Advanced Taxation Republic of Ireland Sample Paper 2 2017 / 2018 Questions & Suggested Solutions
NOTES TO USERS ABOUT SAMPLE PAPERS Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding the style and type of question, and their suggested solutions, in our examinations. They are not intended to provide an exhaustive list of all possible questions that may be asked and both students and teachers alike are reminded to consult our published syllabus (see www.accountingtechniciansireland.ie) for a comprehensive list of examinable topics. 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 only correct approach, particularly with discursive answers. Alternative answers will be marked on their own merits. This publication is copyright 2017 and may not be reproduced without permission of Accounting Technicians Ireland. Accounting Technicians Ireland, 2017. Page 2 of 44
INSTRUCTIONS TO CANDIDATES PLEASE READ CAREFULLY SECTION A Answer Question 1, 2, 3 in this section. ALL QUESTIONS ARE COMPULSORY SECTION B Answer any TWO of the four questions in this section Page 3 of 44
Question 1 (Compulsory) SECTION A Answer Question 1, 2, 3 in this section. All questions are compulsory. There are FOUR parts to this question. (All four parts should be answered.) (a) Peter a carpenter installed a fitted kitchen for a private individual. The VAT exclusive cost of the transaction was: Materials provided 3,000 Labour supplied 1,000 What is the rate of VAT chargeable for this transaction. Explain your answer. (3 marks) (b) A retailer intends making a gift of pens to several his customers. Each pen cost the retailer 27 VAT inclusive and the vat on acquisition was reclaimed by the retailer. He has queried what are the VAT implications. Explain the VAT issues arising, if any. (3 marks) (c) Josephine is a VAT registered trader. Her business is wholesale and retail sale of ladies clothing. She has both invoice sales to trade customers and retail sales to private individuals from a unit in the business premises. She accounts for VAT on the cash receipts basis. She submits her VAT returns on a bi-monthly basis. The following are details of her vatable transactions for the period July/August 2017. Sales: July/August: SALES GROSS Invoiced sales to Irish traders 10,000 Cash received from trade debtors. 5,000 Cash received from retail sales. 4,000. Cash received from U.K. VAT registered traders. 3,000 Page 4 of 44
Purchases: July/August 2017: She purchased packaging from Irish VAT registered suppliers of 1,750. She purchased a display unit from a VAT registered company in Germany. The VAT exclusive value of the display unit was 2,000. She imported stock for resale from a supplier in China. The value of goods purchased from that supplier was 15,000. She purchased a new diesel passenger motor vehicle on 1 st June 2017. This vehicle was used 70% for business use and had CO2 emissions of 155 g/km. The VAT inclusive cost of the vehicle was 13,500 (ignore VRT). She paid 1,000 in respect of petrol for business vehicles. The company paid accommodation costs of 800 (inclusive of VAT @ 9%) for two employees. The amount invoiced for diesel during the period was 900. Repairs and servicing of the car amounted to 1135 VAT inclusive @ 13.5% Requirement: Compute the VAT liability for Josephine for the period July/August 2017. (10 Marks) (10 marks) (d) In respect of the following transaction please state if Irish VAT is chargeable and qualify your answer. 1 A VAT registered Irish accountant provides accountancy services to a VAT registered business in Germany. (2 marks) 2 A VAT registered Irish financial advisor provides financial advice to a business in China.. (2 marks) Total 20 Marks Page 5 of 44
Question 2 (Compulsory) There are TWO parts to this question Parts A & B. Both parts should be answered. (A) Patricia purchased her principal private residence on 1/1/1999 for 150,000. Solicitors fees incurred on the purchase amounted to 1,500. She lived in the property as her main residence until 31/12/2001. As a condition of her employment he moved to Galway on 1/1/2002 where she was in rented accommodation. On 1/1/2007 she returned to live in her residence. She resided there until 31/12/2010. At the request of her employer she left to work in France on 1/1/2011. She returned to Ireland on 1/1/2012 and resided with her mother at her home. She resided with her mother until 1/1/2013 when she went travelling the world on a holiday and returned to reside in her principal private residence on 1/1/2015. She resided there until 31/12/2016 when she moved out of the property and resided with her aunt. The property was sold on 31/12/2017 for 400,000 and solicitors costs on the sale were 5,000. She has no other residence qualifying as a principal private residence. Requirement: (a) Calculate Patricia s capital gains tax liability for 2017. (b) By what date must the capital gains tax due be paid? (B) Rachel purchased a painting in January 2000 for 1,500 and sold it in June 2017 for 10,000. She also purchased an antique vase in January 2004 for 2,800. She sold the vase in June 2017 for 1,600. Requirement: Calculate Rachels capital gain / loss for 2017. (14 Marks) (1 Mark) (15 Marks) (5 Marks) Total 20 Marks Page 6 of 44
Question 3 (Compulsory) Quango Ltd is an Irish registered company whose business is retail food sales. It makes up its annual accounts to 30 th September each year. The results for the company in the year ended 30 th September 2017 are as follows. Narrative Notes Sales 2,750,000 Cost of sales (1,200,000) Gross profit 1,550,000 Less expenses Wages 560,000 Deprecation 45,000 Rent & rates A 55,000 Motor expenses B 35,000 Subscriptions C 1,500 Professional fees D 14,500 Donations E 1,000 Loss on disposal of 2,000 asset Bad debts F 5,000 Interest G 24,000 (743,000) Net profit 807,000 Notes A Rent & Rates: Rent paid to landlord 45,000 Rates paid to local authority 10,000 Total 55,000 Notes B Motor expenses: *Leasing paid in respect of leased a car for a Sales Rep. 15,000 Petrol 8,000 Motor insurance 3,000 Motor tax 1,800 Servicing and repairs 3,500 Expenses company van 2,500 Parking fines 1,200 35,000 *The car used by the sales representative was leased on 1 st November 2015. The OMV of the car was 50,000 and has CO2 emissions of 155g.km. Page 7 of 44
