Advanced Taxation ROI 2 nd Year Examination

Transcription

1 Advanced Taxation ROI 2 nd Year Examination May 2017 Solutions, Examiners Comments & Marking Scheme

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 2017 and may not be reproduced without permission of Accounting Technicians Ireland. Accounting Technicians Ireland, Page 2 of 27

3 Accounting Technicians Ireland 2 nd Year Examination: May 2017 Paper: ADVANCED TAXATION (Republic of Ireland) Thursday 11 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 2016 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 27

4 SECTION A Answer QUESTION 1 and QUESTION 2 and QUESTION 3 (Compulsory) in this Section QUESTION 1 (Compulsory) Note there are TWO parts to this question. Both parts must be answered. Part A Marcus has been trading as a consultant for several years. He prepares his accounts for each period of 12 months ending 30 November. Details of assets in use for the purpose of his trade on 1 December 2015 are as follows: Purchase Date Cost Category C car 1/8/ ,000 Category D car 1/1/ ,000 Machine 1/1/ ,000 Notes: (i) On 1 February 2016 the machine was written off with nil scrap value. Marcus bought a new replacement machine costing 30,000. (ii) On 1 July 2016 Marcus traded in the category C car for a new category C car. The new car cost 25,000 and the garage allowed Marcus 14,500 trade in. Requirement: On the basis that Marcus wishes to minimise his tax liability, calculate the amount of capital allowance due for the tax year 2016 showing all workings clearly. (16 Marks) Part B Sinead has been trading as a florist for several years. She has not availed of the option to pay her tax by direct debit. Her final tax liabilities for the years 2015 and 2016 were as follows: , ,300 She estimates her final tax liability for 2017 will be 14,000. Requirement: As Sinead s tax advisor, set out the minimum amount of preliminary tax she can pay for 2017 in order to meet her legal obligations. You should explain fully the basis of your decision. (4 Marks) Total: 20 Marks Page 4 of 27

5 QUESTION 2 Note there are TWO parts to this question. Both parts must be answered. Part A Andrew and Katie are married and are both tax resident and domiciled in Ireland. 1. Katie s grandmother died on 30 June 2015 and left an antique dining set consisting of a table and six chairs to Katie. The market value of the set at 30 June 2015 was 11,000. On 30 April 2016 Katie sold the complete dining set for 13,250 and paid auctioneer fees of On 5 May 2016, the couple sold 2 of their jointly owned 10 acres of agriculture land to a local farmer for 14,000 per acre. The market value of the remaining 8 acres on 5 May 2016 was 90,000. They engaged a local auctioneer to sell the land and paid him 750. On 1 February 2005 they bought the 10 acres for 110,000 and paid legal fees of On 10 September 2016 Andrew sold 200 shares in an Irish quoted company for 2 per share. He received the shares as a gift from his father on his 21 st birthday on 5 June 1973 when the shares were valued at 0.55 each. The market value of the shares at 6/4/1974 was 0.58 each. He incurred selling fees of Andrew has a capital loss of 800 carried forward from The couple wish to utilise this loss as soon as possible to minimise liability to tax. Requirement: Calculate Andrew and Katie s Capital Gains tax liability (if any) for 2016 ensuring gains for each spouse are shown separately. (14 Marks) Part B Philip purchased a painting in May 2012 for 3,500. In December 2012, he gave the painting to his wife Rose as a Christmas present. The market value of the painting in December 2012 was 2,900. On 3 April 2016 Rose sold the painting to her sister for 1,800. The market value of the painting in April 2016 was 4,000. Requirement: On the basis that this was the only disposal made in 2016 calculate Rose s capital gains tax liability (if any) for (6 Marks) Total: 20 Marks Page 5 of 27

