REVENUE ON-LINE SERVICE (ROS) Latest

ROS collects £700m No requirement to file returns any tax balance due on to use ROS assessments. In the nine months since the Phases 4, 5 and 6, for delivery in Revenue On-Line Service (ROS) However, apart from the access to 2002, are well into the planning stage went live last September payments of Revenue which ROS provides almost £700 million have been made outside office hours there are other and details of what will be included will be covered in future issues of to Revenue by customers using the key features of the service which are new service. ROS customers have proving popular with our customers. Tax Briefing. These include: also received repayments of £30m. The goal of making the Revenue The receipts have far exceeded our n On-line access to VAT and On-Line Service the primary way by expectations of £50m. in the first year Employer PAYE details including which our customers do business of operations and if the trend returns made and outstanding, and with us is well on the way to continues ROS customers will payments due or received. This becoming a reality. account for about 5% of gross will be extended in October to receipts by Revenue this year. include Income Tax, Corporation New Strategy Manager Tax and Capital Gains Tax (CGT) Revenue recently announced the Almost 3,000 customers now use details. To date, there have been appointment of a new Strategy ROS on a regular basis and this 6,460 requests from ROS number is increasing by about eighty Manager to take over from John customers for access to this Leamy who has been appointed each week. When Phase 3 goes live information. next October with the on-line filing Assistant Secretary in the Office of the Chief Inspector of Taxes. She is of Income Tax (IT) and Corporation n An access security system for Margaret Whelan who served most Tax (CT) returns we believe we will managing user-rights of staff recently in the Compliance Policy be well on our way to achieving our within a business or tax practice. Unit of the Chief Inspector’s Office. target of getting 50% of business This allows the ‘administrator’ in Margaret has now taken up duty in returns filed electronically by 2005. a business or practice decide who ROS and can be contacted at among the staff can view certain 01-2090401 or by e-mail at Revenue customers and tax details or file particular returns. practitioners now have a quick and [email protected]. secure method for the electronic There is no requirement to file returns ccounts Information filing of: to have access to these facilities. A When Phase 3 goes live, the t Monthly PAYE Returns (P30) ROS is also available to Apple Mac requirement to file paper copies of t Bi-monthly VAT Returns (VAT3) users and is compatible with screen accounts and computations with IT readers for visually impaired and CT returns which are filed t Annual Payroll tax Returns (P35 customers. ROS can be accessed via and P35L) through ROS will no longer apply. the Revenue website at www.revenue.ie However, we still require certain t Employee Cessation Returns and the ROS help-desk is available accounts information to support the (P45) from 8.30a.m. to 6.30p.m. Monday details provided on the return. t Annual Return of Trading Details to Friday at 1890-201106 or by (RTD) e-mail: [email protected] In order to ensure equality of treatment between paper and They also receive immediate Also in Phase 3 electronic filers, the Revenue Board acknowledgement of receipt of Apart from eFiling CT and IT announced last October that paper returns by ROS. From October they returns and providing access to IT, filers would be required, as of a will also be able to file Income Tax CT and CGT details Phase 3 will certain date, to submit the same level (Form 11) and Corporation Tax also include: and format of data as electronic filers. (CT1) returns. u An option for the electronic Electronic data would not be payment of tax by Laser Card and subjected to electronic interrogation until the same data from paper filers u A facility for the payment of was captured. Preliminary Tax and payment of Continued on page 14

13 ROS Continued from page 13

The fundamentals of what has been decided so far are summarised in the following table:

Turnover < £250,000 Turnover < £10m. • Accounts Menu of 25 key items • 3 IT menus • Adjusted profit computation of no more • 3 CT menus than 5/6 items in IT cases and 10 items in CT cases. [These menus are: (i) General trades/ services (IT & CT)

Electronic Filers (ii) Professionals (IT & CT) (iii) Farmer (IT) Construction / manufacturing (CT)] • Adjusted profit computation of 12 items approximately in IT cases and 25 items in CT cases. • Paper accounts with computations and • Paper accounts with computations and schedules as at present until October schedules as at present until October 2003 2003 • Accounts Menus and adjusted profit OR computations as for electronic filers from October 2003 • Accounts Menu of 25 key items and Paper Filers • Adjusted profit computation of no more than 5/6 items in IT cases and 10 items in CT cases. The menu will be compulsory from The menus will be compulsory from October 2003 October 2003

All Filers with Paper accounts with computations and schedules as at present turnovers over £10m. Individual partners can file electronically with no requirement for menu completion. Partnerships Paper accounts with computations and schedules must be filed with Form1 (Firms).

Groups As for other filers. The consolidated turnover decides category.