Note C Subscriptions. Rotary Club 300 Gym for MD 400 Trade magazines 800 1,500 Note D Professional fees: Audit & accountancy fees for preparation of the company annual accounts 7,500 Fees for submission of director s personal tax returns 4,000 Solicitors fees for drawing up lease on retail unit 3,000 14,500 Note E Donations Political party donation 200 Donation to local GAA club 800 1,000 Note F Bad Debts Bad debts written off 3,000 Bad debts recovered (2,000) Increase in the specific provision 1,500 2,500 Note G Interest Bank interest paid 2,000 Interest paid on late payment of VAT 2,000 Mortgage interest in respect of rented unit 20,000 24,000 Note H Other income Dividend from an Irish Resident Company 6,000 **Gain on disposal of commercial unit 80,000 86,000 **The commercial unit was acquired in January 2000 for 80,000 with solicitors cost on acquisition of 3,000. The unit was sold in May 2017 for 210,000. Note I Rent received from letting of commercial unit 25,000 25,000 Page 8 of 44
Assets owned by the company: Equipment Van Car CATEGORY C Cost 180,000 22,000 35,000 Purchased y/e 30/9/2014 Y/E 30/09/2011 Y/E 30/09/2015 Disposal Y/E 30/9/2017 Acquisitions Y/E 30/09/2017 4,700 50,000 28,000 Requirement: Calculate the Corporation Tax liability for Quango Ltd for the year ended 30/09/2017. Calculate the capital allowances due to Quango for the year ended 30/09/2017. (15 Marks) (5 Marks) Total 20 Marks Page 9 of 44
Question 4 Part A. Peter commenced trading as a carpenter on 1 st May 2015. He made up his annual accounts to 30 th April each year. Due to adverse trading, he ceased to trade with effect from 31 st October 2017. His assessable profits for income tax are as follows. Year ended 30 th April 2016 52,000 Year ended 30 th April 2017 26,000 1 st May 2017 to 31 st October 2017 8,000 (6 months). Total profits 86,000 Requirement: On the basis that Peter wishes to minimise his income tax liability and he has complied with all Revenue compliance rules, show the basis periods and years of assessment. (8 Marks) Part B Crystals Ltd carries on two trades. It is an Irish resident company and has been trading for 10 years. It prepares its accounts to 30 th September each year. In respect of its first trade (Trade 1), one of its largest debtors went into liquidation resulting in a Case 1 trading loss for 2016 of 400,000. Apart from its income from Trade 2, Crystals only other source of income is Case V rental income. The following table shows their results for the last 3 accounting periods. 12 Months ended 30 th September 2015 30 th September 2016 30 th September 2017 Trade 1 45,000 (400,000) 25,000 Case 1 trading income. Trade 2 35,000 80,000 25,000 Case 1 trading income. Case V Rental income 40,000 50,000 20,000 Requirement: (a) Calculate the company s final corporation tax liability for all 3 accounting periods making full use of any loss as soon as possible. (7 Marks) (b) Prepare a loss memo showing how the losses were utilised. (5 Marks) Page 10 of 44
Question 5 Part A Georgina is a sole trader who has been trading for the past 10 years. She makes up her accounts annually to 31 st December. She has had a monthly direct debit instalment arrangement for the past 5 years with the Office of the Collector General in respect of her income tax liability. Year Income tax liability 2015 50,000 2016 38,000 2017 47,000 2018 50,000 ESTIMATED Requirement: In order to avoid interest charges how much preliminary tax should she pay in 2018 and the date by which it must be paid. (4 Marks) Part B George Murray is a wholesaler who prepares his accounts to the 31 st December each year. The following are details of his accounts for the year to 31/12/2017. During the year he sold one of his wholesale premises and made a profit on the sale as itemised in his accounts. Narrative Notes Turnover 1,200,000 Cost of goods (550,000) Gross Profit 650,000 Wholesale distribution (175,000) costs Expenses Wages & salaries 1 84,000 Insurance 2 13,500 Light & heat 3,100 Repairs & Maintenance 3 7,000 Cleaning 1,500 Motor Expenses 4 5,200 Packaging 10,300 Advertising 2,000 Computer costs 5 4,300 Telephone 6 1,500 Accountancy fees 7 3,500 Interest 8 4,500 Bad debts 9 5,400 Depreciation 16,415 (162,215) Profit on sale of commercial unit 650,000 Net Profit 962,785 Page 11 of 44
Notes 1 Wages and salaries include Mr Murrays wages of 25,000. 2 Insurance Public Liability 11,000 + Permanent health insurance for Mr. Murray 2,500. 3 Repairs & maintenance 7,000 includes 5,000 for new packaging machine. 4 Motor expenses 5,200 leasing charge BMW car 2014, CO2 emissions of 180g/km. Original Market Value 35,000. 5 Computer cost 4,300 includes 2,000 purchase of a new software package. 6 Telephone 1,500 for Mr Murrays phone which is used 80% for business use. 7 Accountancy fees 3,500, preparation of business accounts 2,500, preparation of F11 for Mr Murray 1,000. 8 Interest 4,500, Bank interest 1,500, Interest paid to Revenue on late payment of VAT 3,000 9 Bad debts 5,400 Bad debts written off 1,200 Bad debts recovered 800 General bad debt provision 5,000 Requirement: Calculate the tax adjusted Case 1 profit for Y/E 31/12/2017. (16 Marks) Total 20 Marks Page 12 of 44