6 QUESTION 3 Note there are TWO parts to this question. Both parts must be answered. Part A Toma Ltd. is an Irish manufacturing company resident and incorporated in Ireland. It commenced to trade on 1 October It has been registered for VAT since that date. Toma Ltd. has prepared a set of accounts for the nine months ended 30 June The results are as follows. NOTES Notes Gross Profit 400,000 Other Income 2 45, ,000 Staff Wages 110,000 Directors Remuneration 79,000 Depreciation 1,000 Interest 3 5,500 Royalties 4 9,000 Other Expenses 5 105, ,500 Net Profit 135, The shareholding of the company is made up as follows: Wayne Byrne (Director) 100 Cara Byrne (Director) 100 Total Share Capital Other Income (a) 3,000 dividend from Zac Ltd, an Irish resident company. (b) Gross bank deposit interest 2,000. This interest was subject to DIRT. (c) Loan 40,000 from Wayne Byrne (Director) 3. Interest is made up as follows: Interest paid to Wayne Byrne (see note 2) 3,000 Overdraft interest 2,500 On 1 October 2015 Wayne Byrne gave the company a loan of 40,000 to fund working capital. Interest is payable on 1 st of each month at 10% per annum, with the first payment due on 1 November Toma Ltd. was charged 9,000 patent royalties to use a particular manufacturing process. At 30 June 2016 only 5,000 of the 9,000 payable had been paid. 5. Other expenses include 2,000 interest payable under a finance lease in respect of manufacturing machinery. In the 9 months ended 30 June 2016 Toma Ltd. paid 15,000 capital repayments in addition to the 2,000 interest. 6. On 1 October 2015 Toma Ltd. purchased a delivery truck for 55,000 inclusive of VAT at 23%. Requirement: (a) Calculate the net corporation tax payable for Toma Ltd. in respect of the accounting period ended 30 June (12 Marks) (b) Compute the amount of distributions subject to Dividend Withholding Tax and calculate the amount of DWT payable. (2 Marks) Page 6 of 27

7 Part B Lucky Ltd has been trading for several years. Liam Lucky and his daughter Aoife Lucky each own 50% of issued share capital. Both Liam and Aoife work full time in the company. The Financial Statements of Lucky Ltd. for the 12 months ended 30 June 2016 includes 11,300 for Motor Leasing. The following is a breakdown of the 11,300. Car List Price Category Lease Charge Notes 15,000 A 2, % business use 45,000 F 3,200 50% business use and 50% private use by Liam Lucky 30,000 B 2,700 90% business use. The office manager uses the car 10% for personal. 29,000 D 2, % business use 11,300 Note: The Financial Statements for the 12 months ended 30 June 2016 show Net Profit of 75,000. Requirement: On the basis that there are no adjustments to the Financial Statements, other than in respect of leasing, calculate Lucky Ltd. s Case 1 Income for the 12 months ended 30 June 2016, showing all adjustments clearly. (6 Marks) Total: 20 Marks Page 7 of 27

8 QUESTION 4 SECTION B Answer ANY TWO of the FOUR questions in Section B (a) A private college that is not registered for VAT intends to purchase 70,000 worth of computers from Germany. Outline the VAT obligations, if any, for the college in respect of this transaction. (4 Marks) (b) Explain the difference between a multiple supply and a composite supply for VAT purposes. Give one example of each. (6 Marks) (c) Andrew has come to you as a new client. He intends to commence trading as an architect from his home in Wexford. He specialises in designing timber framed homes for private individuals and expects to provide his services in respect of new build homes in Wales and Ireland. He has ordered a computer costing 2,900 from a USA supplier for use solely in the business. He estimates his turnover for his first 12 months trading will be as follows: Services provided within Republic of Ireland 24,000 Services provided in Wales 20,000 Total 44,000 (i) Outline the place of supply rules and where VAT is charged in respect of the services he will provide in Wales and the Republic of Ireland. (4 Marks) (ii) Advise Andrew if he is obliged to register for VAT in Ireland. Support your position with relevant figures and explanations. (2 Marks) (iii) Explain the rules relating to Irish VAT payable in respect of the imported computer. (2 Marks) (iv) Andrew will need to travel in the course of his business and will incur costs for hotel accommodation and food. In respect of such costs incurred in the Republic of Ireland set out a brief note to Andrew explaining how VAT incurred on such costs should be treated when a VAT registered trader is submitting a VAT 3. (2 Marks) Total: 20 Marks Page 8 of 27