Note: Accounts Menus for paper filers will be available on request from all tax offices from October 2002

We will also be providing a series of yes/no ‘tick’ boxes to cater for notes to the accounts. These notes will cover: n Reservations in the Auditor’s Certificate/Report

n Accounting policy and change of accounting policies

n Change in nature of the Company’s/business’ activities

n Prior year adjustments

n Exceptional items arising during the year A small area of white space will be provided where any additional explanations to the yes/no answer s can be provided, if necessary.

14 ROS

Consultation on the Revenue website in due rates, for example, will be made course. available on a regular basis. Menus Last April we published a Assurances Allowing groups file through ROS consultation document on accounts Revenue is also providing assurances and the provision of some white information and representations have on the following: space in relation to expressions of doubt and the notes to the accounts been received from, and several n Innocent transposition errors will meetings had with, the also followed representations made. not lead to additional liabilities or representatives of tax practitioners penalties provided they are Internal and external consultation on and individual practitioners rectified within a reasonable what accounts information should be themselves. Submissions and period (e.g. 2 months from date of comments were also received from captured has been ongoing for some assessment) and do not amount to time now. This will be a continuous several software companies. an abuse of the system. process to ensure we get the balance right between customer service, ROS Both practitioner and software inputs n Subject to any legislative changes ease of use and Revenue audit are crucial to the success of ROS and and any other imperatives, the requirements. to address some of their concerns the accounts menus will remain the turnover limit between smaller and same and 12 months notice of any Software Houses larger menus was increased from changes will be given. £150,000 to £250,000, a single menu Revenue recognises the requirements of only 25 items is being provided for n The threshold levels will be of practitioners that 3rd party those below that turnover, and the indexed for inflation. software will be available to automate menus for those filing above the the process of completing the n There will be flexibility in regard turnover have been reduced in size. accounts menus. Consultations with to marginal movements across In addition the date from which the software houses is on-going with a thresholds menus will have to be completed by view to having appropriate software paper filers was put back by a year In addition, statistical data from available as soon as it can be from October 2002 to October 2003. accounts data captured, such as error developed. z Copies of the menus will be posted REVERSE PREMIUMS Tax Treatment

The Minister for Finance, Mr. a rent which is above the market avoidance opportunities with Charlie McCreevy, T.D., announced value rent. While there are specific consequential loss to the Exchequer. on 7 June 2001 that he intends provisions in the tax code relating to bringing forward legislation in the the payment of premiums by a tenant The Finance Bill 2002 will accordingly Finance Bill 2002 to clarify the tax to a landlord, there are no such provide clearly that: treatment of so-called “reverse specific provisions governing the tax n Reverse premiums received on or premiums”. The legislation will have treatment of reverse premiums, so after 7 June 2001 will be charged retrospective effect as and from the correct treatment has up to now to tax as a revenue (as opposed to a 7 June 2001. The Minister said that it depended on general tax principles. capital) receipt has recently come to the attention of the Revenue Commissioners that Some doubts have been raised in n In effect the reverse premium will reverse premiums are being used for recent years about the application of be treated as a receipt of either a tax avoidance purposes and he was general tax principles to reverse trade/profession or a rental acting in the light of this to announce premiums. These doubts open up business and will normally be his intention to close off these the possibility that the payer of a spread over a number of years in avoidance opportunities with reverse premium would claim tax accordance with accepted immediate effect. relief on the payment while the principles of commercial recipient on the other hand would accounting The term “reverse premium” is used claim the premium to be tax free. to describe a payment made (or some This would be a clear tax loophole n However, if the parties are other benefit provided) by a property based on a lack of symmetry in the connected, the reverse premium developer or landlord to a tax treatment of such transactions will be taxed in full in the period prospective tenant in order to induce and would open up major tax in which the lease is taken out or, if later, the period in which the him to enter into a lease agreement at trade/profession commences. z 15 DONATIONS TO ‘APPROVED BODIES’ Tax Relief