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) Peter Jones was provided with a company car by his employer on 1 st Jan 2017.The car cost the company 18,000 and the original market value of the car was 30,000. Peter travelled 30,000 k/m in the year to 31 st Dec 2017. Peter paid 200 per month directly to his employer towards the running cost of the car. What is Peters assessable benefit in kind for 2017? (a) 4,230. (b) 7,200. (c) 1,920. (d) 4,800. (2) Fred Colley is a self- employed accountant. He makes up his annual accounts to 31 st December. In the 1 st July 2017 he purchased a BMW car for 30,000. This car has CO2 emissions of 165g/km. The car is used 80% for business use. What is the capital allowance due to Fred for 2017? (a) 3,750 (b) 1,875 (c) 1,500 (d) 1,200 (3) Pagoda Ltd is owned by Paul and Mary who each have a 50% shareholding. The issued share capital of the company is 2,000 shares with a nominal value of 1 each. Paul and Mary loaned the company 30,000 and the company agreed to pay 5% interest on the loan. What is the maximum amount of interest allowed as a business expense to the company? (a) 2,600 (b) 260 (c) 1,500 (d) 3,900 Page 13 of 44
(4) Natalie purchased a painting for 3,000 in December 1999. She sold the painting in April 2017 for 1,500. What is the loss relief available on the disposal of the asset? (a) 1,500 (b) 2,079 (c) 460 (d) 1,039 (5) Stephen made a capital gain in December 2017. When must the Capital Gains Tax in respect of this gain be paid by Stephen to avoid payment of interest and penalties to Revenue. (a) 31/12/2017 (b) 31/1/2018 (c) 15/01/2017 (d) 31/10/2018 (6) Sean s final tax liability for 2016 was 12,000 and he paid preliminary income tax of 10,800 in relation to this by 31/10/2016. He filed his tax return for 2016 on 1/12/2017. The correct filing date was 31/10/2017. What are the compliance implications of the late filing of the return. (a) A surcharge of 600 is due. (b) A surcharge of 1,200 is due. (c) No surcharge arises as he paid the correct amount of preliminary tax. (d) A surcharge of 60 is due. (7) Joe is a self- employed furniture manufacturer. He makes up his annual accounts to 30 th June each year. In May 2017 he sold a machine for 4,000. This machine cost Joe 5,000 when purchased in May 2014. What capital allowance is due in respect of this disposal? (a) Balancing allowance of 1,000. (b) Balancing charge of 875. (c) No Balancing charge or allowance due as it was not in use at the 30 th June 2017. (d) Balancing charge 1,553. (8) John is Irish domiciled. He moved to Germany several years ago. In 2017 he has worldwide income of 1,200,000 inclusive of Irish income of 100,000. His Irish owned property is valued at 7,000,000 at 31/12/2017. His Irish income tax liability for 2017 is 45,000. His German tax liability in 2017 was 40,000 What is the Domicile Levy payable in 2017, if any, by John. (a) 200,000. (b) 155,000. (c) None as he is a citizen of the E.U... (d) 115,000. Page 14 of 44
(9) Harry is separated from his wife Mary under a legal separation Under a legally enforceable agreement he pays a total annual maintenance payment to Mary of 8,000. Of this 8,000 an amount of 1,000 is in respect of their son George aged 14. In addition, he makes a discretionary payment of 100 per week to Mary. What annual deduction for income tax is Harry entitled to. (a) 8,000 (b) 7,000 (c) 13,200 (d) 5,200 (10) Genevieve is in receipt of rental income from a residential letting. In 2017 she charge rent of 25,000 but only received 21,000 from her tenant. She paid mortgage interest of 5,000. She also installed a new bathroom suite costing 3,000. What is her assessable Case V income for 2017? (a) 17,000 (b) 20,000 (c) 21,250 (d) 20,875 Total 20 Marks Page 15 of 44
Question 7 ( Parts A & B) Part A George Jones and his wife Patricia were married and jointly assessed for income tax. George is the assessable spouse. On 30 th June 2016 George died. The following are details of their income for the year ended 31/12/2016. George Jones; Salary to date of death 58,000. Tax paid PAYE 11,300. Rental income Case V, residential letting ( 1,500 P.M.) Amount received to date of death 9,000. Patricia Jones: Salary for the year 1/1/2016 to 31/12/2016 = 39,000 Rental income received from 1/7/2016 to 31/12/2016 = 9,000 Tax paid PAYE = 8,200 Requirement: Compute the Joint income tax assessment for the period 1/1/2016 to 30/06/2016: Compute Patricia s income tax computation for the period 1/7/2016 to 31/12/2016. (7 Marks) (7 Marks) Part B Garuda Ltd has Case 1 assessable income of 25,000 and Case 111income of 30,000 for the year ended 30 th September 2017. The company paid trade charges for the use of patent rights of 35,000 during the year ended 31/12/2017. Requirement: Compute the corporation tax liability for Garuda Ltd for Y/E 30/09/2017. (6 Marks) Total 20 Marks Page 16 of 44
Advanced Taxation (Republic of Ireland) Sample Paper 2 Suggested Solutions Page 17 of 44
Question 1 (Compulsory) There are FOUR parts to this question. (All four parts should be answered.) (a) Peter a carpenter installed a fitted kitchen for a private individual. The VAT exclusive cost of the transaction was: Materials provided 3,000 Labour supplied 1,000 What is the rate of VAT chargeable for this transaction. Explain your answer. (3 marks) The Two -Thirds rule is applicable to this transaction, (Page 250 of the Advanced taxation manual, 2017/18). Where the net cost of goods in a contract for the supply of services is more than 2/3 (66%) of the vat exclusive price of the contract then the rate of vat applicable to the transaction is the standard rate 23%. In this question the value of the goods supplied is 75% of the VAT exclusive price of the contract. (b) A retailer intends making a gift of pens to several his customers. Each pen cost the retailer 27 VAT inclusive and the vat on acquisition was reclaimed by the retailer. He has queried what are the VAT implications. Explain the VAT issues arising, if