9 QUESTION 5 Peter and Anne were married on 5 June Peter has traded as a carpenter for several years but ceased trading on 31 January His tax adjusted profits are as follows. Period 12 months ended 30 June , months ended 30 June ,000 7 months ended 31 January ,000 Peter commenced employment with Chips Ltd on 1 February His employer immediately provided him with a company van. The van was purchased second hand at a cost of 14,000. The original market value was 22,000. In the period 1 February 2016 to 31 December 2016 he drove 25,000 kms of which 1,000 were private. Details on his P60 excluding benefit in kind are as follows: Gross Pay 30,000 PAYE 3,900 Anne works full time as a sales representative. She uses her own car for company business and claims civil service travel and subsistence rates. In the year 2016 the amount claimed amounted to 6,000. To compensate her for any out of pocket expenses her employer pays her an additional 50 round sum per month. None of the expenses paid to Anne have been subject to tax. Details shown on her P60 are as follows: Gross Pay 60,000 PAYE 14,000 In preparation for their wedding the couple opened a joint saving account in In gross interest was earned on the account before deposit interest retention tax. Requirement: (a) Calculate both Peter and Anne s income tax liability for 2016 as two single people. (13 Marks) (b) On the basis they have made a claim for year of marriage relief under section 1020 of the Taxes Consolidation Act, 1997 calculate the relief due. (5 Marks) (c) Using the amount at (b) apportion the relief between Peter and Anne as due. (2 Marks) Note: You are not required to calculate PRSI or USC. Total: 20 Marks Page 9 of 27

10 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. Sidney is a private individual living in Ireland who ordered goods over the internet from England for personal use. The supplier has charged UK VAT. Sidney s Irish VAT position is: a. He must pay VAT at point of entry into Ireland at the Irish VAT rate b. He has no liability to Irish VAT c. He can claim a refund of the UK VAT charged but must then self-account for Irish VAT d. None of the above 2. Olivia commenced trading as a consultant on 1st March She incurred 1,200 market research expenses in the period December 2015 to February She prepared her first set of accounts for the 12 months ended 28 February In calculating her Schedule D Case II income for the 2016 year of assessment she can claim a deduction in respect of such costs of: a. 1,200 b. 800 c. 900 d. Nil 3. A non-resident company with a permanent establishment in Ireland will be subject to tax in Ireland: a. On worldwide profits b. On trading income only arising from the Irish permanent establishment c. On trading income arising from the Irish permanent establishment plus foreign non trade income d. On trading income arising from the Irish permanent establishment and any chargeable gains arising from Irish based assets used for the purpose of the trade of the permanent establishment. 4. For the purpose of corporation tax, non-trade charges are: a. Allowed as a deduction in arriving at Schedule D Case 1 income b. Deducted from Total Profits c. Added to Schedule D Case 1 income d. Disregarded 5. Interest paid to an individual on An Post Instalment Savings Scheme is: a. Taxed under Schedule D Case III b. Taxed under Schedule D Case IV c. Taxed under Schedule F d. Exempt from Income Tax Page 10 of 27

11 6. Finbarr is aged 45. He is practicing as a solicitor and prepares accounts for each 12-month period ending 31 December. In 2016 his Case II income amounted to 65,000 and he is entitled to claim capital allowances of 1,000. He has Case V income of 12,000. He paid 14,000 into a Personal Pension Plan on 1 December 2016 with a top up of 4,000 paid on 1 February On the basis that he wishes to claim the maximum relief in the year 2016, the relief due for pension contributions is: a. 19,000 b. 18,000 c. 16,000 d. 4, Denise is aged 35, self-employed and has Case 1 tax adjusted profits of 25,000 for Capital Allowances due for 2016 are 3,000. She is liable to pay: a. PRSI of 1,000 and USC of b. PRSI of 880 and USC of c. PRSI of 880 and USC of d. PRSI of 1,000 and USC of Declan is single and is a proprietary director of ABC Ltd. In the tax year 2016 his income from ABC Ltd amounted to 50,000. His only other income in 2016 is Case I income of 2,500. In addition to Single Persons Tax Credit his non-refundable tax credits for 2016 are as follows: a. Nil Employee Tax Credit and 500 Earned Income Tax Credit b. 1,650 Employee Tax Credit and 500 Earned Income Tax Credit c. 1,650 Employee Tax Credit and nil Earned Income Tax Credit d. Nil Employee Tax Credit and 550 Earned Income Tax Credit 9. Eamonn owns two commercial properties, one in Dublin and the other in London (England). His net rent from each property after allowable expenses in 2016 amounted to 4,000 loss and 9,000 profit respectively. Which of the following is his Irish tax position? a. Schedule D Case III 5,000 b. Schedule D Case V 5,000 c. Schedule D Case III Nil and Schedule D Case V loss 4,000 d. Schedule D Case III 9,000 and Schedule D Case V loss of 4, Mr and Mrs Reynolds are aged 67 and 59 respectively and are jointly assessed for income tax. Their only source of income is Mr Reynold s pension of 38,500 from his previous employment with the County Council. They have 1 child Ryan aged 18 who is still in full time education. Marginal Relief due is: a. 1,105 b. 770 c. 1,490 d. 1,925 Total: 20 Marks Page 11 of 27