New Scheme of Tax Relief n A body approved for Education What donations qualify for for Donations to ‘Approved in the Arts by the Minister for relief? Finance in accordance with Bodies’ i.e. Charities, Schools The minimum donation in any year Schedule 26A Part 2 etc. that must be made to any one Introduction n The Scientific and Technological approved body is £200/£250 (£148/ £185 for the short tax year Section 45 Finance Act 2001 inserts a Education (Investment) Fund 6 April 2001 to 31 December 2001). new section 848A and Schedule 26A (STEIF) There is no maximum qualifying into the Taxes Consolidation Act 1997 n The company incorporated under donation. Donations made by to provide for a new uniform scheme the Companies Acts, 1963 to 1990, instalments (e.g. Standing Order) of tax relief for donations to certain on 20 September 1990 as First will also qualify. approved bodies which, as well as Step Limited introducing new reliefs for donations A donation must also satisfy the to domestic charities, schools etc., n The Malting Research following conditions: also merges almost all of the existing Committee of the Irish Malters u It must be in the form of money reliefs under the umbrella of a single Association scheme. Different arrangements u It must not be repayable n The European Research u It must not confer any benefit on apply for individual and corporate Institute of Ireland donations as set out below. the donor or any person n The Equine Foundation connected with the donor Who are the ‘Approved Bodies’ u It must not be conditional on, or for the purposes of the new n The Dun Research Foundation scheme? associated with, any arrangement n The Institute of Ophthalmology involving the acquisition of The following are ‘approved property by the approved body. bodies’ for the purposes of the n The Mater College for scheme : Research and Postgraduate Nature of the relief n Charities, which are authorised Education The arrangements for allowing tax relief on donations will depend on by Revenue for the purposes of n St Luke’s Institute of Cancer the Scheme. Applicant charities whether the donor is a PAYE Research must meet certain conditions, taxpayer or an individual on including the condition that the n A body to which ections 209 Taxes self-assessment or a company. In the charity has been exempted from Consolidation Act 1997 applies i.e. case of donations from individuals, tax (i.e. holds a CHY exemption) a body for the promotion of relief will be given at the donor’s for a period of 3 years. Where a the observance of the marginal rate of income tax. charity wishes to apply for an Universal Declaration of t For a PAYE taxpayer who makes a authorisation under the scheme it Human Rights or the donation, the relief will be given must submit a completed implementation of the European on a “grossed-up’’ basis to the application form (See Appendix 1 Convention for the protection of approved body rather than by of CHY2 information leaflet) to Human Rights and Fundamental way of a separate claim to tax Charities Section, Revenue Freedoms or both relief by the donor. In other Commissioners, Government Offices, n The Foundation for Investing words, the donation will be Nenagh, Co. Tipperary. treated as having been received by in Communities Limited or the approved body ‘net’ of n Educational institutions or any of its 90% subsidiaries as may bodies in the State, including be approved for the purposes of income tax and the approved primary and second level schools this Scheme by the Minister for body will subsequently reclaim / colleges and third level Finance. the tax from Revenue institutions, if they meet certain t (Note : All approved bodies, including In the case of a donation made by conditions (e.g. their programmes charities and schools, have been circulated an individual who pays tax on a are approved by the Minister for self-assessment basis, the with a copy of information leaflet CHY 2 Education and Science or the individual will claim the relief in on this new scheme.) institution provides courses his / her tax return for the year of which are validated by the Higher assessment in which the donation Education Training and Awards is made and there is no grossing Council). up arrangement for the approved body

16 DONATIONS TO ‘APPROVED BODIES’ t In the case of a donation made by a company, the At the end of the tax year in which the donation was donation will be treated as a deductible trading made, approved bodies may claim a repayment of expense or as an expense of management in computing the tax associated with PAYE donations received by the total profits of the company. The company can them through forwarding the details contained in make a claim with its tax return for the accounting the Appropriate Certificates to Revenue in an agreed period in which the donation was made and again, electronic format together with a declaration that the there is no grossing up arrangement for the approved details are correct and complete. Where the approved body. body does not have the facilities to forward the details electronically, they may be given in writing in a format Examples: approved by Revenue. All repayment claims should be PAYE individual sent to: n Individual taxed at the standard rate of tax i.e. 20% Inspector of Taxes, Individual donates £500/ £635 Claims Section, Value of donation to the approved body = £625/£794 9/15 Upper O’Connell Street, (i.e. £500/ £635 x 100) Dublin 1. 80 Tel: 01 8746821 Tax associated with the donation Fax: 01 8746862 (£625/£794 - £500/ £635) = £125/£159 e-mail: [email protected] The approved body will therefore be able to claim a repayment of £125/ £159 from Revenue at Self-assessed individual the end of the tax year. n Individual taxed at the standard rate i.e. 20% n Individual taxed at the higher rate of tax i.e. 42% Individual donates £500/£635 and receives tax relief Individual donates £500/ £635 @ 20% (£100/£127). Cost to the individual is Value of donation to the approved body = £400/£508 and receipt by the approved body is £862/£1095 (i.e. £500/£635 x 100) £500/£635 - there is no grossing up arrangement and 58 therefore no repayment claim by the approved body arises. Tax associated with the donation (£862/£1095 - £500/£635) = £362/£460 n Individual taxed at the higher rate i.e. 42% Individual donates £500/£635 and receives tax relief The approved body will therefore be able to claim a @ 42% (£210/£267). Cost to the individual is repayment of £362/£460 from Revenue at the end of £290/£368 and receipt by the approved body is the tax year. £500/£635 - there is no grossing up arrangement and therefore no repayment claim by the approved body Note: Where sufficient tax has not been paid to cover the arises. donation made, the refund of tax will be limited to the amount of tax actually paid by the donor. Corporate donations The individual PAYE donor must complete an Company X donates £500/£635 to an approved body. “Appropriate Certificate” (see copy at the end of this Assuming a corporation tax rate of 20%, relief to the article) and forward it to the approved body to allow it to company is £100/£127 i.e. £500/£635 @ 20%. While the claim a repayment of the grossed up amount of tax approved body has the benefit of £500/£635 the cost to associated with the donation. Additional copies of the the company of making the donation is only £400/£508 “Appropriate Certificate” may be obtained from: (£500/£635 - £100/£127). The company will simply claim a deduction for the donation in its tax return, there is no Charities Section, grossing up arrangement and therefore no repayment Government Offices, claim by the approved body arises. Nenagh, Co.Tipperary Continued on page 18

