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Tax Snippets
Tax Snippets from Taxperts
Tax Snippets are occasional tax news bits and pieces published by Taxperts from time to time. They are what they are called – snippets, and should not be relied on other than for general guidance. Professional advice should be taken before proceeding.
Tax Snippet No. Topic
2
Tax
Relief on interest on borrowings for rental
property
3 Tax Treatment of Employee Expenses in travelling to/from work.
5 Capital Gains – Exemptions – Use or lose.
6 Reclaiming of Tax from prior years.
7 Tax implications of overseas properties
8 Tax efficient financing of nursing home care.
9 Separation & Divorce - Tax Pitfalls
10 New rules regarding claiming of Medical Expenses
11 New rules on reclaiming VAT incurred attending
12 Green Light for Business Expansion Scheme (BES) &
13 Capital Gains Tax Reminder to pay tax.
Tax Snippet No1.
SSIAs/PENSIONs May 2006
The Revenue Commissioners have announced simplified criteria for the new SSIA Pensions incentive.
The
incentive
involves a Tax Credit of €1 for every €3
invested, up to a max of credit of €2,500, together
with a proportion of
the tax deducted from the SSIA at maturity.
To qualify, your income must not have exceeded €50,000 in the year before SSIA maturity, the contribution cannot be one to which you are already committed, and you cannot claim tax relief under any other heading on the €7,500 invested.
To
claim the
incentive you should forward an
SSIA Maturity Statement (available from your bank)
to your pension
provider, and sign a declaration that you have complied with the
conditions.
The investment in the pension fund must be made within 3 months of the SSIA maturing.
Tax Snippet No 2.
TAX
RELIEF ON
INTEREST ON BORROWINGS FOR RENTAL PROPERTY
May
2006
Finance Act 2006 has changed the rules for claiming tax relief on interest on borrowings for the purchase, repair or improvement of a rented property. From 2006 on, for such interest to be allowable against tax, the landlord must be in compliance with the Residential Tenancies Act 2004 (RTA).
There
are some
exceptions, but the vast majority of
residential lettings within the State are covered. Lettings outside the
State
are excepted, but taxpayers must be able to demonstrate that
such interest
relates to foreign properties.
The RTA obliges landlords to register details of all their tenancies within one month of commencement. The onus is on the landlord to ascertain if they are entitled to be excepted. The registration form PRTB1 is available from local authpority Housing Sections or can be downloaded from www.environ.ie .
From
now on
where interest relief is being claimed through
the self assessment system the taxpayer must declare that they are in
compliance
with the RTA. Evidence of compliance does not need to be supplied but
should be
retained in the event of an audit.
If
it
transpires that a taxpayer has claimed tax relief
incorrectly, it will be withdrawn. This will be regarded as an
underpayment of
tax and will expose the taxpayer to penalties and
interest.
Tax Snippet No 3.
Tax Treatment of Employee Expenses in travelling to/from work.
June
2006
It
is a general
principle that expenses incurred by
employees travelling to and from work are to their own account, and if
re-imbursed by an employer are to be treated as remuneration and taxed
accordingly (i.e. the employer must deduct PAYE and PRSI).
Journeys
taken
out of the normal to place of work -
emergencies and or as a result of "on-call" do not alter this
principle.
However,
an
exception can be made for a
"specialist" dealing with an emergency. A "specialist" is
somebody, who because of the nature of the emergency must be
responsible for
dealing with from moment of notification, and may be required to give
instructions as to how to deal with the emergency before arriving at
the normal
place of work. In this case, the expenses can be paid free of tax.
Revenue
do "not envisage" many cases of this type arising.
However,
expenses for journeys to place of normal place of
work outside normal hours to deal with an emergency can be reimbursed
tax free
up to a maximum of 60 such emergencies per annum.
Emergencies
depend on the nature of the event, but are
deemed to be unforseen or sudden, requiring immediate or urgent
attention, or
could have serious consequencies if left unattended to.
They
do not
include - replacing a staff member who fails to
show, increased work volume or any other routine event.
Tax Snippet No 4.
ANNUAL TAX RETURNS
September
2006
The
busy season
in the tax year is upon us, and both Income
Tax and Capital Gains Tax issues arise.
Capital
Gains
Tax
All
taxpayers
must file a return of Capital Gains for
the year 2005 by 31st October 2006.
Payment
of tax
due on gains between January 1st 2006 and
September 30th 2006 must be made by 31st October 2006.
