Fundamentals Level Skills Module Taxation (Irish) Monday 7 June 2010 Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FIVE questions are compulsory and MUST be attempted. Tax rates and allowances are printed on pages 2 6. Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall. Paper F6 (IRL) The Association of Chartered Certified Accountants
SUPPLEMENTARY INSTRUCTIONS 1. Calculations and workings need only be made to the nearest Euro. 2. All apportionments should be made to the nearest month. 3. All workings should be shown. TAX RATES AND ALLOWANCES The following rates, credits, formulae and allowances are based on the Finance Act 2009 and are to be used for all questions in this paper. Rates of income tax Tax Single/Widow(er) 36,400 at 20% 7,280 Balance at 41% Married couple (one income) 45,400 at 20% 9,080 Balance at 41% Married couple (dual income) 72,800 at 20% 14,560 Balance at 41% One parent family 40,400 at 20% 8,080 Balance at 41% Income levy From 1 January to From 1 May to 30 April 2009 31 December 2009 No levy on income below 18,304 15,028 Annual income up to 100,100 75,036 liable to levy at 1% 2% Annual income between 100,101 250,120 75,037 174,980 liable to levy at 2% 4% Annual income greater than 250,120 174,980 liable to levy at 3% 6% The annualised table representing the above is as follows: First 75,036 1 67% Between 75,037 and 100,100 3 0% Between 100,101 and 174,980 3 33% Between 174,981 and 250,120 4 67% Greater than 250,120 5 0% 2
Abbreviated list of personal tax credits Single person s credit 1,830 Married couple s credit 3,660 Widowed person s credit (without dependent children) 2,430 Home carer credit (maximum) 900 Single parent credit 1,830 Incapacitated child credit 3,660 Dependent relative credit 80 Age credit single/widowed 325 married 650 Employee/PAYE credit 1,830 Rent allowance credit Rent limit single aged under 55 2,000 400 married/widowed aged under 55 4,000 800 single aged 55 and over 4,000 800 married/widowed aged 55 and over 8,000 1,600 Service charge credit (maximum) Upper limit 400 80 Third level tuition fees Upper limit 5,000 1,000 Rates of PRSI/levies Self-employed PRSI Rate 3% Minimum contribution where income is below 26,000 253 Note: No PRSI where income is below 3,174 per annum Health contribution Lower exemption limit (500 per week) 26,000 Income Rate Up to 75,036 per annum 3 333% 75,036 to 100,100 per annum 4% Over 100,100 4 167% Note: No upper limit for PRSI or health contribution Rates of PRSI/levies Employee Class A1 PRSI 1 January to 30 April 2009 Upper limit 52,000 1 May to 31 December 2009 Upper limit 75,036 Rate 4% The first 127 per week (non-cumulative) is exempt from PRSI No PRSI on income up to 18,304 per annum (352 per week) Health contribution 1 January to 30 April 2009 Rate Up to 500 per week Exempt 500 01 to 1,925 per week (100,100 per annum) 2% More than 1,925 per week 2 5% 1 May to 31 December 2009 First 1,443 per week (75,036 per annum) 4% Balance 5% Note: No upper limit for health contribution 3 [P.T.O.
Rates of PRSI/levies Employer (for employees Class A1) PRSI Rate 10 75% For salaries less than 18,980 (365 per week) the rate is 8 5% per annum Note: No upper limit for employer s contribution Retirement annuities Age Percentage of net relevant earnings % Up to 30 years 15 30 years but less than 40 years 20 40 years but less than 50 years 25 50 years but less than 55 years 30 55 years but less than 60 years 35 60 years and over 40 Cap on earnings of 150,000 Corporation tax Standard rate 12 5% Higher rate 25% Capital gains tax Rate 1 January to 7 April 2009 22% 8 April 2009 onwards 25% Annual exemption 1,270 4
Rural/Urban renewal allowances Industrial and commercial buildings Owner occupier % Free depreciation 50 or Initial allowance 50 Annual allowance 4 Maximum 100 Lessor Initial allowance 50 Annual allowance 4 Maximum 100 Residential property Owner occupier Construction Refurbishment 5% per annum (10 years) 10% per annum (10 years) Lessor (Section 23 relief) Construction 100 Conversion 100 Refurbishment 100 Motor cars limits on capital costs For cars purchased between 1 July 2007 and 30 June 2008: Capital allowances 24,000 Leasing charges 24,000 Running cost No limit For cars purchased on or after 1 July 2008: Capital allowances are based on the carbon dioxide emissions category of the car. The specified limit is 24,000. Carbon emissions table: Category A Category B/C Category D/E Category F/G 0 120g/km 121 155g/km 156 190g/km 190g/km+ Category A, B and C vehicles capital allowances are based on the specified amount of 24,000 regardless of the cost of the car. Category D/E vehicles, capital allowances are based on 50% of either 24,000 or the cost of the car, whichever is lower. Category F/G vehicles do not qualify for capital allowances. Motor cars (all categories) benefit-in-kind rates Business travel Business travel Percentage of original lower limit upper limit market value of car Kilometres Kilometre % 0 24,000 30 24,001 32,000 24 32,001 40,000 18 40,001 48,000 12 48,001 upwards 6 The above table is to be applied to all categories of car as the new legislation is not examinable in 2010. 5 [P.T.O.
