Accounting Technicians Ireland

Accounting Technicians Ireland 2 nd Year Examination: August 2017 Paper: ADVANCED TAXATION (Republic of Ireland) Thursday 17 August 2017 2.30 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, 2015. 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 1 of 11 Adv. Taxation (ROI) A2017

SECTION A Answer QUESTION 1 and QUESTION 2 and QUESTION 3 (Compulsory) in this Section QUESTION 1 (Compulsory) There are TWO parts to this question. Both parts should be answered. Elliott is VAT registered and has been trading for several years. He has always prepared his accounts for the 12 months ending 31 October. He wishes to change his Accounting Period to 31 December. His tax adjusted profits are as follows: Accounting Period Tax Adjusted Profits 12 months ended 31 October 2015 42,000 12 months ended 31 October 2016 50,000 2 months ended 31 December 2016 20,000 He purchased a machine on 1 December 2014 for 20,000 exclusive of VAT and put the machine immediately into use for the purpose of the trade. On the basis that this is Elliott s only source of income, compute his: (a) Taxable Income assessed for 2015 before change of accounting period. (b) Taxable Income for 2016. (c) The amended Taxable Income assessed for 2015 on change of accounting period. (10 Marks) Agata is a sole trader and has been trading for several years. She prepares her accounts to 30 September each year. The following are her details for the 12 months ended 30 September 2016. Notes Gross Profit 20,000 Net Bank Interest after deduction of DIRT 6,532 Profit on disposal of machine (1) 4,500 31,032 Expenses Depreciation 1,200 Subscriptions (2) 1,130 Bad Debts (3) 1,350 Motor Expenses (4) 6,050 Interest (5) 1,650 Drawings for Agata 35,000 Other Allowable Expenses 18,000 (64,380) Net Loss (33,348) Notes: 1) The machine was purchased on 1 September 2014 for 48,000. It was sold on 31 January 2016 for 33,300. Page 2 of 11 Adv. Taxation (ROI) A2017

2) Subscriptions include: Political Donation 100 Traders Association 530 Personal Health Club Membership 500 1,130 3) Bad Debts includes: Bad Debt Recovered (1,100) Increase in General Provision 2,450 1,350 4) Motor Expenses include: Petrol for Agata s car which is used 80% for business 5,200 Tax and Insurance for Agata s car 700 Agata s parking fines 150 6,050 5) Interest includes: Finance Interest in respect of new machine 750 Interest on business overdraft 900 1,650 The total finance lease payment amounted to 1,800. (a) Calculate Agata s Case 1 income or loss for 2016. (b) Compute the amount of capital allowances due for the 2016 year of assessment. (6 Marks) (2 Marks) (c) Write a short note explaining how any loss and capital allowances due can be utilised on the basis that this is the first year Agata incurred a loss. (2 Marks) Page 3 of 11 Adv. Taxation (ROI) A2017

QUESTION 2 (Compulsory) There are TWO parts to this question. Both parts should be answered. Siofra is single and Irish tax resident. On 31 July 2016, she sold her principal private residence in Dublin for 550,000. Selling fees amounted to 3,100. She inherited the house on the death of her father on 1 June 2002 when the market value was 270,000. She lived in the house from the date she inherited it until 1 January 2007 when she moved to England to study for a Master s degree. She finished her degree on 1 April 2010 and travelled throughout Europe until she returned on 1 September 2010 to work in Ireland and live in the house. The house was vacant during the periods spent in England and Europe. On 1 January 2011, she got a job in Cork and rented a small apartment near her job. Her sister Nicola moved into the house and Siofra charged her a monthly rent of 400 when the market rent for the house was 1,000 per month. Nicola continued to live in the house until Siofra moved back in on 1 July 2015 after taking up a job in Dublin. She put the house up for sale on 1 April 2016 and moved out on that same date. On 1 July, she sold all her furniture at a market for a total of 2,650. She estimates she made a loss of 2,000 on the furniture. Siofra had previously sold shares in 2014 at a loss and has an unused capital loss of 900. a) Calculate Siofra s capital gains tax liability for 2016. (11 Marks) b) Explain your treatment of the disposal of her furniture. (2 Marks) c) By what date must the capital gains tax due be paid? (1 Mark) Benny is married and Irish tax resident. He had the following disposals in 2016: On 30 June 2016, he sold an antique vase for 2,800. He bought the vase in 2004 for 1,000. On 27 September 2016, he sold a small number of shares. The gain on that disposal amounted to 1,500. Calculate Benny s capital gains tax liability for 2016. (6 Marks) Page 4 of 11 Adv. Taxation (ROI) A2017