any. (3 marks) Gifts (Page 254 of the Advanced taxation manual, 2017/18) Gifts of taxable goods made in the course of furtherance of business are liable to VAT if the donor was entitled to a deduction on the acquisition of the item and the cost of the item exceeded 20 excluding VAT. In this question the vat exclusive cost of each pen was 22 (21.95) Therefore the retailer is liable to account vat on the gift of each pen as if it were a 27 sale which is vat inclusive. (c) Josephine is a VAT registered trader. Her business is wholesale and retail sale of ladies clothing. She has both invoice sales to trade customers and retail sales to private individuals from a unit in the business premises. She accounts for VAT on the cash receipts basis. She submits her VAT returns on a bi-monthly basis. The following are details of her vatable transactions for the period July/August 2017. Page 18 of 44
Sales: July/August: SALES GROSS Invoiced sales to Irish traders 10,000 She is accountable for vat on the cash receipts basis, therefore vat on these invoiced sales are not accountable in the July/August return. Cash received from trade debtors. 5,000 As she is on the cash receipts basis then the vat on the cash receipts from trade debtors is accountable. The cash receipts are inclusive of vat at the standard rate of 23% i.e. vat of 935. Cash received from retail sales. 4,000 These receipts are vat inclusive of standard rate vat. These are retail sales (over the counter) and as she is on the cash receipts basis, vat is accountable in this period. The 4,000 is vat inclusive at standard rate of 23% i.e. vat of 748. Cash received from U.K. VAT registered traders. 3,000 These sales to VAT registered traders in the U.K. are intra community supplies and a vat rate of 0% is applicable on these sales. Therefore, the receipts i.e. 3,000 do not include any vat. Page 19 of 44
Purchases: July/August 2017: She purchased packaging from Irish VAT registered suppliers of 1,750. The vat element of the purchases which are used for her vatable supplies is reclaimable in this period. This is irrespective whether the invoice has been paid or not. VAT reclaimable 1750/123 x 23 = 328 She purchased a display unit from a VAT registered company in Germany. The VAT exclusive value of the display unit was 2,000. This is an intra community acquisition of goods by the retailer for vatable business purposes. A vat rate of 0% would have been applied by the German supplier, therefore no vat would have been suffered on the transaction. However, the retailer must enter the notional vat element of the value of the goods at T1 and T2 on the vat return in this period i.e. vat at T1 and T2 of 2000 x 23% = 460. T1 460 and T2 460. She imported stock for resale from a supplier in China. The value of goods purchased from that supplier was 15,000. This an import of goods (Note this is not an intra community acquisition of goods). Vat must be paid at the point of entry (port or airport) to Revenue customs. The vat payable will be the standard rate on the value of the goods i.e. 15,000 x 23% = 3,450. As the import is stock for resale then the vat suffered at importation can be claimed in the period at T2. NB unlike intra community acquisitions the vat figure is NOT entered also at T1. She purchased a new diesel passenger motor vehicle on 1 st June 2017. This vehicle was used 70% for business use and had CO2 emissions of 155 g/km. The VAT inclusive cost of the vehicle was 13,500 (ignore VRT). (Page 258 of the Advanced taxation manual, 2017/18. A partial vat input credit is allowed in relation to some company cars. Conditional on the granting of this credit is The car is registered for VRT (vehicle registration tax) on or after 1 st January 2009. Its emissions are less than 156g/km. The car is used at least 60% for business purposes. If all the above is satisfied, then an amount of 20% of the vat on acquisition can be claimed at T2. I.E (13,500 / 123) x 23 = 2524 x 20% = 505. T2 505 She paid 1,000 in respect of petrol for business vehicles. Page 20 of 44
Unless petrol is the stock in trade of the business then there is no vat input credit due on the petrol used for the business. (Page 260 of the Advanced taxation manual, 2017/18. The company paid accommodation costs of 800 (inclusive of VAT @ 9%) for two employees. (Page 258 of the Advanced taxation manual, 2017/18). VAT suffered on accommodation for employees is specifically excluded in legislation from being claimed as an input credit. (The exception to this rule is if the employees were attending a Qualifying conference the definition of which is at the bottom of page 259 of the taxation manual). The amount invoiced for diesel during the period was 900. (Page 260 of the Advanced taxation manual, 2017/18). The vat suffered on diesel used for vatable activities is always allowed irrespective if it is used in a commercial vehicle or a car. I.E. T2 = (900 / 123) x 23 = 169 Repairs and servicing of the car amounted to 1135 VAT inclusive @ 13.5% Even if the car is a petrol car once it is used for business purposes then the vat element of repairs is reclaimable at T2 i.e. (1135/113.5) x 13.5% = 137. Requirement Compute the VAT liability for Josephine for the period July/August 2017. (10 Marks) T1 = 935 Trade debtors + 748 Retail sales + ICA 460 = 2,143 T2 = 460 ICA + 328 Packaging + 3,450 imports + 505 Car +169 Diesel +137 Car repairs. = 5.048 T3 VAT repayable to trader 2,906. (10 marks) Page 21 of 44