Indexation factors for capital gains tax Year expenditure incurred Multipliers for disposals in the year ending 31 December 2003 et seq 1974-75 7.528 1975-76 6.080 1976-77 5.238 1977-78 4.490 1978-79 4.148 1979-80 3.742 1980-81 3.240 1981-82 2.678 1982-83 2.253 1983-84 2.003 1984-85 1.819 1985-86 1.713 1986-87 1.637 1987-88 1.583 1988-89 1.553 1989-90 1.503 1990-91 1.442 1991-92 1.406 1992-93 1.356 1993-94 1.331 1994-95 1.309 1995-96 1.277 1996-97 1.251 1997-98 1.232 1998-99 1.212 1999-2000 1.193 2000-2001 1.144 2001 1.087 2002 1.049 2003 et seq 1.000 6
ALL FIVE questions are compulsory and MUST be attempted 1 Stephen Joyce, a farmer, is single and aged 36 years. For the past ten years he has farmed the farm he inherited from his father. He lives with Ciara Tully, aged 33 years. Stephen and Ciara have one son Jack who is incapacitated. Jack was born in October 2005. Details of Stephen s income is as follows: Year ended Net trading income Case I capital Stock value Income from seasonal 31 December before stock relief. allowances increase letting (conacre) of farm land 2006 25,000 5,000 15,000 6,000 2007 27,000 5,800 10,000 6,600 2008 22,000 6,200 8,000 6,900 2009 28,000 6,500 6,000 7,000 Details of Stephen s other income and outgoings for the year 2009 are as follows: Dividends (net) received from an Irish plc 400 Deposit interest received (net) from an Irish banking institution, post 7 April 2009 750 Private health insurance paid, for self, Ciara and Jack 1,200 Qualifying health expenses, not re-imbursed by private health care company: Self 120 Ciara 200 Jack 650 Ciara is employed as a sales representative and receives a salary of 30,000 for 2009, with PAYE deducted of 4,000. Ciara s employer provides her with a company car. The car was provided new to Ciara from 1 June 2008, and the car cost 22,000. Ciara drives 25,000 kilometres a year, of which 75% is work related. She works 35 hours a week and spends 25 hours working away from the office. In June 2009 Ciara paid, directly to the garage 400 for the annual service of the car. In May 2007 Ciara had bought small premises and converted them into a beauty salon. The premises had cost 100,000 and the fittings an additional 16,000. The premises were let from September 2007 until 31 January 2009, at an annual rent of 20,000. It was then vacant until 1 June 2009 when it was let again under a ten-year lease, at a lower annual rent of 16,800 and an initial lease premium of 10,000. Ciara took out a loan to purchase the premises, the total interest charge on this loan for 2009 was 14,000. (a) Compute Stephen s Case I income for the income tax years 2008 and 2009 assuming he has elected for income averaging. (7 marks) (b) Compute the income tax and income levy payable by Stephen for the tax year 2009. (9 marks) (c) Compute Ciara s income tax and employees PRSI for 2009. Note: You are not required to calculate Ciara s health contribution. (9 marks) (25 marks) 7 [P.T.O.
