Cork Institute of Technology Bachelor of Business in Accounting Stage 2 (BACCT_7_Y2) Summer 2008 Taxation (Time: 3 Hours) Instructions: Answer ALL questions from Section A and ONE question from Section B. Examiners: Ms. A. Twomey Ms. M. Duggan SECTION A Q. 1 Luke and Jennifer are an Irish resident couple; they have been married for a number of years and are jointly assessed. Luke is employed as an engineer and earned a salary of 74,100 gross (PAYE deducted 14,100) for the tax year ended 31 December 2007. His employer provides him with a car which cost 34,000. In 2007 his total car mileage was 26,000 miles of which 16,500 miles were for business purposes. His employer pays all costs associated with his car. Luke also received an interest free loan of 30,000 from his employer, advanced on 1 January 2007, to assist him in the purchase of a holiday home. This loan is still outstanding at 31 December 2007. In 2007 Luke made the following payments: 1. Permanent health insurance premium of 600. 2. A payment of 800 under a seven year covenant to his niece who is permanently incapacitated Luke had the following additional income in 2007: (i) Dividend received from an Irish Resident Trading Company 5,280 (net of withholding tax at 20%). (ii) Interest from a bank deposit account 720 (net of DIRT at 20%). 1
Luke s wife Jennifer is a self employed beautician. The profit and loss account of her business for the year ended 30 September 2007 was as follows: Note Gross profit 194,000 Less expenses: Telephone 1 980 Repairs 2 2,100 Interest on the payment of income tax 300 Subscriptions 3 500 Salaries 4 42,000 Net profit 148,120 NOTE 1: NOTE 2: Telephone costs relate to Jennifer s home telephone and 25% of the total charge is the agreed proportion for personal use. Included in the repairs charge are: Plumbing repairs 1,400 Provision for future repairs 700 2,100 NOTE 3: Analysis of subscriptions Political party 500 NOTE 4: Salaries include wages paid to Jennifer of 28,000. Jennifer also has the following sources of income for 2007: (i) Interest on 10% national loan stock (paid gross) 1,800 (ii) Profit rents from flat let in the city 4,800 Jennifer also paid 400 for qualifying dental treatment for herself during the tax year 2007. 2
REQUIREMENT (a) Calculate the adjusted Schedule D Case 1 Income for Jennifer for tax year 2007. (5 Marks) (b) Calculate the assessable Schedule E income for Luke for tax year 2007. (3 Marks) (c) Calculate the income tax payable by Luke and Jennifer for the tax year 2007 (ignore PRSI and levies). (17 Marks) Total: 25 Marks Q. 2 Aspro Limited is an Irish registered trading company. The following information is available for the three and a half years ended 31 st December 2007: Year ended Year ended Six months Year ended ended 30.06.2004 30.06.2005 31.12.2006 31.12.2007 000 000 000 000 Trading profit (loss) 640 106 94 (205) Rental income (loss) 20 (22) 6 10 Bank deposit interest (gross) 4 6 2 0 Chargeable gain/(loss) 29 (24) 12 34 (as adjusted) REQUIREMENT Calculate the profits chargeable to Corporation Tax for all the above periods and the tax payable or refundable, assuming that the company claims relief for its losses as early as possible. Students should show clearly the utilisation of any losses. Total: 20 Marks 3
Q. 3 Dermot and his wife Amy reside in Galway. Dermot has been in business for many years. In 2007 they had the following transactions: Dermot purchased a factory building for 180,000 in November 1997, when he commenced his manufacturing business. In September 2007 he ceased trading and sold the factory for 820,000. He incurred solicitors costs in relation to the sale of 3,250. Amy acquired 20,000 Freeform plc shares on 1 st July 2000 for 4,000. On the 1 st August 2002, she bought 10,000 additional shares at a cost of 3,000. On 4 th February 2003 a bonus issue of 2 for 5 was made. On 1 st March 2007, Amy sold her entire holding of shares in Freeform plc at 4 each. Amy traded in her car for 15,000 against the purchase of a new car in April 2007. The car was purchased in January 2005 for 27,000. Her new car cost 46,000. Amy s mother died in July 2007 and bequeathed to Amy 200,000 in cash and antique jewellery valued at 29,000. In August 2007 Amy sold