QUESTION 3 (Compulsory) There are TWO parts to this question. Both parts should be answered. V Ltd commenced trading on 1 July 2015 manufacturing cardboard goods. Accounts for the 12 months ended 30 June 2016 show the following. Notes Gross Profit 240,000 Other income 2 5,300 245,300 Depreciation 1,600 Rent and Rates 3 56,000 Interest 4 3,100 Motor Expenses 5 22,300 Directors Remuneration 65,000 Other Expenses 28,000 176,000 Net Profit 69,300 NOTES 1. The shareholding of the company is made up as follows: Charlie Lee (Director) 100 Eleanor Lee (Director) 100 Lily Lee 20 Total 220 i. Both Charlie and Eleanor work full time in the company. ii. Lily Lee does not work in the company. 2. Other Income Gross deposit interest that was subject to DIRT 800 Dividend from Irish tax resident company 4,500 5,300 3. Included in the figure for Rent and Rates is 1,500 paid on 1 January 2016 to a letting company as a security deposit in respect of an apartment which Lily Lee is renting for personal use. 4. Interest a. Interest includes 650 paid to Eleanor in respect of a loan of 5,000 she made to the company on 1 August 2015. b. The balance of the 3,100 interest deduction is in respect of the company overdraft. Page 5 of 11 Adv. Taxation (ROI) A2017

5. Motor Expenses include the following: Petrol for car used by Charlie Lee 4,300 Diesel for delivery van 5,200 Lease charge for car used by Charlie Lee 5,000 (See Note 6) Lease charge for delivery van 7,800 (See Note 6) 22,300 6. Leased Fixed Assets include: Vehicle List Price Notes Car 26,000 Category B car used by Charlie Delivery Van 27,000 150 CO 2 Emissions 7. Other Fixed Assets Asset Cost VAT Exclusive Date of Purchase Machine 25,000 1 July 2015 (a) Calculate the final corporation tax payable by V Ltd in respect of the 12 months ended 30 June 2016. (13 Marks) (b) Calculate the amount of Dividend Withholding Tax payable by V Ltd. (1 Marks) (c) In relation to Note 3 how should Lily account for this payment of 1,500 by V Ltd in her own income tax return. (1 Mark) In the 12 months ended 31 December 2016 X Ltd had the following income: Case I Income 16,000 Case III Income 8,000 The company has an allowable non-trade charge of 10,000 in the accounting period. (a) Calculate the final corporation tax payable by X Ltd for the 12 months ended 31 December 2016 maximising the use of the non-trade charge. (4 Marks) (b) Write a brief note explaining how the non-trade charge has been used. (1 Mark) Page 6 of 11 Adv. Taxation (ROI) A2017