(d) In respect of the following transaction please state if Irish VAT is chargeable and qualify your answer. 3 A VAT registered Irish accountant provides accountancy services to a VAT registered business in Germany. Place of supply of a service Business to Business (B to B). The supplier is in Ireland and the customer is a business in another E.U. member state, then no Irish vat is applicable. This is an intra community supply of a service. (2 marks) 4 A VAT registered Irish financial advisor provides financial advice to a business in China. Place of supply of a service Business to Business (B to B). The supplier is in Ireland and the customer is a business outside the E.U., then no Irish vat is applicable. Question 2 (Compulsory) There are TWO parts to this question Parts A & B. Both parts should be answered. (2 marks) Total 20 Marks (A) Patricia purchased her principal private residence on 1/1/1999 for 150,000. Solicitors fees incurred on the purchase amounted to 1,500. She lived in the property as her main residence until 31/12/2001. As a condition of her employment he moved to Galway on 1/1/2002 where she was in rented accommodation. On 1/1/2007 she returned to live in her residence. She resided there until 31/12/2010. At the request of her employer she left to work in France on 1/1/2011. She returned to Ireland on 1/1/2012 and resided with her mother at her home. She resided with her mother until 1/1/2013 when she went travelling the world on a holiday and returned to reside in her principal private residence on 1/1/2015. She resided there until 31/12/2016 when she moved out of the property and resided with her aunt. The property was sold on 31/12/2017 for 400,000 and solicitors costs on the sale were 5,000. She has no other residence qualifying as a principal private residence. Requirement: (a) Calculate Patricia s capital gains tax liability for 2017. (b) By what date must the capital gains tax due be paid? (14 Marks) (1 Mark) (B) Rachel purchased a painting in January 2000 for 1,500 and sold it in June 2017 for 10,000. She also purchased an antique vase in January 2004 for 2,800. She sold the vase in June 2017 for 1,600. Page 22 of 44
Requirement: Calculate Rachels capital gain / loss for 2017. Part A CGT Principal Private Residence Relief: Step 1 calculate the CGT gain (5 marks) Total 20 marks Sold 31/12/2017 400,000 Less Solicitors costs 5,000 = 395,000 Property purchased 1/1/1999 for 150,000 Solicitors fees incurred on purchase 1,500 151,500 x 1.212 = 183,618 Costs incurred in the tax year 1998/99 Sold 31/12/2017 Indexation 1.212 Gain = 211,382 Step 2 compute the amount of PPRR. From To Note Ownership period Occupation period 1/1/1999 31/12/2001 1 3 years 3 years 1/1/2002 31/12/2006 2 5 years 4 years 1/1/2007 31/12/2010 3 4 years 4 years 1/1/2011 31/12/2011 4 1 year 1 year 1/1/2012 31/12/2012 5 1 year 0 1/1/2013 31/12/2014 6 2 years 0 1/1/2015 31/12/2016 7 2 years 2 years 1/1/2017 31/12/2017 8 1 year 1 year 19 years 15 years Note 1 Occupied as her PPR for the period of 3 years. Note 2 As a condition of her employment she moved to Galway for a period of 5 years 1/1/2002 to 31/12 2006. The maximum period of deemed residence when working elsewhere in Ireland is 4 years. Note 3 Occupied as her PPR for the period of 4 years. Note 4 The period spent working in France at the request of her employer is deemed residence of 1 year Note 5 The year spent holidaying abroad in France does not count as a deemed occupation period. Note 6 She spent two years residing with her mother therefore this is not a deemed period of occupation. Note 7 The two years 2015 2016 were her PPR. Page 23 of 44
Note 8 Even though she did not reside in the property for the year 2017, the last 12 months of ownership is always considered a period of occupation. PPRR Gain 211,382 x 15/19 = 166,880. The amount of the gain chargeable after PPRR is 211,382 less 166,880 = 44,502. (14 Marks) Payable by 31/1/2018 (1 Mark) (B) Rachel purchased a painting in January 2000 for 1,500 and sold it in June 2017 for 10,000. She also purchased an antique vase in January 2004 for 2,800. She sold the vase in June 2017 for 1,600. Requirement: Calculate Rachels capital gain / loss for 2017. Painting sold June 2017 for 10,000 Painting purchased Jan 2000 (2000/01) indexation 1.144 x 1,500 1,716 Gain 8,284 Antique vase sold for June 2017 1,600 Purchased January 2004 (no indexation) 2,800 Loss 1,200 As the asset is a non- wasting chattle,the proceeds exemption of 2,540 will apply on the disposal for the calculation of the loss relief available on disposal of the asset. Antique vase sold for June 2017 (deemed disposal) 2,540 Purchased January 2004 (no indexation) 2,800 Deemed loss on disposal 260 Final CGT liability Gain on painting 8,284 Less Deemed loss 260 8,024 Less annual exemption 1,270 Chargeable gain 6,754 (5 Marks) Page 24 of 44
Question 3 (Compulsory) Quango Ltd is an Irish registered company whose business is retail food sales. It makes up its annual accounts to 30 th September each year. The results for the company in the year ended 30 th September 2017 are as follows. Narrative Notes Sales 2,750,000 Cost of sales (1,200,000) Gross profit 1,550,000 Less expenses Wages 560,000 Deprecation 45,000 Rent & rates A 55,000 Motor expenses B 35,000 Subscriptions C 1,500 Professional fees D 14,500 Donations E 1,000 Loss on disposal of asset 2,000 Bad debts F 5,000 Interest G 24,000 (743,000) Net profit 807,000 Notes A Rent & Rates: Rent paid to landlord 45,000 Rates paid to local authority 10,000 Total 55,000 Notes B Motor expenses: *Leasing paid in respect of leased a car for a Sales Rep. 15,000 Petrol 8,000 Motor insurance 3,000 Motor tax 1,800 Servicing and repairs 3,500 Expenses company van 2,500 Parking fines 1,200 35,000 *The car used by the sales representative was leased on 1 st November 2015. The OMV of the car was 50,000 and has CO 2 emissions of 155g.km. Page 25 of 44
