or director the payment is treated as a distribution. Note 2: Pension accrual at year end of 20,000 is not allowed Page 19 of 30

20 Note 3: Leased Category C Car cost > 24,000 Disallow 11,000 X [(30,000-24,000)/30,000] = 2,200 Add Back 2,200 Note 4: CAPITAL ALLOWANCES Disposal of car Restricted Tax Cost ,000 Wear & Tear Allowance 2011 ( 1,500) 2012 ( 1,500) 2013 ( 1,500) 2014 ( 1,500) 1/1/2015 6,000 Calculation of Balancing Allowance/Charge on disposal Proceeds on disposal 5,750 Restricted Proceeds 5,750 X 12,000/28,000 2,464 Less TWDV at disposal (6,000) Balancing Allowance 3,536 Asset at 1/1/2015 Cost Tax Cost W&T 2015 Total Marks Allocated F&F 50,000 50,000 6,250 1 MV Category D car 28,000 12,000 Disposals (28,000) (12,000) Additions 27,750 24,000 Category A car Van 25,000 25,000 MV Total 49,000 6,125 Total 12, Balancing Allowance Capital 15,911 Allowances Additions New Cat A Car Cost 22,000 + trade in value of 5,750 = 27,750 Deem Cost as 24,000 (Category A) Page 20 of 30

21 CORPORATION TAX COMPUTATION Total Notes Marks Allocated Case 1 172,198 1 Case 111 5, Case V 5 6,000 1 Franked Investment Not subject to 0.5 Income 6 tax Total Income 183,198 Chargeable Gain 7 34, Total Profit 217,758 Trading Income 12.5% Chargeable Gain 12.5% Passive Income 25% Corporation Tax Liability 12.5% 21, % 4, % 2, ,594 Note 5: Case V Assessed on accruals basis. As rent of 500 p.m. is payable, the full 6,000 is assessed. Note 6: Dividend from Irish Resident Company is Franked Investment Income and not subject to corporation tax. Note 7: Chargeable Gain Proceeds on disposal of shares 39,000 Sales Costs 4,000 Net Sales Proceeds 35,000 COST 20, ,909 (21,909) Capital gain 13,091 Chargeable gain 13,091 X 33/12.5 = 34,560 (b) As the shareholder Larry Ryan is not a director or employee, and Swings Ltd is a Close Company, the payment on his behalf to Thrifty Travel is treated as a distribution. Swings Ltd must operate DWT on the 20% = 1,000. As the payment was made on 7/7/2015 the DWT is payable to Revenue by 14/8/ Marks Total 20 Marks Page 21 of 30

22 Examiners Comments on Question Three Some very basic errors were made in this question losing what should otherwise have been easily obtained marks. This included: not knowing when to add or deduct legal fees incurred not using the MV of the property purchased from his Aunt as this was a connected party transaction incorrectly adding up the period of ownership. Some even were several years short allowing the personal exemptions before the loss forward only giving one personal exemption of 1,270. While the text book points out that gains of spouses should be set out separately a small number of students failed to do so and lost some marks. In the calculation of the period/deemed period of occupation the time spent working in Cork and the last 3 months of ownership caused the greatest difficulty. While the property was only vacant for the last 3 months of ownership the majority treated this as an additional 12 months deemed occupation. Theory on residence and domicile was well answered and gained marks for weaker students. Solution 3 a) Joint Disposal of Principal Private Residence Total Period of Ownership 1/5/ /4/2015 = 35 years (420 months) Period/Deemed Period of Occupation No Months 1/5/ /4/ /5/ /4/1989 (deemed occupation) 48 1/5/ /4/1990 (does not qualify) 0 1/5/ /1/ /2/ /4/2015 (deemed occupation) 3 Total 408 Principal Private Residence Relief Gain 259,024 X 408/420 = 251,623 Total Marks Allocated Sales Proceeds 450, LESS Selling Fees (3,000) 0.5 Net Sales Proceeds 447,000 LESS Cost of Purchase 1/5/1980 MV( 30, , /9/1997 Enhancement 86,240 (187,976) Indexed Gain 259,024 LESS PPR Relief (251,623) 3 Taxable Gain 7,401 Page 22 of 30