SECTION B Answer ANY TWO of the FOUR questions in Section B QUESTION 4 There are TWO parts to this question. Both parts should be answered. Andy runs a catering business from a rented premise. He accounts for VAT on a Cash Receipts basis and makes bi-monthly returns. The following details refer to the period March/April 2016. Catering Services invoiced to Irish business customers (VAT Inclusive) 13,080 Cash Received in respect of catering services invoiced to Irish business 14,500 customers Catering Services supplied to Irish private customers. Andy received 5,450 payment for these services in full on the day the service was supplied. Purchases/Expenses Notes All purchase amounts from Irish suppliers are VAT inclusive unless stated otherwise Machine purchased from United Kingdom Andy supplied the UK supplier with his Irish VAT number and the UK supplier did not charge UK VAT. 3,000.00 Petrol for delivery van 615.00 Equipment from China 2,500.00 Electricity 340.50 Diesel Diesel is for Andy s car which he used 70% 922.50 in the business Food supplies 0% VAT rate applies 900.00 Food Packaging Standard Rate of VAT applies 369.00 Additional Information Included in the Food Packaging amount is a gross invoiced amount of 30.75. The invoice is dated 20 April 2016 but, as Andy only received the invoice on 30 April 2016 it was not paid until 3 May 2016. (a) Calculate Andy s VAT liability for the period March/April 2016. (b) Explain your VAT treatment of the purchase invoices for food packaging. (10 Marks) (2 Marks) In respect of each of the following write a brief note to explain the place of supply rules. (a) An Irish VAT registered trader transports goods to a private individual in France and installs them in the person s home in Paris. (b) A French VAT registered trader supplies goods by mail order into Ireland. In the 11 months January to November 2016 the value of such supplies has reached 35,000. Several orders are outstanding for the month of December 2016. (c) An Irish VAT registered trader supplies and transports goods to a private customer in France but does not install or assemble the goods for the customer. (d) A VAT registered architect based in Dublin provides services to an Irish individual in respect of an extension to their holiday home in England. (8 Marks) Page 7 of 11 Adv. Taxation (ROI) A2017

QUESTION 5 There are TWO parts to this question. Both parts should be answered. Josie who is single and aged 30 first came to Ireland to work on 12 December 2015 and intends to remain in Ireland. Prior to coming to Ireland she lived and worked in Denmark for 25 years. In January 2017 she has asked for your advice on her residence position in Ireland. Set out a brief note for Josie to explain: (a) If, based only on her 20 days in Ireland in 2015, she could be considered Irish tax resident for 2015. (b) If she is considered Irish tax resident for 2016. (c) Explain what is meant by the Split Year treatment (d) If on review of Josie s situation, she can elect to be Irish tax resident for 2015. (e) Arising from such election: a. In what country or countries will her Danish and Irish income be taxed? b. What Irish tax credits would she be entitled to in 2015? (9 Marks) Billy commenced trading as a painter and decorator on 1 April 2014. However, as business was slow he decided to cease trading on 28 February 2016. His tax adjusted profits for the period of trading are as follows: 3 months ended 30 June 2014 3,500 12 months ended 30 June 2015 48,000 8 months ended 28 February 2016 16,000 Total Profits 67,500 (a) Calculate Billy s assessable Case 1 income for 2014, 2015 and 2016 years of assessment using the commencement rules. (b) If Billy makes a formal claim by 31 October 2017, set out the final Case 1 income assessable for each of the three years on the basis of a short lived business. (11 Marks) Page 8 of 11 Adv. Taxation (ROI) A2017

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. Indicate the correct answer to each of the following TEN parts. Each part carries equal marks. 1. Sol Ltd is VAT registered trader and has been authorised by Revenue to make an annual VAT return. Accounts are prepared for each 12-month period ending 30 September. By what date must the annual VAT return for the 12 months ended 30 September 2016 be filed? a. 31 December 2016 b. 19 October 2016 c. 23 October 2016 d. 30 October 2016 2. A touring United Kingdom musical production performs in Ireland. The group is made up of singers from Germany and France. The place of supply for VAT is: a. Germany and France b. United Kingdom c. Ireland d. None of the above 3. For Capital Gains Tax, a Wasting Chattel is: a. An intangible asset with a predictable life of greater than 50 years b. A tangible movable asset with a predictable life of greater than 50 years c. A tangible movable asset with a predictable life of less than 50 years d. An intangible asset with a predictable life of less than 50 years 4. Olive received the following benefits from her employer in 2016. Private gym membership 1,000 A company van with an original market value of 23,000. The van cost her employer 16,000 and is used 50% for business. In the 12 months ended 31 December 2016 Olive drove a total of 26,000kms for business. What is Olive s Benefit in Kind charge for 2016? a. 2,150 b. 7,900 c. 6,520 d. 1,800 5. Net Relevant Earnings (NRE) for calculating tax relief for pension contributions is: a. Gross Income less charges b. Gross Income less charges, allowances and reliefs c. Income from a trade, profession or non-pensionable employment less capital allowances, but before losses and charges d. Income from a trade, profession or non-pensionable employment less capital allowances, losses and charges Page 9 of 11 Adv. Taxation (ROI) A2017