12 QUESTION 7 Note there are TWO parts to this question. Both parts must be answered. Part A Thomas aged 24 was resident, ordinarily resident and domiciled in Ireland up to In January 2015 he moved to Canada and took up employment there as a carpenter. All duties of that employment are exercised in Canada. He has visited Ireland on holiday for 3 weeks each year. He earned 50,000 from his Canadian employment in the year As he intends to remain in Canada indefinitely he rented out his house in Ireland from January 2016 at 1,200 per month. Requirement: (a) Outline Thomas residence, ordinary residence and domicile position for the year (3 Marks) (b) Identify and quantify the gross amount of income subject to tax in Ireland in Write a brief note to support your answer. (4 Marks) Part B Travel Ltd is an Irish resident company and has been trading for several years. Accounts are prepared for each 12-month period ending 30 September. As a result of a number of adverse global conditions there was a trade loss for the 12-month period ended 30 September Travel Ltd has spare office space and has managed to rent out that space. The following shows their results for the last 3 accounting periods. Requirement: 12 months ended 30 September Case 1 60,000 (300,000) 50,000 Case V 40,000 50,000 20,000 (a) Calculate Travel Ltd. s final corporation tax liability for all 3 accounting periods making full use of any loss as soon as possible. (8 Marks) (b) In respect of the trade loss arising in 2015, include a loss memo showing clearly how the loss is utilised. (5 Marks) Total: 20 Marks Page 12 of 27

13 2 nd Year Examination: May 2017 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 (%) Nos. Attempting General Comments: Statistical Analysis - Overall Pass Rate 60% Average Mark 53% Range of Marks Nos. of Students and over 155 Total No. Sitting Exam 610 Total Absent 72 Total Approved Absent 45 Total No. Applied for Exam 727 GENERAL COMMENTS ON THE PAPER AS A WHOLE Q1: Compulsory Part A: This was generally well answered with good layout. Part B: Most students answered this self-assessment part very well but some either did not state the years involved or calculated the preliminary tax for 2016 instead of A surprising number of students used the corporation tax preliminary tax compliance instead of the income tax rules and omitted to show the minimum amount payable. Q2: Compulsory Part A: The vast majority of candidates calculated the correct gain on the disposal of the antique dining set. Page 13 of 27

14 Part B: This part involved the disposal to a connected person of an asset originally obtained from the husband and was well answered by the majority of students. However, a small number of students omitted the annual exemption in the calculation of the capital gains tax. Q3: Compulsory Part A: This corporation tax question was poorly answered by the majority of students. Part B: Many students correctly calculated the adjusted amount for the leasing for car values but did not identify whither the adjustment was an additional allowance or an addback. Q4: Overall, candidates attempting this question did not score well and, therefore, need to learn the place of supply rules for both goods and services and the VAT implications of intra community acquisitions. Q5: The candidates that attempted this year of marriage question obtained good marks. However, the calculation of the post-marriage relief caused difficulty with many students not using the tax liability (i.e. before the refundable tax credits) as the basis for this calculation. Also, a number of students omitted to apportion the relief to the postmarriage period or between each spouse. Answers to this question were well laid out and students who attempted this question generally scored well. Q6: This multiple choice question was answered to a similar standard to previous years. Q7: Part A: This involved residence and domicile issues and the implications of these for This was well answered by many students. However, most candidates failed to mention that the Canadian employment income was exempt from Irish income tax on the basis that the duties were exercised wholly outside of Ireland. Part B: This was a corporation tax trading loss relief question and was very well answered by most students with good layout for both the computation of the corporation tax payable and the loss memo. However, many students did not mention that the unused loss can only be carried forward for offset against the same trade only. Page 14 of 27