Income
Tax
For
"chargeable
persons" ( i.e. generally non-PAYE
taxpayers), a return of income for 2005 must be made by 31st October
2006.
Additionally, the balance of the 2005 tax liability, and the
preliminary tax
for 2006 must be paid by 31st October 2006.
For
PAYE
taxpayers, there is a new, and significant,
change in the law.
A
PAYE taxpayer
with substantial gross income from other
sources, is now regarded as a "chargeable person", and must file and
pay as outlined above. Substantial gross income is defined as gross
non-PAYE
income of €50,000 or more. So, even if the non-PAYE taxable
income is zero
(because of losses, allowances etc), the return must be made - and
failure to
make a return exposes a taxpayer to penalties.
PAYE
taxpayers
with a gross non-PAYE income less than
€50,000, where the net assessable income is
less than
€3,174 (and this is coded against tax credits) are
not "chargeable
persons" and are not obliged to make a return.
A rule of thumb therefore for PAYE taxpayers is that if they have - in 2005 - over €50,000 non-PAYE gross income, or over €3,174 non-PAYE net income a return is necessary by 31st October next.
Tax Snippet No 5.
CAPITAL GAINS – EXEMPTIONS – USE OR LOSE.
November 2006
For
those of
you who dabble in shares, (or any other assets)
you are obliged to pay capital gains tax on any gains you made on
shares sold
in 2006. Losses incurred, either in prior years or the
current year can
be offset against these gains to reduce the tax liability.
There
is also a
personal exemption of €1270 per person, per
annum, which shelters the first €1270 of gains from tax. As
this is per person,
a married couple jointly owning shares could avail of an exemption
of
€2540. However, unlike losses, if the exemption is not used in
a particular year
it cannot be carried forward. To utilise this you could "bed &
breakfast" shares over the turn of the year up to the point that the
gain
on sale equates to the exemption(s). Thus you sell at end December, and
buy
back in January. The new buyback price is the reference price for
future
capital gains.
There
won't be
huge savings, but better in your pocket than
theirs!
So where the personal exemption is concerned - either use it or lose it.
Tax Snippet No 6.
Reclaiming of Tax Paid from prior years.
December
2006
There
has been
some publicity of late regarding the amount
of people who do not claim all the allowances they are due. Unclaimed
allowances/credits can be claimed up to 4 years after the end of a tax
year.
What
this means
is that claims in respect of 2002 must be
made by the 31st December 2006, or foregone altogether. It may be worth
reviewing allowable expenses for that year, and if worthwhile
submitting a
claim before year end. It is likely that most people will have claimed
key
allowances in respect of pension contributions, BES investments etc.
However,
medical expenses may not have been claimed, and it may be worth making
a claim
now. As they are allowable at top rate of tax, a rebate of 42% (subject
to
excess) will be available. To claim these complete a MED 1 form (ex
Revenue
website - www.revenue.ie
) - or MED 2 for
allowable dental expenses. Doctors fees, unrefunded prescription
charges,
hospital fees and nursing home fees in respect of a taxpayer, relative,
or any
person aged over 65 are allowable. Also allowable are extra expenses
incurred
in the care of an incapacitated child.
Other
claims
which might be made are
Trade
union
subs,
Local
authority
refuse charges,
Long
term care
policies
Rent
paid by
certain tenants
Third
level
tuition fees
Fees
for
training courses
Tax Snippet No 7.
TAX
IMPLICATIONS OF OVERSEAS PROPERTIES
January 2007
A
property
owned - by an Irish tax resident - overseas has
virtually the same Irish tax implications as one owned in Ireland.
There are 2
differences:
1. To get tax relief on rental income for interest paid on money borrowed it is necessary to have the Irish tenancy agreement registered with the Tenancies Board. This requirement does not exist in relation to foreign properties.
2. The property, as well as incurring Irish tax liabilities, will, in all probability involve tax implications in the foreign country. The tax liabilities will depend on the tax regime there. Ireland has double taxation agreements with many countries, and the general effect of these is to allow the payment of tax in one country to be offset against the payment in another. Thus taxing the same event twice can be avoided.
Apart
from the
above, the Irish tax rules are the same
irrespective of where the property is located.