Tel: 067 44310 or from any Local Tax Office or from our website at www.revenue.ie - see “Publications”.

17 DONATIONS TO ‘APPROVED BODIES’ Continued from page 17

What reliefs have been terminated? covenanted amounts as a “relevant donation” for the purposes of Section 45 Finance Act 2001 provided that: The following standalone relief provisions in the Taxes n Consolidation Act 1997 have been repealed and are the qualifying conditions of that Section are met subsumed under this new scheme of donations : including the requirement relating to the minimum donation applicable in any year of assessment / u Section 88 - Deduction for gifts to Enterprise Trust Ltd. accounting period, and u Section 484 - Relief for gifts for education in the arts n “Appropriate Certificates ” (see copy at the end of this u Section 485 - Relief for gifts to third-level institutions article) are received in the case of PAYE covenantors. u Section 485A - Relief for gifts made to designated schools What could constitute a "benefit to the donor or to u Section 485B - Relief for gifts to the Scientific and any person connected with the donor" and such as may act to render a donation ineligible for relief Technological Education (Investment) Fund question u Section 486 - Corporation Tax : relief for gifts to First The general rule is that donations should be at Step arms-length. Nominal or incidental type benefits, such as u Section 486A - Corporate donations to eligible charities the right to receive a newsletter on the approved body’s u Section 767 - Payment to universities and other activities, would not act to render the donation ineffective approved bodies for research in, or teaching of, for tax relief benefit. However, benefits such as approved subjects preferential rights of entry to prestigious events, u Section 792 (subparagraphs (ii) and (iii) of subsection particularly where entry may normally be subject to a (1)(b), and subsection (3) - covenants for the conduct cover charge, would constitute a benefit in consequence of research, teaching the natural sciences and of having made the donation. promotion of human rights Certain institutes or professional membership u Section 848 - Designated Third World Charities: representative associations may be eligible bodies for the repayment of tax in respect of donations purposes of the new scheme having regard to their educational or research activities, for instance. However, What is the position when a donor pays tax through both PAYE and self assessment? annual membership subscriptions to such bodies would generally carry with them a benefit to members. Where a person is within self assessment (say self employed) and also has income that is within PAYE, that Any approved body which feels that an issue may arise for person is a chargeable person (as defined insection 950 them under this heading may wish to clarify the position TCA 1997) and therefore is entitled to relief for with Revenue at the address below. donations at the marginal rate of tax. Further Information: hat is the position on existing covenanting W You can obtain further information from: schemes in place? Tax relief for payments made under deeds of covenant for Office of the Revenue Commissioners, the benefit of either the conduct of research or the Charities Section, teaching of natural science subjects or the promotion of Government Offices, human rights has been abolished from 6 April 2001. As Nenagh, such deeds of covenant are no longer effective for tax Co. Tipperary . purposes there is now no requirement to withhold tax on such payments. Furthermore, such payments are no Telephone: 067 44310 longer an allowable charge on the income of the 01 6774211 (if calling from Dublin) covenantor (payer). Fax: 067 32916

Whether payments continue to be made under the deeds e-mail: [email protected] of covenant in question is a matter for decision by the parties to the deed, i.e. the payer and the beneficiary . website: www.revenue.ie Where payments continue to be so made on or after 6 April 2001, Revenue are prepared to treat the or from your local Tax Office. z

18 DONATIONS TO ‘APPROVED BODIES’

CHY 2 Cert

TAX RELIEF FOR DONATIONS TO ELIGIBLE CHARITIES AND APPROVED BODIES “Appropriate Certificate” for the purposes of Section 45, Finance Act, 2001 (To be completed by PAYE taxpayers only)