15 Examiner Comments on Question One Part A: This was generally well answered with good layout. However, many students had a qualifying cost of 18,000 instead of 24,000 for the Category C car purchased in 2014 and did not adjust the sales proceeds accordingly. Only a small number of students correctly identified the amount of the balancing charge arising on the trade in of the original category C. A small number of students correctly used the replacement option whereby the balancing charge was taken from the allowable cost of the new category C car before computing the capital allowance on the new category C car. This was a requirement in the question as the student was asked to minimise the taxpayer s liability for Most students correctly identified the restriction on the category D car and computed the correct capital allowance. Most students correctly calculate the tax written down value on the machine scrapped but omitted to include a balancing allowance in the total capital allowances for the tax year. The capital allowance on the new machine was correctly identified in most cases. Part B: Most students answered this self-assessment part very well but some either did not state the years involved or calculated the preliminary tax for 2016 instead of A surprising number of students used the corporation tax instead of the income tax rules and omitted to show the minimum amount payable. Solution 1 Part A Capital Allowances for the year 2016 [Basis Period is 12 months ended 30/11/2016] Disposal of Category C Car Tax Cost 24,000 W&T 2014 to % = 3,000 p.a.] 3,000 X 2 (6,000) TWDV at 1/1/ ,000 Restrict Sales Proceeds 14,500 X 24,000/ 18,000 19,334 TWDV at 1/1/2016 (18,000) Balancing Charge 1,334 (4 marks) Note 1: As the Category C car is replaced then Marcus should use the replacement option. In effect the 1,334 balancing charge is used to reduce the qualifying cost of the replacement car for the purpose of calculating capital allowances. Category C new car tax cost 24,000 Less balancing charge ( 1,334) Qualifying Cost 22,666 (2 marks) Tax Cost Tax Cost Cars Machine Category C 24,000 10,000 Category D 12,000 Additions Category C 22,666 Note 1 Machine 30,000 Disposals Category C (24,000) Machine (10,000) Closing Cost 34,666 30,000 Wear and Tear 4,334 3,750 Note 2 (4 marks) Note 3 Page 15 of 27

16 Disposal of Machine Cost 10,000 W&T 2011 to % = 1,250 p.a.] 1,250 X 5 (6,250) TWDV at 1/1/2016 3,750 Sales Proceeds ( nil ) Balancing Allowance 3,750 (4 marks) TOTAL CAPITAL ALLOWANCES DUE Wear and Tear Note 1 (4, ,750) 8,084 Balancing Allowance Note 3 3,750 Total Capital Allowances 11,834 (2 marks) Part B (a) Option 1 100% of liability for 2016 = 12,300 (1 mark) Option 2 90% of estimated 2017 liability = 90% = 12,600 (1 mark) In order to meet her preliminary tax obligations Sinead must pay either, at least: 100% of income tax liability of the previous year (2016) or (0.5 mark) 90% of the liability for (0.5 mark) As the amount of 12,300 is the lowest amount payable to meet her obligation she should pay that amount (1 mark) Total: 20 marks Page 16 of 27

17 Examiner Comments on Question Two Part A: The vast majority of candidates calculated the correct gain on the disposal of the antique dining set. The part disposal of agricultural land caused difficulty for most students who calculated the cost based on the number of acres sold rather on the part disposal formula. A number of students incorrectly worked on the basis that the entire holding was sold. The sale of shares resulted in a monetary gain and an indexation loss but many students failed to calculate the monetary position thereby resulting in a no gain/no loss. Most students allowed the loss relief to Andrew but omitted to transfer the unused portion to Katie. Some students incorrectly allowed the annual exemption before offsetting the loss. Part B: This part involved the disposal to a connected person of an asset originally obtained from the husband and was well answered by the majority of students. However, a small number of students omitted the annual exemption in the calculation of the capital gains tax. Solution 2 Part A Kate Marks Andrew Marks Antique Dining Set W1 2,130 2 Agricultural Land half of W2 gain each Shares W3 NGNL 2 Total Gains 2, Less Capital Loss W4 (273) 2 (527) 2 2,383 nil Less Annual Exemption (1,270) 1 - Taxable Gain 1,113 33% Working 1 Antique Dining Set Sales Proceeds 13,250 Less Fees ( 120) Net Proceeds 13,130 Less MV at 30/6/2015 (11,000) Gain 2,130 Working 2 Agricultural Land Sales Proceeds ( 14,000 X 2) 28,000 Less Fees ( 750) Net Proceeds 27,250 Less Cost (W3) (26,197) 1,053 Working 3 Apportioned Cost Original Cost ( 110, ) 110,400 X 28,000 ( 28, ,000) = 26,197 Page 17 of 27

18 Working 4 As Andrew does not need the full 800 capital loss brought forward he can transfer the unused amount ( ) 273 to Kate. Sales Proceeds 2 each 400 Less Fees (20) Net Proceeds 380 Less 6/4/ (874) Indexed Loss (494) Monetary Position Sales Proceeds 400 Less Fees ( 20) Net Proceeds 380 Less deemed cost 0.55 (110) Deemed monetary gain 270 As indexation has changed a monetary gain into an indexed loss NGNL applies Part B MV at date of sale April ,000 (2 Marks) Cost when purchased by husband (3,500) (2.5 Marks) Gain 500 (0.5 Marks) Less Exemption (1,270) (1 Mark) Taxable Gain Nil Total: 20 Marks Page 18 of 27