There
are two
Irish taxes which may arise on foreign
properties
1. Irish Income Tax.
Rental
income, after
deduction of allowable expenses, and capital
allowances, will be taxed at your marginal rate. Allowable expenses are
rents
paid, rates, non-capital goods and services the landlord is obliged to
provide,
maintenance, repairs, insurance, management fees, and interest paid on
money
borrowed to purchase, improve and repair the property. Capital
Allowances can
be deducted from rent and are at the rate of 12.5% pa of value of such
goods.
Expenses
incurred before letting
cannot be deducted (except for expenses associated with letting -
advertising,
legal etc). Neither can expenses incurred post letting. Expenses
incurred
between lettings can be deducted provided you did not live in the
property.
If you make a
loss on renting the
property, you can offset this loss against future rental profits from
the
foreign property, or against profits from other foreign properties.
2. Irish Capital Gains Tax
When
you come to sell the property, you will be liable
for Irish
Capital Gains Tax at 20% of
any increase in the value of the
property.
Naturally, it
goes without saying that you must advise the
Irish
Revenue Commissioners of all
details of transactions relating
to
income
and gains from foreign property.
Tax Snippet No 8.
Tax efficient financing of nursing home care
February
2007
Nursing homes are
much in the news today, particularly the cost of staying in one. While
it may
not be your problem today, as Frankie Byrne used to say, it may be some
day.
Generating
the
most tax efficient way of financing nursing
home care can be complex, but there are a couple of key principles
which should
be borne in mind.
The
main issue
is that nursing home expenses in relation to
a person over 65 are an allowable medical expense for whoever pays the
bills.
As such the bills, for a top rate taxpayer are subject to relief at
41%. The
bill-payer and the nursing home patient do not have to be related.
The
implication
of this in many family situations is that
the bills should be paid by a higher rate taxpayer, rather than
somebody on a
standard - or no - rate. (This of course pre-supposes that all other
aspects of
this arrangement can be equitably managed between family members, and
other tax
liabilities are not triggered).
A
simple
example will demonstrate the point.
Mary
is a widow
with a pension of €25k and a house worth
€500k. She has one son, John, who earns €100k per
annum. She needs to go into a
nursing home at a cost of €50k pa.
Her
options are
A. To sell the house and use the proceeds to fund the nursing home. The house proceeds will last 10 years.
B .To sell the house, gift €480k to John, and €20k to John's wife, and let John pay the nursing home bills. The annual cost to John is €50k less 41% = €29.5k. In this way the house proceeds will last almost 17 years. Neither John or his wife will pay tax on the gifts (provided they have received no prior gifts/inheritances).
This scenario will become more complex if John has brothers & sisters, and their mother wishes all to share in the estate. Each case needs to be considered on the basis of the prevailing circumstances. Regardless of this it will not be tax efficient for Mary to pay the nursing home bills herself - simply because she has a very small tax bill.
Tax Snippet No 9.
Separation & Divorce - Tax Pitfalls.
There are, as one might expect, a considerable number of tax rules around one's marital status. Income tax rates, bands and credits are all determined by your status.
Serious tax pitfalls can lurk around separation. In many cases tax planning –understandably - is a low priority at the time for those contemplating separation.
As a general principle, the transfer of assets between spouses does not attract Capital Gains Tax, Capital Acquisition (Gift) Tax, or Stamp Duty. Likewise the transfer of assets under foot of either a separation, or divorce order generally do not attract these taxes.
However, in the case of an informal separation, where it is likely to be permanent, the two individuals are regarded in tax law as factually separated. As such, they may no longer have the full protection of marital status, and if they transfer assets one to the other under these circumstances, these transfers are treated as transfers between strangers (in the absence of a legal deed or court order) for Capital Gains Tax purposes.
To take an example – Jack and Jill, a married couple decide to separate. Without going through any formalities, they decide that Jill will receive their holiday home in Galway. This is worth €500k, and was bought by Jack for €80k some years ago. Thus, because they are factually separated Jack is liable for Capital Gains Tax of 20% on €420k. (Jill, on the other hand is not liable for Capital Acquisition Tax, nor does she have to pay Stamp Duty). If the holiday home were transferred either before they separate, or as part of a legal agreement (separation or divorce), the Capital Gains Tax bill faced by Jack would not arise.
So, the moral is – be very careful when transferring assets while separated without a formal agreement.
Tax Snippet No. 10
April 2007
New rules regarding claiming of Medical Expenses.
The Finance Act 2007 was signed into law earlier this month. It contained a little noticed change in the rules around claiming tax relief in respect of medical expenses.
Up to this you could only claim medical expenses in respect of yourself, your spouse, dependant children, and any person over 65.