(BLOCK CAPITALS PLEASE) I certify that I ______(name) have made a donation

to______(eligible charity/approved body - See Note 1 overleaf ) in the sum of (in words) ______£/£______(Total donated). in the year ended 31 December, (the relevant year of assessment) and that

l I was resident in the State for the relevant year of assessment,

l I have paid or will pay to the Revenue Commissioners income tax of an amount equal to income tax at the standard rate or at the higher rate (delete as appropriate) for the above year on the grossed up amount of the donation (See Note 2 overleaf),

l neither I nor any person connected with me have received or will receive a benefit in consequence of having made this donation,

l the donation was paid in money,

l the donation was not subject to a condition as to repayment nor conditional on, or associated with, the acquisition of property by the eligible charity or approved body other than by way of gift, from me or a person connected with me, and

l the donation was not less than £200/ £250 (£148/ £185 for the short tax year 6 April, 2001 to 31 December, 2001) in the above year of assessment.

Signature ______Date:______PPS No.: Address: ______

______

N.B. When you have completed this certificate, please forward it to the eligible charity or approved body to which you made your donation.

TO BE COMPLETED BY THE ELIGIBLE REVENUE USE ONLY CHARITY OR APPROVED BODY CHY Reference Number: ______Income Tax associated with or donation and confirmed as paid Tax Reference Number: ______£/£______(in the case of an approved body other than an eligible charity) Signature of Inspector of Taxes ______

Authorised Signatory ______Date: ______

19 GAMES AND SPORTS BODIES Relief from IT & CT

Meetings have been held with the National Governing Bodies (N.G.B.’s) of the various sporting codes to inform them of the new arrangements and Revenue will be distributing the new leaflet to all games/sports clubs throughout the country with the assistance of the N.G.B.’s. A list of these N.G.B.’s is set out below. Queries on the new arrangements may be addressed to:

Games/Sports Exemption Section Government Buildings, Nenagh, Co. Tipperary. Revised Arrangements for Applying for Relief Tel: 067 33533 from Income Tax and Corporation Tax for Fax: 067 32916 Certain Games and Sports Bodies e-mail [email protected] z Section 235 Taxes Consolidation Act 1997, provides for an exemption for Games/Sports bodies in respect of Income National Games and Sports Governing Bodies Tax, Corporation Tax and Dividend Withholding in Ireland Tax, where the income of such a body, as is shown to the satisfaction of the Revenue Commissioners, has been or will be Irish Amateur Boxing Tennis Ireland applied for the sole purpose of promoting an athletic or Association Volleyball Association of Irish Cycling Federation Ireland amateur game or sport. In addition, relief from Capital Motorsport Ireland Pitch & Putt Union of Ireland Gains Tax is available provided the proceeds of the gain Irish Canoe Union Mountaineering Council of are reinvested in acquiring new assets for the promotion Irish Squash Ireland of the game/sport in question. Republic of Ireland Snooker Swim Ireland and Billiards Assoc. Irish Amateur Rowing Union It is necessary to apply to Revenue to secure exemption and Irish Amateur Wrestling Bowling League of Ireland Association Amateur Athletics Ireland those bodies eligible to apply are any clubs or Badminton Union of Ireland Irish Amateur Archery organisations established for and in existence for the sole Irish Table Tennis Association Association purpose of promoting an athletic or amateur game or Irish Basketball Association Irish Gymnastics Limited sport. A body must also be: National Rifle and Pistol Racquetball Association of Association of Ireland Ireland u member controlled and owned and not for profit Baton Twirling Sport Irish Ten Pin Bowling Association of Ireland Association u legally established in the State and have its centre of Irish Baseball & Softball Irish Olympic Handball management and control therein. In addition, the Federation Association majority of its trustees/directors/officers, as Irish Hockey Association Irish Federation of Sea Anglers appropriate, must be resident within the State. Irish Sailing Association Irish Orienteering Association Irish Amateur Fencing Irish Clay Pidgeon Shooting Without an exemption, a games or sports body, in Federation Association common with any other organisation: Irish Amateur Weightlifting Irish Underwater Council Association Irish Cricket Union n may be liable to Income / Corporation Tax on any Irish Waterski Association Contract Bridge Association of surplus income, and Motorcycling Union of Ireland Ireland Irish Martial Arts Commission Republic of Ireland Netball n may be obliged to make annual tax returns to the local Irish Surfing Association Association Inspector of Taxes. Bol Chumann na hEireann Dublin City Sports and Irish Croquet Association of Recreation Forum Revenue have recently carried out a review of the taxation Ireland Irish Triathlon Association position of games and sports bodies who do not currently Trout Anglers Federation of Cumann Camogaiochta na hold a formal exemption under Section 235 TCA 1997 and Ireland Gael following which new arrangements have been introduced Cumann Luthcleas Gael Speleological Union of Ireland towards enabling clubs etc. to regularise their own Irish Ladies Golf Union National Coarse Fishing Irish Hang Gliding Association Federation of Ireland particular position having regard to this exemption facility. Horseshoe Pitchers Golfing Union of Ireland These arrangements are set out in a new information Association of Ireland Comhairle Liathroid Laimhe na leaflet (GS1) and which also incorporates a simple Parachute Association of hEireann declaration procedure for clubs applying for exemption. Ireland Equestrian Federation of Football Association of Ireland Ireland Irish Judo Association This leaflet is available from the Games/Sports Exemption Irish Rugby Football Union Section in Nenagh, from any tax office, or from our Irish Tug of War Association website at www.revenue.ie. - see “Publications”. 20 CHANGEOVER TO CALENDAR YEAR OF ASSESSMENT reflects the fact that, with effect from charge on the use of a car is based, 1 January 2002, the year of and the business mileage necessary to assessment for income tax is to be the mitigate that BIK charge. calendar year and not a year commencing on 6 April and ending Persons carrying on a trade or on the following 5 April and that, profession are generally charged to consequently, there will be a short income tax for a tax year on the preceding “year” of assessment profits of the trade or profession for a running from 6 April to 12 month period of account ending 31 December 2001 (called the “year in the tax year. Schedule 2 provides of assessment 2001"). that for the short tax “year” 2001 such persons will, in general, be A similar amendment is made to assessed to income tax on the basis of Introduction section 5(1) TCA 1997 which is the 74% of the profits of the 12 month interpretation provision for the period of account ending in that Section 77 Finance Act 2001provides Capital Gains Tax Acts. The year of “year”. The Schedule also makes that the income tax and capital gains assessment for capital gains tax necessary amendments to the law tax year is to be aligned with the purposes is also to align with the governing the basis of assessment in calendar year from 1 January 2002. calendar year from 1 January 2002, the case of the commencement or This will require a short transitional and there is to be a short preceding cessation of a trade or profession and tax “year” of approximately 9 months “year” of assessment running from 6 where traders or professionals change covering the period from 6 April to April to 31 December 2001 (called their accounting date. 31 December 2001. the “year of assessment 2001"). In the absence of an indication to the Schedule 2 of the Act makes the A new subsection is substituted for necessary changes to various areas of contrary, the amendments take effect the existing subsection (2) of section 14 from 6 April 2001. the tax code consequent on the changeover to a calendar tax year. In TCA 1997 . The new subsection (2) provides that assessments and the The following is a summary of some general, for the short transitional tax charge to income tax will now be of the main amendments. “year” 2001, tax credits, allowances, made for a year of assessment (as reliefs, etc, are adjusted to 74% of asis of assessment under Case I newly defined as opposed to a year B their annual equivalents. The 74% and II of Schedule D commencing on 6 April and ending adjustment derives from the fact that on the following 5 April. Paragraph 2 amends section 65 TCA there will be only 270 days in the 1997 which deals with the basis of short tax “year” 2001 compared to The TCA 1997 is further amended in assessment to income tax for persons 365 days in a normal tax year. For the the manner and to the extent set out carrying on a trade or profession. short tax “year” 