19 Examiner Comments on Question Three Part A: This corporation tax question was poorly answered by the majority of students. Areas of concern The finance lease 2,000 interest and capital of 15,000 was incorrectly treated in the vast majority of answers with the interest added back and a further addback for the capital element of the lease. The patent royalty paid of 5,000 was in most cases not identified as a Trade Charge. In a lot of computations there was an addback of 4,000. The add back in respect of the loan interest paid to the Director Wayne Byrne was poorly answered. The correct amount of addback was rarely computed correctly and as such the student did not calculate the close company distribution and the DWT. The capital allowance due on the purchase of a delivery truck was in the main calculated correctly on the VAT exclusive cost of the truck but most students did not adjust the capital allowance to reflect that this was a 9-month accounting period. Many students added back the vat exclusive cost of the truck when computing the Corporation Tax liability. Some students also added back the number of director s remuneration. Part B: Many students correctly calculated the adjusted amount for the leasing for car values but did not identify whither the adjustment was an additional allowance or an addback. Most students correctly identified that there was no allowance for the category F vehicle but in some cases, did not add this amount back. Quite a number of students made further adjustments to reflect the personal usage when computing the amount to be added back. They were unclear as to how the restrictions affected the Case I income. Solution 3 Part (A) Working Marks Net Profit 135, ADD BACK Depreciation 1, Excess interest to 1 2, Director Patent royalty charge 2 9,000 1 Finance interest 3 *2,000 14, ,474 Allow 3 * (17,000) 1 total for finance charge 133,474 DEDUCT NON (45,000) 1 TRADE INCOME Tax Adjusted 88,474 Profits LESS CAPITAL 4 (4,192) 1.5 ALLOWANCES Case 1 Income 84,282 LESS Trade (5,000) 1.5 Charge Net Case 1 Income 79,282 Case IV 2, Franked Not subject to tax 0.5 Investment Income Total Profit 81,282 TAXED as follows Trading income 12.5% 9,910 1 Passive Income 25% Page 19 of 27

20 Corporation Tax Liability Add Income Tax on interest to director 10,410 20% Royalties 20% 1,000 11,415 LESS DIRT 41% ( 820) 0.5 Balance Due 10,595 TOTAL MARKS 12 Working 1 As Toma Ltd is a close company there is a maximum amount of interest that can be treated as a tax deductible expense. Maximum allowable interest is lower of: 13% of issued share capital i.e. 13% = 26 OR 13% of loan i.e. 13% X 9/12 = 3,900 Interest per accounts 3,000 Restrict to ( 26) Add back 2,974 Working 2 Payments for patent royalties are trade charges. Relief is allowed on amount actually paid. The amount to be allowed is deducted from Case 1 income. Add back full amount of 9,000. Allow 5,000 trade charge. Working 3 The full amount of the finance payment ( 2,000 interest + 15,000 capital) 17,000 is allowed. Add back interest of 2,000. Allow full 17,000. Working 4 VAT inclusive cost of truck 55,000 VAT exclusive cost of truck 55,000/123 X 100 = 44, % X 9 months ( 4,192) TWDV at 1/7/ ,523 (b) As per working 1 in Part (a) the amount added back of 2,974 is treated as a distribution. DWT is 20% = 594 (2 Marks) Part B Working 1 Category A Car Marks Deduction already allowed 2,500 Amount allowed 2,500 X ( 24,000/ 15,000) 4,000 Additional deduction due 1,500 1 Working 2 Category F Car Marks No deduction allowed for a category F car Add back 3,200 1 Working 3 Category B Car Marks Add back 2,700 X [(30,000-24,000)/ 1 30, Page 20 of 27

21 Working 4 Category D Car Marks Add back 2,900 X [(29, ,000)/29,000] 1,700 Working 5 Net adjustments W1 Additional Deduction (1,500) W2 Add back 3,200 W3 Add back 540 W4 Add back 1,700 Net add back 3,940 Marks Net profit 75, Add back W5 3,950 Case 1 Income 78, Total: 20 marks Page 21 of 27