23 Holiday Home Disposal Total Marks Allocated Sales Proceeds 150, LESS Selling Fees (2,400) 0.5 Net Sales Proceeds 147,600 LESS Cost of Purchase 1/9/2011 (100, ,000) (104,000) 1 Taxable Gain 43,600 Total Calculation of Capital Gains Marks Sam Geraldine Allocated Gain on Disposal of Principal Private Residence 7,401 divided equally 3,700 3,700 1 Gain on Disposal of Holiday Home 43,600 divided equally 21,800 21,800 1 Gain 25,500 25,500 LESS Loss C/F (5,000) 1 20,500 LESS Personal Exemption (1,270) (1,270) 2 Taxable Gain 24,230 19,230 33% 7,995 6,345 1 b) As Sam and Geraldine are both resident and domiciled in Ireland they are taxable in Ireland on gains arising from the disposal of worldwide assets, wherever situated even if none of the proceeds are remitted to Ireland. Total 4 Marks c) As both disposals occurred in the Initial Period the tax is payable by 15 December A return must be filed by 31 October Total 2 Marks Total 20 Marks Page 23 of 30

24 Examiners Comments on Question Four Part (a) was a cash receipts question. Almost half of students who attempted this question failed to treat the money received as VAT inclusive. Input credits were generally well handled, although a number of students mixed up VAT inclusive and VAT exclusive amounts. Some purchase invoices issued during the Mar/Apr period were not paid until a later date and several students stated incorrectly that, as they he was on the cash receipts basis, he could not claim input credit until invoice fully paid. The conditions for cash receipts basis was well handled but students lost marks for not pointing out that either of the two conditions applied. Part (b) was very well handled. Weaker students were unsure of treatment of EU transactions. Solution 4 Part (a) Gross Net VAT Total Marks Allocated 90,000 73,170 16,829 2 Notes Cash received from taxable supplies 1 T1 16,829 LESS input credits Accommodation at conference 2 Electricity Stationery 4 6,009 4,885 1,124 2 Diesel 5 1,496 1, T2 (1,474) T3 15,355 1 Note 1: 90,000/123 X 23 = 16,830. Cash received is VAT inclusive. Note 2: Accommodation only from conference qualifies. 9%= 36 Note3: Allow only 1/8 of electricity as portion used for business: 2,000 X 1/8 = 13.5% = 34 Note 4: VAT exclusive as recorded 5,000 Less incorrect amount ( 615) 4,385 Add correct amount 500 Amended VAT exclusive amount 4,885 23% = 1, 124 Note 5: VAT input credit on diesel allowed based on date of purchase invoice 29/4/2015. Only 85% allowed. 85% = 1,496 1,496/123 X 23 = 280 Page 24 of 30

25 (b) As John is on Cash Receipts Basis he has not already accounted for VAT on service provided to Lucky Ltd. Therefore no adjustment is required. (c) In order to qualify for the Cash Receipts Basis: Total Marks Allocated The business must have a turnover below 2,000,000 in a 12 month basis OR 1 Part (b) 90% or more of turnover must derive from sales to unregistered persons. 1 Trader must apply in writing to Revenue Commissioners 1 Net VAT Total Marks Allocated Sales Irish customers 200,000 46,000 1 UK customers 120, Intra Community Acquisitions 90,000 20, T1 66,700 LESS Irish purchases 50,000 11, Intra Community Acquisitions 90,000 20, T2 (32,200) T3 34, Total 20 Marks Page 25 of 30

26 Examiners Comments on Question Five Question 5 was a popular choice with students. The Case V computation in Part (a) was well handled with most students picking up computational marks. Marks in this part were lost mostly on number of months rents received to include. Students need to be reminded that a separate computation is needed for each property. Part (b) was either very well handled or badly handled. Most students recognised that the 18 months had to be divided into a 12 and 6 month period. Many chose to assign the first 6 months rather than the first 12 months as he first corporation tax period. Solution 5 (a) Note Total Marks Allocated Property A Profit Rent 1 14, Property B Gross Rent 21,000 X 2/12 3,500 1 Less Interest 8,000 X (1,500) 2 75% Repairs (235) 0.5 Profit Rent 1,765 Property C Gross Rent Jan- April 2, ,000 X 4/12 Gross Rent Oct-Dec 3, ,000 X 3/12 Premium 2 15, Gross Rent 20,000 Less Repairs (90) 0.5 Repainting (700) 0.5 Advertising (130) 0.5 Profit Rent 19,080 Case V 34,845 Note (1) As amount of rent 14,000 from rent a room in principal private residence exceeds the threshold of 12,000 the full 14,000 is taxable. Note (2) Premium 25,000 X (51 21) 50 = 15,000 Part (b) Fin Ltd 12 months ended 30 June months ended 31 December 2015 Total Marks Allocated Tax adjusted Profits 750,000 X 12/18 500, ,000 6/18 250,000 1 Less Capital (10,000) (5,000) 2 Allowances Case 1 Income 490, ,000 Page 26 of 30