2001 PAYE taxpayers in Schedule 2. Such persons are generally assessed will be taxed by reference to their to tax for a tax year on the basis of the earnings in the period from 6 April to Schedule 2 profits of a 12 month period of 31 December 2001, while This Schedule makes various account ending in the tax year. For self-employed taxpayers will, in amendments to the TCA 1997 the short tax “year” 2001 the general, be assessed to tax by consequent on the changeover to a assessment will be on the basis of reference to 74% of the profits of calendar tax year from 1 January 2002 74% of the profits of the appropriate their 12 month period of account effected by section 77. The first 12 month period of account ending ending in that “year”. calendar tax year will be preceded by in that “year”. For this purpose, a short transitional tax “year” however, a 12 month period of verview O covering the period from 6 April to account ending in the period Amendments are made to three 31 December 2001. In general, for 1 January 2002 to 5 April 2002 will, sections of the TCA 1997. this short tax “year”, tax credits, in addition to being an account made allowances, reliefs, etc, will be up to a date in the tax year 2002, be Section 2(1) TCA 1997, which is the adjusted to 74% of their annual treated as an account made up to a interpretation section for the Tax equivalents. A similar adjustment is date in the short tax “year” 2001. Acts (governing both income tax and made in other areas of the tax code, Consequently, the same 12 month corporation tax), is amended by the for example, the number of days in period of account could form the substitution of a new definition for basis for the assessment for the short the existing definition of “year of the various tests of residence, the percentages of the original market tax “year” 2001 and also the tax year assessment”. The new definition value of a car on which the BIK 2002. The assessment for the short Continued on page 22 21 CALENDAR YEAR OF ASSESSMENT Continued from page 21 tax “year” 2001 will be on the basis of Special basis on discontinuance the short “year” of assessment 2001 74% of the profits of the period of of trade or profession only. account, while the assessment for the tax year 2002 will be on the basis of Paragraph 4 makes two amendments B enefit of use of car to section 67 TCA 1997 which the full (100%) profits of that period. Paragraph 8 amends section 121 TCA provides special rules for the basis of assessment to income tax on the 1997 which charges to income tax the The move to a calendar tax year benefit to directors and employees cessation of a trade or profession. involves a mismatch between the derived from the private use of length of the short tax “year” 2001 Firstly, with effect from 1 January motor cars provided by their (period from 6 April to 31 December 2002, the profits to be charged to employers. 2001) and the length of previous and income tax for the tax year in which a Paragraph 8 provides that for the short subsequent tax years (12 months). In trade or profession ceases to be order to take account of this tax “year” 2001 the cash equivalent of carried on will be the profits of the mismatch, paragraph 2 also makes the benefit of a car will be 74% of its period from 1 January in the tax year appropriate amendments to the law annual equivalent, while the various (and not, as is currently the case, 6 governing the basis of assessment of business mileage limits applicable for self-employed taxpayers in cases April) to the date of the cessation of the trade or profession. tapering relief purposes will be 74% where such taxpayers who of their 12 month equivalents and customarily makes up accounts for a Secondly, as respects the tax year the alternative relief to tapering relief period ending in a tax year do not do 2002 and subsequent tax years, if the will apply where the taxpayer travels so or where such taxpayers change actual profits of the 12 months at least 3,700 (reduced from 5,000) their accounting date. ending on 31 December (and not, as business miles. is currently the case, 5 April) in the pecial basis at commencement eferral of payment of tax S tax year preceding the tax year in D of trade or profession under section 128 (share options) which the trade or profession ceases Paragraph 3 amends section 66 TCA exceed the profits on which a person Paragraph 9 amends section 128A TCA 1997 which provides special rules for has been assessed for that preceding 1997 which enables a taxpayer to the basis of assessment to income tax tax year, an additional assessment can elect to defer the income tax charge in the early years of a trade or be made to charge the excess. under section 128 of that Act on the profession. gain arising on the exercise of a share Expenses allowances and option. Under subsection (3) of section In the case of the second tax year in provisions relating to general 128A the taxpayer must make a which a trade or profession is carried benefits-in-kind charge written election for this deferral not on, taxpayers are normally assessed to Paragraph 7 amends section 116 TCA later than 31 January in the tax year income tax on the full amount of the 1997 which is the interpretation following the tax year (the relevant profits of a 12 month period ending section for Chapter 3 of Part 5 of that year) in which the share option was in that year. For the short tax “year” Act which deals with expenses exercised. Under subsection (4) of 2001, the assessment will be based on allowances and the general section 128A the tax payable may then 74% of the profits of the appropriate benefit-in-kind charging provisions. be deferred: 12 month period. In addition, Under subsection (3) of section 116 because of the mismatch between the t until 1 November in the tax year directors are within the scope of that following the tax year in which length of the short transitional tax Chapter without qualification as to “year” 2001 (period from 6 April to the shares acquired by the the amount of their income derived 31 December 2001) and the length of exercise of the option are actually from their office. However, sold, or previous and subsequent tax years employees are within the scope of (12 months), some technical the Chapter only where for the year t until 1 November in the tax year adjustments are made to the of assessment the remuneration from following the tax year beginning operation of the law governing the the employment, including expenses 7 years after the tax year in which basis of assessment for the second allowances and benefits-in-kind, but the shares were acquired, and third tax years in which a trade before any deduction of allowable whichever is the earlier. or profession is carried on. expenses, is in excess of £1,500. Paragraph 7 now amends subsection (3) Paragraph 9 changes the 31 January of section 116 so as to provide that this election date (which mirrored the £1,500 limit will be reduced to general return filing date for income £1,110. This reduction will apply for