6. Austin first let a property on 1 January 2016 at a monthly rent of 1,000. The rent payable for December 2016 was not received by Austin until 20 January 2017. In December 2015 Austin spent 12,000 on fixtures and fittings for the property and 300 to a letting agent to let the property. Rental expenses incurred in 2016 (allowable) amounted to 400. The amount of Austin s Schedule D Case V income to be assessed in 2016 is: a. 11,600 b. 11,300 c. 9,800 d. 10,300 7. Brian is single and age 55. In 2016 he had the following sources of income: Employment income of 45,000 Schedule D Case I income 30,000 Net deposit interest of 708 after deduction of DIRT. The Universal Social Charge (USC) payable by Brian for 2016 is: a. 3,598 b. 3,542 c. 943 d. 3,637 8. In relation to Capital Gains Tax, which of the following statements is correct: a. If indexation turns a monetary gain into a notional loss, the monetary gain is subject to tax b. If indexation increases the amount of a monetary loss, the allowable loss is restricted to the amount of the monetary loss c. If indexation increases a monetary gain, then no gain-no loss applies d. None of the above 9. Hat Ltd disposed of an asset in 2016 giving rise to a capital gain of 25,000. What figure should be included as a chargeable gain in the corporation tax computation: a. 66,000 b. 9,470 c. 25,000 d. 8,250 10. An Irish government department engages a consultancy firm to advise on a new project. The consultancy firm invoices the department for 1,230 inclusive of 23% VAT. The correct treatment is: a. The government department will withhold 200 Professional Services Withholding Tax b. The government department will withhold 246 Professional Services Withholding Tax c. The government department will pay the full 1,230 to the consultancy firm d. The government department will pay 1,000 to the consultancy firm Page 10 of 11 Adv. Taxation (ROI) A2017

QUESTION 7 There are THREE parts to this question. All three parts should be answered. The Finance Act 2015 introduced the Earned Income Tax Credit. In respect of the following two individuals set out the amount of non-refundable tax credits due in 2016, including calculations where necessary. (a) Ger is single and aged 70. His income for 2016 was as follows: Schedule D Case I 500 Schedule D Case V 15,000 (b) Gavin is a proprietary director of Leinster Ltd. and is aged 45. His wife Imelda died in 2014. The couple had no children. His income for 2016 was as follows: Directors Remuneration 40,000 Schedule D Case I 5,000 (6 Marks) David and his wife Kate are both directors of Bean Ltd. David works full time in the business and in 2016 had a salary of 100,000 and Director Fees of 10,000. Kate does not work in the business as she is a full-time nurse in the Regional Hospital. On 1 June 2016 David drew down a loan of 50,000 from the company to pay some personal debts. Interest was payable at 1%. On 1 August 2016 the company provided David with a company car. The original market value of the car was 38,000 but as Bean Ltd bought it second hand it only cost them 32,000. In the period from 1 August 2016 to 31 December 2016 David drove 23,000 kilometres of which 4,000 were private. Calculate David s Schedule E income for 2016. (7 Marks) Part C Chill Ltd prepared accounts for the 12-month period ending 31 December 2016. The previous set of accounts were prepared for the 9 months ended 31 December 2015. The corporation tax liability for the 9 months ended 31 December 2015 was 210,000. Corporation tax liability for the 12-month period ending 31 December 2016 is estimated as 120,000. a) Advise Chill Ltd of the minimum amount(s) of preliminary tax it can pay in respect of the 12- month period ending 31 December 2016, b) Set out the reason for this advice, and c) State the date(s) such amount(s) must be paid to avoid interest charges. (7 Marks) Page 11 of 11 Adv. Taxation (ROI) A2017