Now, however, you can claim any allowable medical expense in respect of any person you pay the bill for. While of limited interest, it may have an impact on parents who have adult children who are on low incomes. Such children – if not full time students – are not dependents, and up to now allowable medical ( & dental) expenses could only be reclaimed by the children themselves. If they were on low incomes the tax relief was limited.
Now however, a parent can claim such expenditure at full marginal rate.
You may not wish to avail of this if you are a parent wondering if your adult children will ever become independent, but as Tesco says "every little helps"
Tax Snippet No 11
July 2007.
New rules on reclaiming VAT incurred attending Conferences.
Effective July 1st 2007, VAT incurred on accommodation in connection with attending Conferences can now be reclaimed, subject to certain conditions. The VAT recovery applies to accommodation costs only, and relates to a taxable person, or their employee or agent, attending a Qualifying Conference.
Up to now, no VAT was recoverable.
The key conditions are:
1. The Conference must be a "Qualifying Conference"
– i.e.
a) It must be for the purpose of business
b) It must
take place at a venue designed to cater for a minimum of 50
participants (note – the regulations do not specify that 50
people must actually attend).
c) The conference organiser must issue in
writing details to each taxable person re the location/dates, nature of
business being concluded, number of delegates for whom it is organised,
VAT details of organiser.
2. The conference organiser does not have to be the same person as the accommodation provider. Thus, the conference could be held at Hotel A, and the delegate can claim VAT on accommodation at Hotel B.
3. The VAT recovery will be available to any VAT registered entity, and employees or agents of them. However, where employees/agents are concerned, the invoice for accommodation should be made out to the employer.
4. The VAT is recoverable in respect of the related accommodation only. Thus, VAT incurred on food & drink is not recoverable. The accommodation element must be separately identified on the invoice.
5. The accommodation relates to a maximum period starting from the night before the conference starts to the date the conference concludes. Thus, the night before, and the night of the finishing date (and all nights between) are allowable. Where a delegate attends only part of a conference, the allowable nights are from the night before to the night of the last day of attendance.
6. Claims should be made in the normal way as part of the VAT return. Businesses exempt from VAT will be treated as normal – i.e no recovery. Businesses partially exempt will be subject to apportionment as per normal.
Tax Snippet No 12
Green Light for Business Expansion Scheme (BES) & Seed Capital Scheme (SCS).
This may be of interest to those of you who may be looking for a tax efficient investment or a tax efficient means of raising capital for your business.
In the last budget the Minister announced changes in the BES and SCS schemes. First, the schemes were being extended to 31st December 2013. Second, the amount a company could raise under both schemes was raised to 2m (with a max of 1.5m in any one year.) Third, the amount that an individual can invest in these schemes was raised from c 31k to 150k for BES and 100k for SCS.
Our comrade brothers (& sisters) in the trade union movement objected to this at EU level. The EU has now given approval to the schemes subject to a number of conditions. Key among these is that medium-sized enterprises in Dublin and the Mid-East region are excluded unless in start-up phase. (Thankfully the Mid West was not excluded which spares us all from another round of whinging about the end of civilisation as we know it, Cromwell etc etc.)
A second key condition is that companies availing of the schemes will only be eligible for reduced levels of state grant support from such organisations as Enterprise Ireland etc.
The necessary formalities to enable introduction of the schemes are expected to be put in place shortly.
The consequence of all this is that there will likely be an increase in the number of investment opportunities on offer.
Tax Snippet No 13
Capital Gains Tax Reminder to pay tax.
Just a short note for any of you lucky sods who have made any Capital Gains on disposal of assets in 2007. Those of us who invested in Irish shares wont have to worry about CGT this year.
For disposals made between January 1st and September 30th 2007, you must pay the relevant Capital Gains Tax by 31st October 2007. Penalties apply for late payment.
For disposals made between October 1st and December 31st 2007, the relevant tax must be paid by 31st January 2008.
If you make a gain in the first period, and a loss in the second, the loss will be offset against the gain, and an appropriate refund will be made. Remember also to carry forward any previous losses to offset against tax due. Also dont forget the personal exemption of 1270 but you can only claim it once (not in both periods).
Happy filing.
Disclaimer
The information on this website is for general guidance only.It
is essential to take professional
advice on specific issues about their impact on any individual or
entity.No
liability can be accepted for any errors or omissions or for any person
acting or refraining from acting on the information provided on this
site.