Note C Subscriptions. Rotary Club 300 Gym for MD 400 Trade magazines 800 1,500 Note D Professional fees: Audit & accountancy fees for preparation of the company annual accounts 7,500 Fees for submission of director s personal tax returns 4,000 Solicitors fees for drawing up lease on retail unit 3,000 14,500 Note E Donations Political party donation 200 Donation to local GAA club 800 1,000 Note F Bad Debts Bad debts written off 3,000 Bad debts recovered (2,000) Increase in the specific provision 1,500 2,500 Note G Interest Bank interest paid 2,000 Interest paid on late payment of VAT 2,000 Mortgage interest in respect of rented unit 20,000 24,000 Note H Other income Dividend from an Irish Resident Company 6,000 **Gain on disposal of commercial unit 80,000 86,000 **The commercial unit was acquired in January 2000 for 80,000 with solicitors cost on acquisition of 3,000. The unit was sold in May 2017 for 210,000. Note I Rent received from letting of commercial unit 25,000 25,000 Page 26 of 44
Assets owned by the company: Equipment Van Car CATEGORY C Cost 180,000 22,000 35,000 Purchased y/e 30/9/2014 Y/E 30/09/2011 Y/E 30/09/2015 Disposal Y/E 30/9/2017 Acquisitions Y/E 30/09/2017 4,700 50,000 28,000 Requirement: Calculate the Corporation Tax liability for Quango Ltd for the year ended 30/09/2017. Calculate the capital allowances due to Quango for the year ended 30/09/2017. (15 Marks) (5 Marks) Total (20 Marks) Page 27 of 44
SOLUTION: QUESTION 3 Case 1 Computation for the year ended 30/9/2017. Profit per accounts 807,000 Deduct Other Income (86,000) Rent received (25,000) 696,000 Add Deprecation 45,000 Loss on sale of 2,000 asset Motor expenses NOTE A 9,000 Professional fees NOTE B 7,000 Donations NOTE C 1,000 Interest Revenue 2,000 Letting interest NOTE D 20,000 86,000 Tax Adjusted 782,000 profits Less capital NOTE E 36,050 allowances Case 1 Income 745,950 Note A Motor expenses The car used by the sales representative was leased on 1 st November 2015. The OMV of the car was 50,000 and has CO2 emissions of 155g.km. Category A car 15,000 x (50,000-24,000) / 50,000 7,800 Parking fines 1,200 Total Addback 9,000 Note B Professional fees Add back fees for submission of director s personal tax returns 4,000 Solicitors fees for drawing up lease on retail unit 3,000 7,000 Page 28 of 44
Note C: Add back Political party donation 200 Donation to local GAA club 800 1,000 Note D: Interest Add back Interest paid on late payment of VAT 2,000 Add back mortgage interest in respect of rented unit 20,000 22,000 (15 Marks) Note E: Capital allowance 2017 Disposal of old VAN VAN Purchased 22,000 Y/E 30/09/2011, W&T 2,750 x 6 = 16,500. I.E. tax written down value at time of disposal is 5,500. Sold for 4,700 Balancing allowance of 800. Purchase of VAN new: Cost 28,000 Y/E 30/09/2017 W&T 28,000 x 12.5% = 3,500 Car Category C car 24,000 x 12.5% = 3,000 Equipment: Equipment 180,000 + additions 50,000 = 230,000 x 12.5% = 28,750 Total capital allowance 800 + 3,500 + 3,000 + 28,750 = 36,050. (5 Marks) Note F: CASE V rental income computation: Rental income 25,000 Less mortgage interest 20,000 5,000 (passive income) Page 29 of 44
Note F: Chargeable Gain The commercial unit was acquired in January 2000 for 80,000 with solicitors cost on acquisition of 3,000. The unit was sold in May 2017 for 210,000. Sold May 2017 210,000 Purchased Jan 2000 80,000 Incidental cost 3,000 Indexation 1.144 83,000 x 1.144 (94,952) Gain 115,048 @ 33% = 37,965 115,048 x 33% / 12.5% 303,726 @ 12.5% = 37,965 Corporation Tax computation for the year ended 30/09/2017: Case 1 Income 745,950 12.5% 93,244 Case V income 5,000 25% 1,250 Chargeable gain 303,726 12.5% 37,965 Total 132,459 Question 4 Part A. Peter commenced trading as a carpenter on 1 st May 2015. He made up his annual accounts to 30 th April each year. Due to adverse trading, he ceased to trade with effect from 31 st October 2017. His assessable profits for income tax are as follows. Year ended 30 th April 2016 52,000 Year ended 30 th April 2017 26,000 1 st May 2017 to 31 st October 2017 8,000 (6 months). Total profits 86,000 Requirement: On the basis that Peter wishes to minimise his income tax liability and he has complied with all Revenue compliance rules, show the basis periods and years of assessment. (8 Marks) Year of assessment Basis period 2015 1/5/2015 31/12/2015 (52,000 x 8/12) 34,667 2016 12 months to 30/04/2016 52,000 2017 1/1/2017 to 31/10/2017 1/1/2017-30/04/2017 26,000 x 4/12 8,667 1/5/2017 to 31/12/2017 ` 8,000 16,667 Page 30 of 44
As this is a short-lived business (commenced and ceased within 3 years) Peter can reduce his assessable profits by the excess of the profits assessed in and 2016 (year 2) over the actual profits earned in that year. 2016 Assessed profit 52,000 Actual profit 1/1/2016 to 30/04/2016 52,000 x 4/12 17,334 Actual profit 1/5/2016 31/12/2016 26,000 x 8/12 17,334 Total actual profit 34,667 Excess 52,000 34,667 17,333 2017 Original assessment 16,667 Less excess (17,333) Assessable profits Nil Total assessable profits for the business 2015 52,000 x 8/12 = 34,667 2016 12 months to 30/04/2016 = 52,000 Total 86,667 As the total profits assessed are more than the actual profits earned in the business Peter can ask for the profits of year 2 (2016) reduced to the actual profits of 34,667. Final assessment for the three years as follows: 2015 34,667 2016 34,666 2017 16,667 *(no excess to deduct). Total 86,000 As the assessable amount for 2016 has bee reduced to the actual profit, there is no excess to deduct. (8 Marks) Page 31 of 44
Part B Crystals Ltd carries on two trades. It is an Irish resident company and has been trading for 10 years. It prepares its accounts to 30 th September each year. In respect of its first trade (Trade 1), one of its largest debtors went into liquidation resulting in a Case 1 trading loss for 2016 of 400,000. Apart from its income from Trade 2, Crystals only other source of income is Case V rental income. The following table shows their results for the last 3 accounting periods. 12 Months ended 30 th September 2015 30 th September 2016 30 th September 2017 Trade 1 45,000 (400,000) 25,000 Case 1 trading income. Trade 2 35,000 80,000 25,000 Case 1 trading income. Case V Rental income 40,000 50,000 20,000 Requirement: (a) Calculate the company s final corporation tax liability for all 3 accounting periods making full use of any loss as soon as possible. (7 Marks) (b) Prepare a loss memo showing how the losses were utilised. (5 Marks) Page 32 of 44