2 (a) Tilsley Ltd is an Irish incorporated and resident company. The company s income statement for the year ended 31 December 2009 shows the following: Notes Gross profit from trading 750,000 Other income Profit on sale of delivery van (1) 6,000 Investment income (2) 20,000 Loss on disposal of site (3) (80,000) (54,000) 696,000 Less expenses Depreciation 18,000 Legal and professional fees (4) 61,000 Bank interest (5) 25,000 Rates and service charges 21,000 Light and heat 32,000 Salaries and wages (6) 580,000 Motor expenses (7) 31,000 Finance lease charges (8) 2,100 770,100 Net loss (74,100) Notes: (1) In June 2009 Tilsley Ltd sold a delivery van for 12,000. The van had been bought in December 2005 for 30,000 and had a net book value at the date of sale of 6,000. (2) Investment income comprised the following: Dividends from a UK quoted trading company 12,000 Irish deposit interest, received gross 8,000 20,000 (3) Tilsley Ltd had acquired a site in October 2003 for 200,000. At the time of acquisition it had been the intention of the company to expand its operations. The current use value of the site at the date of acquisition was 90,000. In May 2006, the company spent 90,000 carrying out work to improve the site. Due to trading difficulties the site was sold in March 2009 for 210,000, at this time the current use value of the site was 70,000. The site had never been used for trade purposes by the business. (4) Legal and professional fees comprise: Legal fees on the disposal of the site 15,000 Trade consultancy reports 12,000 Audit and accountancy fees 18,000 Legal fees for debt collection 6,000 Accountancy and legal advice on voluntary redundancy package, it is hoped that 20% of existing staff will avail of the scheme 10,000 61,000 (5) Bank interest comprises: Interest on bank overdraft 10,000 Interest on loan to purchase shares in the UK quoted company 6,000 Interest on loan to purchase site 9,000 25,000 8
(6) Salaries and wages include an accrual for a pension contribution of 40,000 for the directors. There was no opening accrual or prepayment in respect of the pension. A pension is not provided for all employees. (7) Motor expenses comprise: Running expenses of cars/vans owned by the company 15,000 Car lease expense for the managing director s car 11,000 Running expenses of the managing director s car (including 784 for road tax), the car is used 20% for business purposes. 5,000 31,000 The managing director s car was leased new on 1 July 2008, the car would have cost 40,000 if bought for cash. The car is a category E car. (8) The finance lease charges relate to equipment leased in 2006, the cost of which is capitalised in the company s accounts. The lease agreement states that the burden of wear and tear is transferred to the lessee. Total repayments made during the year ended 31 December 2009 were 14,000. This figure comprised capital repayments of 11,900 and finance charges of 2,100. Other information relating to fixed assets: Additions during the year at cost were: On 15 February, Tilsley Ltd puchased a Toyota car, category C, for the marketing manager 30,000 On 21 December, Tilsley Ltd purchased a Citroen car, category A, for general use by staff 21,000 The only disposal during the year is detailed in Note 1 above. Capital allowances for 2009 on business assets other than those acquired or disposed of during the year are 20,000. (i) Compute the Case I adjusted income of Tilsley Ltd for the year ended 31 December 2009; (13 marks) (ii) Compute the corporation tax liability of Tilsley Ltd for the tax year 2009. (7 marks) (b) Feeney Ltd was established many years ago, but due to current economic circumstances ceased to trade on 28 February 2009. The company s taxable income for the years preceding cessation were as follows: Income Year end Year end Year end Year end Period end 31 December 31 December 31 December 31 December 28 February 2005 2006 2007 2008 2009 Case I 36,000 30,000 45,000 (225,000) 5,000 Case III 3,000 2,000 3,200 4,000 1,000 Feeney Ltd always claims full relief for any losses at the earliest opportunity. (i) Compute Feeney Ltd s terminal loss; (5 marks) (ii) State how a terminal loss can be relieved and show how the relief will apply in the case of Feeney Ltd, clearly identifying the amount of any unrelieved loss. (5 marks) (30 marks) 9 [P.T.O.