22 Examiner Comments on Question Four This VAT question was well answered on the explanation of multiple and composite supplies with good examples given. However, the majority of students incorrectly dealt with the importing of goods from the EU by an exempt activity. Students recognised that the private college was engaged in an exempt activity but did not clearly set out the VAT compliance requirements of the college in respect of the intra community acquisition of good in excess of 41,000. The place of supply rules for services connected with buildings was not well identified by students and the compliance of the taxpayer in relation to the architectural works carried out in Wales caused major problems for students. Most candidates knew that there was no VAT credit for food and accommodation and recognised that VAT on accommodation for a qualifying conference is allowable. Overall, candidates attempting this question did not score well and, therefore, need to learn the place of supply rules for both goods and services and the VAT implications of cross-border transactions. Solution 4 (a) The college will have to register for VAT because it is importing more than 41,000 worth of goods from another EU country. It will supply its VAT number to the company in Germany, who will then not charge any VAT. The college will self-account by including on the 70,000 at T1 on their VAT 3 but as it is providing an exempt activity it cannot include the 23% at T2. (4 marks) (b) A composite supply means a supply comprising two or more supplies of goods/services made in conjunction with each other, where one of the supplies is the predominant part of the supply and the other is not physically and economically dissociable from the main supply. The supply of a TV with an instruction book is an example of a composite supply. (3 marks) A multiple supply means two or more individual supplies made in conjunction with each other but each part is capable of being a supply of goods or services in its own right. A Christmas hamper would be an example of a multiple supply. (3 marks) (c) (i) Services connected with buildings are deemed to be supplied where the building is located regardless of whether supplied to a business or private customer. (2 marks) Therefore, the place of supply for the purpose of VAT is: Architect services in Wales are subject to Welsh VAT rules so Andrew must charge appropriate Welsh VAT (1 mark) Architect services in Ireland are subject to Irish VAT rules so Andrew must charge appropriate Irish VAT. 1 Mark (ii) The VAT turnover level threshold for supply of services is 37,500. In Andrews case only his turnover in respect of architect services provided in Ireland is taken into account. As that turnover of 24,000 does not exceed the 37,500 threshold Andrew is not obliged to register in Ireland for VAT. (2 marks) (iii) Irish VAT is chargeable on the computer at the point of entry. The amount is calculated on the total cost at the Irish rate of 23%. If Andrew does register for VAT in Ireland he will be entitled to a VAT input credit. (2 marks) (iv) Even if a trader is registered for VAT and incurs expenses in the course of taxable supply there is no entitlement to VAT input on the provision of food or accommodation expenses. (2 marks) Total: 20 Marks Page 22 of 27

23 Examiner Comments on Question Five The candidates that attempted this year of marriage question obtained good marks. However, the calculation of the post-marriage relief caused difficulty with many students not using the tax liability (i.e. before the refundable tax credits) as the basis for this calculation. Also, a number of students omitted to apportion the relief to the post-marriage period or between each spouse. Solution 5 Peter s Income Tax Liability for the year 2016 Marks Schedule D Case 1 W1 2,000 1 Schedule D Case IV W Schedule E Salary 30, Schedule E Benefit in Kind W3 1,008 1 Gross Income 33,183 Taxed as Follows 41% % 6, ,672 Less Non Refundable Tax Credits Single Person Credit (1,650) 1 Employee Credit (1,650) 1 DIRT (3,371) 3,301 Less Refundable Tax Credits PAYE 3, Year of Marriage (3,917.56) Overpaid Working 1 Final year of trading use actual adjusted profits from 1 January to date trade ceased. 14,000 X 1/7 = 2,000 Working 2 As joint account, assess each on 350/2 = 175 Working 3 BIK = OMV 5% = 1,100 x 11/12 = 1,008 Anne s Income Tax Liability for the year 2016 Marks Gross Pay 60, Round Sum Expenses 50 x Schedule D Case IV Gross Income 60,775 Taxed as Follows % 6, % 10, ,551 Less Non-Refundable Tax Credits Single Person Credit (1,650) 1 Employee Credit (1,650) 1 DIRT (71) 0.5 (3,371) Page 23 of 27