SOLUTION Part B Assessable Corporation Tax: 12 Months ended 30 th September 2015 30 th September 2016 30 th September 2017 Trade 1 NIL (400,000) NIL Case 1 trading income. Trade 2 NIL NIL 25,000 Case 1 trading income. Case V Rental income NIL NIL 20,000 Corporation tax 25,000 x 12.5% = 3,125 Case 1 Case V 20,000 x 25% = 5,000 Total 8,125 (7 Marks) Page 33 of 44
Loss memo: 30/09/2016 Trade 2 income 80,000 Less Trade 1 loss (400,000). Balance of loss (320,000) Trading income 2015 Trade 1 and 2 80,000 Balance of loss (240,000) Non-trading income 2016 50,000 x 25% = 12,500 Value basis 100,000 @ 12.5% 100,000 Balance of loss (140,000) Non-trading income 2015 40,000 x 25% = 10,000 Value basis 80,000 @ 12.5% 80,000 Balance of loss fwd to 2017 (60,000) against trading income only from the same trade (Trade 1). Trading income 2017 Trade 1 25,000 Loss forward (35,000) (5 Marks) Question 5 Part A Georgina is a sole trader who has been trading for the past 10 years. She makes up her accounts annually to 31 st December. She has had a monthly direct debit instalment arrangement for the past 5 years with the Office of the Collector General in respect of her income tax liability. Year Income tax liability 2015 50,000 2016 38,000 2017 47,000 2018 50,000 ESTIMATED Requirement: In order to avoid interest charges how much preliminary tax should she pay in 2018 and the date by which it must be paid. (4 Marks) Page 34 of 44
Solution: The minimum she must pay is the lower of: 90% of the estimated final liability for 2018 50,000 x 90% = 45,000 100% of the previous year s liability (2017) = 47,000 105% of the pre-preceeding year (2016) 38,000 x 105% = 39,990 An amount of 39,990 must be paid by 31 st Oct 2018. (4 Marks) Part B George Murray is a wholesaler who prepares his accounts to the 31 st December each year. The following are details of his accounts for the year to 31/12/2017. During the year he sold one of his wholesale premises and made a profit on the sale as itemised in his accounts. Narrative Notes Turnover 1,200,000 Cost of goods (550,000) Gross Profit 650,000 Wholesale distribution (175,000) costs Expenses Wages & salaries 1 84,000 Insurance 2 13,500 Light & heat 3,100 Repairs & Maintenance 3 7,000 Cleaning 1,500 Motor Expenses 4 5,200 Packaging 10,300 Advertising 2,000 Computer costs 5 4,300 Telephone 6 1,500 Accountancy fees 7 3,500 Interest 8 4,500 Bad debts 9 5,400 Depreciation 16,415 (162,215) Profit on sale of commercial unit 650,000 Net Profit 962,785 Page 35 of 44
Notes 10 Wages and salaries include Mr Murrays wages of 25,000. 11 Insurance Public Liability 11,000 + Permanent health insurance for Mr. Murray 2,500. 12 Repairs & maintenance 7,000 includes 5,000 for new packaging machine. 13 Motor expenses 5,200 leasing charge BMW car 2014, CO2 emissions of 180g/km. Original Market Value 35,000. 14 Computer cost 4,300 includes 2,000 purchase of a new software package. 15 Telephone 1,500 for Mr Murrays phone which is used 80% for business use. 16 Accountancy fees 3,500, preparation of business accounts 2,500, preparation of F11 for Mr Murray 1,000. 17 Interest 4,500, Bank interest 1,500, Interest paid to Revenue on late payment of VAT 3,000 18 Bad debts 5,400 Bad debts written off 1,200 Bad debts recovered 800 General bad debt provision 5,000 Requirement: Calculate the tax adjusted Case 1 profit for Y/E 31/12/2017. Solution Part B: Page 36 of 44 (16 Marks) Narrative Notes Profit per accounts 962,785 Addback Wages 25,000 1 PHI 2,500 2 New machine 5,000 3 Leasing restriction 3,417 4 Computer software 2,000 5 Telephone 300 6 Accountancy fees 1,000 7 Interest 3,000 8 General Bad debt 5,000 9 provision 42,217 Profit on sale of (650,000) property Case 1 Income 355,002
1 Mr Murrays wages of 25,000 are not a business expense. 2 Permanent health insurance for Mr. Murray 2,500 is not a business expense. 3 New packaging machine. 5,000 is a capital item 4 Category D car (35,000 12,000) / 35,000 x 5,200 = disallowed amount 3417 5 Purchase of a new software package is a capital item. 6 Telephone 1,500, 20% private usage. 7 Preparation of F11 for Mr Murray 1,000 is not a business expense. 8 Interest paid to Revenue on late payment of VAT is not a business expense. 9 General provision for bad debt is not allowed. 10 Profit on sale of property is a capital profit not Case 1. (16 Marks) Total 20 Marks 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) Peter Jones was provided with a company car by his employer on 1 st Jan 2017.The car cost the company 18,000 and the original market value of the car was 30,000. Peter travelled 30,000 k/m in the year to 31 st Dec 2017. Peter paid 200 per month directly to his employer towards the running cost of the car. What is Peters assessable benefit in kind for 2017? (a)4,230. (b)7,200. (c)1,920. (d) 4,800. OMV = 30,000 x 24% = 7,200 less direct contribution made to his employer 2,400 = assessable BIK 4,800 Page 37 of 44