one of the pieces of jewellery for 4,800. This particular piece was valued at 1,900 at the time of the bequest; however, it had cost Amy s mother 2,100 in June 1998. Dermot gave a gift on 1 st September 2007 of a painting to Amy. He bought the painting in August 2001 for 86,000, and its current value is 400,000. Dermot sold his entire holding of Irish National Loan Stock on 15 th August 2007 for 12,100. He had originally acquired the loan stock for 8,900 on 15 th February 2003. REQUIREMENT (i) Calculate the Capital Gain/Loss arising on each of the disposals outlined above. (ii) Compute Dermot and Amy s Capital Gains Tax liability for 2007. (iii) State the date by which the Capital Gains Tax Liability is payable. Total: 20 Marks 4
Q. 4 Slice Co. Ltd. is an Irish resident company selling slicing machines. The company is registered for VAT in Ireland and had the following transactions in July 1/August 2007. Relevant Irish VAT Rate VAT Exclusive Amount SALES: To Irish Customers 21% 60,000 To EU Customers - VAT registered 21% 360,000 To EU Customers non VAT registered 21% 120,000 PURCHASES: From Irish Suppliers 21% 30,000 From EU Suppliers 21% 140,000 EXPENSES: Legal fees on the purchase of an office 21% 6,000 Petrol for company cars 21% 4,500 Diesel for company cars 21% 5,800 Hotel expenses 13.5% 5,200 Purchase of computers 21% 5,000 Light and heat 13.5% 1,800 Client entertainment 21% 5,000 Staff entertainment 21% 11,000 REQUIREMENT (a) Calculate the VAT liability of Slice Co. Ltd. for July/August 2007. (b) State the due date for payment of this VAT liability (13 Marks) (1 Mark) (c) (d) Explain the difference between the supply of VAT exempt and zero rated goods and services. (3 Marks) Under what circumstances can a business account for VAT on the cash receipts basis. (3 Marks) Total: 20 marks 5
SECTION B Answer one question only. Q. 5 Frank O Leary retired on 31 st August 2007. He was employed by a company for 11 years and 2 months. He received an ex-gratia payment on retirement of 61,000. Of the total service of 11 years and 2 months, 4 years comprised of foreign service. Frank also received a 8,000 tax free lump sum under the provisions of his revenue approved pension scheme. He commenced a new employment on 1 October 2007 and his salary for the three months to 31 December 2007 amounted to 15,000. Frank s aggregate remuneration for the three years to 31 st August 2007 amounted to 120,000. Frank s average rate of tax on his taxable income for the previous three years was 22.5%. Frank s salary for period from 1 st January 2007 to 31 st August 2007 amounted to 58,000. Frank is single. REQUIREMENT (a) Calculate the taxable portion of the ex-gratia payment received on retirement by Frank O Leary. (10 Marks) (b) Outline the rules to be applied in determining if an individual is resident in Ireland. ( 5 Marks) Total: 15 Marks 6
Q. 6 Narde Ltd. is an Irish resident trading company. The profit and loss account for the company for the year ended 31 October 2007 is as follows: Narde Ltd. Profit and Loss Account for the year ended 31 October 2007 Notes Gross profit 644,000 Income: Rental income 24,000 Dividend income from Irish tax resident companies 8,000 Bank deposit interest 10,000 (net of 20% DIRT) 42,000 686,000 Expenses: Salaries and wages 1 252,000 Administration expenses 2 147,000 Bad debts 3 6,360 Depreciation 8,000 Motor expenses 4 4,000 (417,360) Net profit before tax 268,640 NOTES (1) Salaries and wages include 45,000 for director s pension contributions accrued but not paid at 31 October 2007. (2) Administration expenses include the following: Donations to Green Party 9,000 Staff entertainment 3,400 Client entertainment 8,100 7
(3) The bad debts figure comprises of the following: Increase in general bad debt provision 4,000 Increase in specific bad debt provision 1,850 Bad debts written off 800 Bad debt recovered (290) 6,360 (4) Motor expenses relate to a company car which was leased on 1 July 2006. The car was retailing at 36,000 at the time it was leased. REQUIREMENT (a) Calculate the profits chargeable to Corporation Tax. (12 Marks) (b) What details must appear on a valid VAT invoice? (3 Marks) Total: 15 Marks 8
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