3 Sally Walton, is Irish resident and domiciled, she has carried on the business of a food caterer for the past five years. The business has been successful and Sally decided to cease trade as a sole-trader and to incorporate the business, the new company will be called No Fuss Catering Ltd. In accordance with the advice she received from her accountant Sally transferred all the business assets excluding cash to No Fuss Catering Ltd on 30 June 2009. The existing business ceased to trade on that date. In consideration for the assets transferred Sally received the following consideration: 20,000 1 ordinary shares in No Fuss Catering Ltd A director s loan account for 80,000 The existing trade payables to be taken over by the new company. The balance sheet of Sally s sole trader business at 30 June 2009, the date of cessation, was as follows: Premises at cost (May 2004) 200,000 Kitchen equipment at cost (May 2004) 120,000 Less accumulated depreciation (50,000) 70,000 Delivery vans at cost (May 2004) 40,000 Less accumulated depreciation (25,000) 15,000 Accounts receivable 10,000 Bank 12,500 307,500 Trade payables (25,000) 282,500 The market values of the assets transferred on 30 June 2009 were: Premises 180,000 Kitchen equipment 40,000 Delivery vans 14,000 Accounts receivable 9,000 Goodwill 50,000 293,000 Sally s only other disposal during the year 2009 was shares quoted on the German stock market. On 1 September she sold 10,000 ordinary shares in Deutsche Telekom(FRK) at 9 50 each, she had bought these shares in January 2008 at 9 each. She decided to lodge the proceeds from the sale of the shares into a bank account in Germany. (a) (b) (c) Compute Sally s taxable capital gain, if any, arising on the incorporation of her sole trader business, giving a relevant explanation for any element of the transaction that you treat as not giving rise to a capital gain in this year. (14 marks) Calculate the base cost of Sally s shares in No Fuss Catering Ltd, which will be allowable against a future disposal of her shares. (2 marks) Advise Sally on the capital gains implications of the disposal of her shares in the German company, Deutsche Telekom. Note: you are not required to prepare any calculations for this part. (4 marks) (20 marks) 10
4 (a) Mr Taggart is a value added tax (VAT) registered trader, who sells electrical goods. His transactions for the November/December VAT period included the following: (1) In November, he took a new dishwasher, from stock, for his own use. The dishwasher had cost him 300 net of VAT when purchased in October 2009; VAT at 21 5% was paid on the purchase. Mr Taggart had expected to sell the dishwasher for 800 including VAT. (2) In November he had acquired a category B motor car. The car cost 28,000 inclusive of both VAT and Vehicle Registration Tax (VRT) of 2,500, which had been added to the VAT inclusive cost of the car. The car was purchased for use by one of Mr Taggart s sales representatives, and is used 80% for business purposes. (3) On 1 December 2009 Mr Taggart paid the hotel bill for the staff Christmas party. The VAT charge on the bill included 300 for VAT on food and drink. (4) Mr Taggart has been asked by the staff to provide canteen facilities. The canteen area is expected to occupy 5% of the total area of the business premises and the caterer s charges are expected to be 5,000 per month. Staff will not be charged for the meals provided. Advise Mr Taggart on the VAT treatment of each of the above transactions. (10 marks) (b) Mr Williams, is considering setting up a business that will repair and enhance old furniture. The business will be geared towards private individuals. Initially he expects that his annual turnover will be approximately 30,000. He has been told that the VAT rate applicable to his sales would be 13 5%, however he will not be required to register for VAT. (i) State why Mr Williams is not obliged to register for VAT; (1 mark) (ii) Set out the disadvantages of electing to register for VAT, given the circumstances outlined above. (4 marks) (15 marks) 11 [P.T.O.
5 Lorna is a final year art student at the National College of Art and Design. Since September 2006 Lorna would, from time to time, make various pieces of jewellery as gifts for her friends and sometimes they would ask her to make a specific piece. Her friends would then pay her for the piece, the amount paid was usually decided upon by her friends and not Lorna. Since September 2008 Lorna has begun to increase her range and sales of jewellery. She continues to sell through a network of friends and relations. Lorna also recently purchased a small stock of beads, stones, glass and other materials. She now prices the item, herself, rather than leaving it up to the individual to set the price. Recently Lorna s brother who is a trainee accountant has told her that she may have an income tax liability arising from the sale of the jewellery. Lorna is concerned at this as she believed this was her hobby. (a) (b) Briefly explain the factors that would be considered in deciding whether or not Lorna is carrying on a trade. (6 marks) State, giving reasons, whether in your opinion Lorna would be regarded as carrying on a trade and if so, the extent of any tax liability. (4 marks) (10 marks) End of Question Paper 12