24 14,180 Less Refundable Tax Credits Year of Marriage (75.44) PAYE (14,000) 0.5 (14,075.44) Underpaid (b) Peter and Anne s Income Tax Liability for the year 2016 as a married couple under joint assessment Marks Peter Anne Joint Schedule D Case 1 2,000 Schedule D Case IV Schedule E Salary 30,000 60,000 Schedule E Expenses 600 Schedule E BIK 1,008 Gross Income 33,183 60,775 93, Taxed as Follows % 13, % 10, ,066 Less Non Refundable Tax Credits Married Credit (3,300) 0.25 Employee Credit X 2 (3,300) 0.25 DIRT (143) (6,743) Total Tax Liability as married 17,323 Total Tax Liability as single people 3, ,180 17,481 1 Additional Tax Paid as single Relief due for 7 months 158 X7/ (c) Relief apportioned as follows: Peter 93 X 3,301/ 17,481 = (1mark) Anne 93 X 14,180/ 17,481 = (1mark) 93 Total: 20 marks Page 24 of 27

25 Examiner Comments on Question Six This multiple choice question was answered to a similar standard to previous years. Solution 6 1. (b) 2. (a) Allowable pre trade expenses are deemed to have been incurred on the first day of trading. 3. (d) 4. (b) 5. (d) 6. (c) NRE Case II 65,000 less CA 1,000 = 64,000. Contributions [ 14, ,000] = 18,000. Relief restricted to 25% = 16, (c) Denise PRSI ( 25,000-3,000) = 4% = 880 USC 1% = % = % = , (a) 9. (d) 10. (c) Mr and Mrs Reynolds. Gross Income 38,500 Income Tax Due 20% = 7,700 Less Tax Credits Married ( 3,300) PAYE ( 1,650) AGE ( 490) ( 5,440) Tax Due 2,260 Less Marginal Relief ( 1,490) Final Tax Liability 770 Marginal Relief Gross Income 38,500 Less Exemption ( 36, ) ( 36,575) Excess 1,925 Max Tax 40% 770 Total: 20 marks Page 25 of 27

26 Examiner Comments on Question Seven Q7: Part A: This involved residence and domicile issues and the implications of these for This was well answered by many students. However, most candidates failed to mention that the Canadian employment income was exempt from Irish income tax on the basis that the duties were exercised wholly outside of Ireland. Part B: This was a corporation tax trading loss relief question and was very well answered by most students with good layout for both the computation of the corporation tax payable and the loss memo. However, many students did not mention that the unused loss can only be carried forward for offset against the same trade only. Solution 7 Part A (a) For 2016 Thomas is not resident in Ireland on the basis that he was not present: days in 2016 in the State, or days over two years in the state over 2015 and 2016 As Thomas was Ordinarily Resident in Ireland for at least the 3 years up to and including 2014, he will remain ordinarily resident until he has been non-resident for 3 preceding years. Therefore, he remains Ordinarily Resident in Ireland for As Thomas was domiciled in Ireland up to and including 2014, such domicile is presumed to continue until it is proven that a new domicile has been acquired. Therefore, Thomas retains his Irish domicile. (1 Mark for each) (Total 3 Marks) Summary: Non-Resident, Ordinarily Resident and Domiciled in Ireland. (b) As Thomas is Not Resident in Ireland but is Ordinarily Resident and Domiciled in Ireland, he is subject to tax in Ireland on his worldwide income, excluding his Canadian employment income, on the basis that the duties are exercised wholly outside Ireland. He will therefore be subject to Irish Income Tax on his annual rental income of 1,200 X 12 = 14,400. (4 Marks) Part B Travel Ltd (a) Calculation of final corporation tax liability for each accounting period Marks Case 1 60, (60,000) (1) 0.5 Nil Case V 40, Total Profits 40,000 25% 10, loss on Value Basis (10,000) (3) 0.5 CT Payable Nil Marks Case 1 Nil 1 Case V 50, Total Profits 50,000 25% 12, Current period loss on value (12,500) (2) 0.5 basis CT Payable Nil Marks Case 1 50, trade loss carried forward (50,000) (4) 0.5 Page 26 of 27

27 nil Case V 20, Total Profits 20,000 25% 5, CT Payable 5,000** 8 marks total LOSS MEMO mark for each of following steps. Loss Arising 300, Set back against previous period Case 1 (60,000) 2. Used on Value Basis current period (100,000)[12,500 X 8] 3. Used on value basis previous period (80,000 [10,000 X 8] Balance 60, Carried Forward and used 2014 (50,000) 5. Balance only available against future Case 1 Income 10,000 (5 marks) ** Note Even though there is an unused loss forward of 10,000 it cannot be used to relieve tax on passive income in Once a trade loss is carried forward it can only be offset against Case 1 income of the same trade. Total: 20 marks Page 27 of 27