27 Capital Allowances Plant & Machinery Fixtures & Fittings Total W&T Notes Cost 50,000 30,000 TWDV 1/7/ ,500 26,250 (6,250) (3,750) 10,000 2 W&T 12 months ended 30/6/2015 Note 1 1 Total Marks Allocated TWDV 1/7/ ,250 22,500 W&T 6 months ended 31/12/2015 (3,125) (1,875) 5,000 2 Note 2 2 TWDV 1/1/ ,125 20,625 Total 20 Marks Note 1 P&M 12.5% = 6,250 F&F 12.5% = 3,750 Note 2 P&M 12.5% = 6,250 X 6/12 months = 3,125 F&F 12.5% = 3,750 X 6/12 months = 1,875 Page 27 of 30

28 Examiners Comments on Question Six Attempts at this question were generally of a good standard. Part (6) caused the greatest difficulty. Students were required to understand that the balancing charge is restricted to the amount of capital allowances granted of 12,500. Solution 6 Multiple Choice (1) (b) Debtors Control Account Dr Cr Credit Sales 460,000 Cash Received from 433,800 Debtors Bal c/d 26, , ,000 Bal b/d 26,200 Cash rec s (inc VAT) 433,800 VAT inc 433,800 X = 81,117 (b) (2) (a) As loss of 500 arises (2,500-3,000) and sales proceeds are < 2,540 loss is restricted as follow: Deemed Sales Proceeds 2,540 Cost (3,000) Loss (460) (3) (c) Alicia uses 20,000 of her 33,800 20% rate band 20,000 Alan uses his own 33,800 plus MAX 9,000 of Alicia s unused 20% rate band ( 33, ,000) 42,800 62,800 (4) (d) OMV 12% = 3,600 LESS ( 500) 3,100 (5) (b) (6) (a) Cost 50,000 W&T 2013 ( 6,250) W&T 2014 ( 6,250) TWDV 37,500 Sales Proceeds (55,000) Balancing charge 17,500 But restricted to capital allowances granted of 12,500 (7) (b) Page 28 of 30

29 (8) (d) Actual adjusted profits for 2014 of 11,000 are greater than 10,000 already assessed therefore assessment for 2014 is increased to 11, Actual Profits 1/1/ /6/2014 ( 10,000 X 6/12) = 5,000 1/7/ /12/2014 ( 12,000 X 6/12) = 6,000 11,000 (9) (d) (10) (b) Total 20 Marks Page 29 of 30

30 Examiners Comments on Question Seven Only a small number of students attempted this question, as most opted for computational questions. Part (a) dealing with the Home Renovation Incentive Scheme was badly handled. In general Relevant Contracts Tax was well handled as was Benefit in Kind. Solution 7 (a) i The work must be carried out on the taxpayer s main home, or home to be used within 6 months as main home will qualify in addition to a rental property 2 Marks ii Tax credit due is 13.5% - 1,350. The credit will be granted over the 2 years 2016 and 2017 with a credit of (1,350/2) 675 allowed each year. 3 Marks (b) The subcontractor does not provide the principal contractor with tax reference number The subcontractor is not known to Revenue and There are serious compliance issues yet to be addressed by subcontractor 3 Marks (c) Before making any payment under a Relevant Contract the Principal must: Notify Revenue that he has entered into a relevant contract Establish the identity of the subcontractor. After receiving contract notification acknowledgement from Revenue Principal must notify Revenue (payment notification) of gross amount to be paid. On payment, deduct tax in accordance with the deduction authorisation received from Revenue. 4 Marks (d) Construction industry, forestry operations and meat processing industries. 3 Marks (e) Private rent paid by employer 1,100 X 4 months 4,400 Preferential Loan 20,000 X (13.5%-5%) X 8/12 1,133 Car Business travel for 6 months was 15,000kms. Annualised to 30,000kms OMV 24% = 7,200 BIK charge for 6 months 7,200 X 6/12 3,600 Less contribution 40 X 6 ( 240) 3,360 BIK Charge ,893 5 Marks Total 20 Marks Page 30 of 30