(2) Fred Colley is a self- employed accountant. He makes up his annual accounts to 31 st December. In the 1 st July 2017 he purchased a BMW car for 30,000. This car has CO 2 emissions of 165g/km. The car is used 80% for business use. What is the capital allowance due to Fred for 2017? (a) 3,750 (b) 1,875 (c) 1,500 (d) 1,200 Category D/E car Capital allowance is the lower of 50% of the cost i.e. 15,000 or 50% of 24,000 i.e. 12,000. Capital allowance due is 12,000 x 12.5% = 1,500 x 80% business use = 1,200. (3) Pagoda Ltd is owned by Paul and Mary who each have a 50% shareholding. The issued share capital of the company is 2,000 shares with a nominal value of 1 each. Paul and Mary loaned the company 30,000 and the company agreed to pay 5% interest on the loan. What is the maximum amount of interest allowed as a business expense to the company? (a) 2,600. (b) 260. (c) 1,500. (d) 3,900 The maximum amount of interest allowable as a deduction by the company is the lower of 13% of the of the share capital i.e. 2,000 x 13% = 260 Or 13% of the loan from the directors 30,000 x 13% = 3,900 (4) Natalie purchased a painting for 3,000 in December 1999. She sold the painting in April 2017 for 1,500. What is the loss relief available on the disposal of the asset? (a) 1,500 (b) 2,079 (c) 460 (d) 1,039 Page 38 of 44
The deemed loss on the disposal is Deemed sale price 2,540 Cost 3,000 x 1.193 3,579 Deemed loss 1,039 (5) Stephen made a capital gain in December 2017. When must the Capital Gains Tax in respect of this gain be paid by Stephen to avoid payment of interest and penalties to Revenue. (a) 31/12/2017 (b) 31/1/2018 (c) 15/01/2017 (d) 31/10/2018 Gain accrues during the second interval I.E. CGT payable by 31/1/2018 (6) Sean s final tax liability for 2016 was 12,000 and he paid preliminary income tax of 10,800 in relation to this by 31/10/2016. He filed his tax return for 2016 on 1/12/2017. The correct filing date was 31/10/2017. What are the compliance implications of the late filing of the return. (a) A surcharge of 600 is due. (b) A surcharge of 1,200 is due. (c) No surcharge arises as he paid the correct amount of preliminary tax. (d) A surcharge of 60 is due. (7) Joe is a self- employed furniture manufacturer. He makes up his annual accounts to 30 th June each year. In May 2017 he sold a machine for 4,000. This machine cost Joe 5,000 when purchased in May 2014. What capital allowance is due in respect of this disposal? (a) Balancing allowance of 1,000. (b) Balancing charge of 875. (c) No Balancing charge or allowance due as it was not in use at the 30 th June 2017. (d) Balancing charge 1,553. Page 39 of 44
W&T June 2014 625 W&T June 2015 625 W&T June 2016 625 1,875 Cost 5,000 TWDV May 2017 3,125 Sold May 2017 4,000 Balancing charge due 875 (8) John is Irish domiciled. He moved to Germany several years ago. In 2017 he has worldwide income of 1,200,000 inclusive of Irish income of 100,000. His Irish owned property is valued at 7,000,000 at 31/12/2017. His Irish income tax liability for 2017 is 45,000. His German tax liability in 2017 was 40,000 What is the Domicile Levy payable in 2017, if any, by John. (a) 200,000. (b) 155,000. (c) None as he is a citizen of the E.U. (d) 115,000. (9) Harry is separated from his wife Mary under a legal separation Under a legally enforceable agreement he pays a total annual maintenance payment to Mary of 8,000. Of this 8,000 an amount of 1,000 is in respect of their son George aged 14. In addition, he makes a discretionary payment of 100 per week to Mary. What annual deduction for income tax is Harry entitled to. (a) 8,000 (b) 7,000 (c) 13,200 (d) 5,200 (10) Genevieve is in receipt of rental income from a residential letting. In 2017 she charge rent of 25,000 but only received 21,000 from her tenant. She paid mortgage interest of 5,000. She also installed a new bathroom suite costing 3,000. What is her assessable Case V income for 2017? (a) 17,000 (b) 20,000 (c) 21,250 (d) 20,875 Page 40 of 44
Gross rents 25,000 Less mortgage interest 5,000 x 80% = 4,000 21,000 Less capital allowance 3,000 x 12.5% 375 Assessable Case V income 20,625 Total 20 Marks Page 41 of 44
Question 7 (Parts A & B) Part A George Jones and his wife Patricia were married and jointly assessed for income tax. George is the assessable spouse. On 30 th June 2016 George died. The following are details of their income for the year ended 31/12/2016. George Jones; Salary to date of death 58,000. Tax paid PAYE 11,300. Rental income Case V, residential letting ( 1,500 P.M.) Amount received to date of death 9,000. Patricia Jones: Salary for the year 1/1/2016 to 31/12/2016 = 39,000 Rental income received from 1/7/2016 to 31/12/2016 = 9,000 Tax paid PAYE = 8,200 Requirement: Compute the Joint income tax assessment for the period 1/1/2016 to 30/06/2016: Compute Patricia s income tax computation for the period 1/7/2016 t0 31/12/2016. (7 Marks) (7 Marks) Solution Joint assessment (George assessable spouse) Period 1/1/2016 to 30/06/2016. Schedule D Case V income to 30/06/2016 9,000 Salary to 30/06/2016 58,000 Patricia salary to 30/06/2016 39,000 x 6/12 19,500 86,500 Page 42 of 44
Tax 42,800 x 20% 8,560 19,500 x 20% 3,900 24,200 x 40% 9,680 22,140 Less Non refundable tax credits Married persons credit 3,300 Employee tax credit x 2 3,300 6,600 Less refundable tax credits Paid PAYE George 11,300 Paid Patricia 8,200 x 6/12 4,100 22,000 Liability 140 (7 Marks) Patricia Income tax computation 1/7/2016 to 31/12/2016 Salary 39,000 x 6/12 19,500 Case V Rental income 9,000 28,500 Taxed 28,500 x 20% = 5,700 Page 43 of 44
Less non refundable tax credits: Widowed person in year of bereavement 3,300 Employee PAYE tax credit 1,650 4,950 Liability 750 Less paid PAYE 8,200 x 6/12 4,100 Refund due: 3,350 (7 Marks) Part B Garuda Ltd has Case 1 assessable income of 25,000 and Case 111income of 30,000 for the year ended 30 th September 2017. The company paid trade charges for the use of patent rights of 35,000 during the year ended 31/12/2017. Requirement: Compute the corporation tax liability for Garuda Ltd for Y/E 30/09/2017 (6 Marks) Solution: Garuda Ltd Case 1 25,000 Trade charges (25,000) NIL Case 111 30,000 Taxable profits 30,000 Corporation tax 30,000 x 25% = 7,500 Excess trade charges 10,000 x 12.5% = 1,250 Corporation Tax liability 6,250 6 Marks Total 20 Marks Page 44 of 44