22 CALENDAR YEAR OF ASSESSMENT tax returns under the Self Assessment pay, in each financial year, DIRT respect of a tax year, its October system and which is based on a 6 based on 12 months’ interest. payment on account of DIRT for the April to 5 April income tax year) to a following, and for each succeeding, 31 October date. The 31 October Paragraph 16 amends section 258 tax year is determined by calculating date will be the new general return TCA 1997 so as to provide that the the DIRT on 12 months’ interest filing date for Self Assessment DIRT payment on account which accruing to 5 October in the tax year income tax returns under the new financial institutions are required to and then reducing the resultant pay and file system introduced by make each October will be based on amount by the excess of the DIRT way of section 78 Finance Act 2001. the interest accrued in the period liability for the previous tax year over This amendment will apply where from 1 January (and not 6 April) to the amount of the October payment the year of assessment in which the 5 October in the tax year. This on account for that preceding tax share option was exercised is the year amendment will apply as respect the year. of assessment 2001 or any tax year 2002, being the first calendar subsequent year of assessment. tax year, and all subsequent tax years. In order to take account of the short tax “year” 2001, paragraph 17(a) Paragraph 9 also changes the As respects the short tax “year” 2001 amends section 259 TCA 1997 to 1 November payment date (which and subsequent tax years, the provide that the specified period of mirrored the payment date for balancing payment in respect of 12 months referred to in that section preliminary income tax under Self DIRT for a tax year will be brought will be reduced to a period of 270 Assessment and which is based on a forward automatically from April to days, being the number of days in the 6 April to 5 April income tax year to a January as that payment has to be period from 6 April to 31 December 31 October date. Under the new pay made within 15 days of the end of 2001. This reduction will apply only and file system 31 October will be the tax year which will now fall on for the short tax “year” 2001. the new payment date for both 31 December 2001. preliminary income tax for a tax year Paragraph 17(b) further amends section Paragraph 16 further amends section and the balance of income tax due for 259 TCA 1997 so as to change the 5 258 TCA 1997 to provide that the previous tax year. April reference date in that section to interest accruing in any tax year will, 31 December, the end of the tax year Relief for interest paid on to the extent that it is not already paid under a calendar tax year system. certain home loans in that year, be deemed for DIRT This amendment will apply as Paragraph 13 amends section 244 TCA purposes to be paid on 31 December respect the short tax “year” 2001 and in that year. As a result the financial 1997 which deals with tax relief for subsequent tax years - the short tax mortgage interest. Normally, the institutions will be required to “year” 2001 is the first tax “year” with account for DIRT in accordance with maximum amount of interest that a 31 December end date. can be taken into account for this section 258 TCA 1997 for the tax year for which the interest is deemed to Section 260 TCA 1997 contains relief for a tax year is £4,000 for have been paid. This amendment provisions to supplement sections 258 married and widowed persons and £2,000 for single persons. In the case will apply for the short tax “year” and 259 of that Act. Paragraph 18 2001 and subsequent tax years. changes the 6 April date in section of first-time buyers, the limits are £5,000 for married and widowed 260(4)(a)(i) TCA 1997 to 1 January Section 259 TCA 1997 provides that consequent on the similar change persons and £2,500 single persons an alternative payment on account but only for the first 5 tax years in made to section 258 of that Act by procedure applies in certain paragraph 16. The amendment to respect of which interest qualifies for circumstances. That section applies section 260 TCA 1997 will apply for relief under section 244. Paragraph 13 to a financial institution if the now reduces these limits to £2,960, the tax year 2002, and subsequent amount of DIRT it is due to pay in tax years. £1,480, £3,700 and £1,850, respect of interest paid by it in a tax respectively. Paragraph 61(a) makes it year is less than the amount of DIRT Capital allowances: wear and clear that these reductions will apply appropriate to the interest which tear allowances for the short tax “year” 2001 only. accrued on the deposits held by it in Paragraph 19 makes a technical D eposit interest retention tax a specified period of 12 months. The amendment to section 284 TCA 1997 specified period of 12 months ends so as to ensure that wear and tear Paragraphs 16, 17 and 18 amend on the institution’s latest general allowances in respect of machinery or sections 258, 259 and 260 TCA 1997, crediting date in the tax year or, if it plant will be proportionately which govern deposit interest has no general crediting date, on retention tax (DIRT), so as to secure restricted for the short tax “year” 5 April in the tax year. Where the 2001. that financial institutions continue to section applies to an institution in Continued on page 24 23 CALENDAR YEAR OF ASSESSMENT Continued from page 23

Relief for health expenses Business Expansion Scheme: Relevant Contracts Tax: limits on relief interpretation Paragraph 22 amends section 469 TCA 1997. Under that section an Paragraph 25 amends section 490 TCA Paragraph 31 amends section 530 TCA individual is entitled to a deduction 1997 which imposes certain limits on 1997. This is the interpretation from total income for tax purposes the relief available under the provision for Relevant Contracts Tax where he or she has paid qualifying Business Expansion Scheme. The which principal contractors are health expenses incurred in a tax year minimum and maximum amounts obliged to deduct at a rate of 35% on the provision of health care for on which relief is available for a from payments made to himself or herself or for any of his or normal tax year are £200 and subcontractors in the construction, her qualifying dependants. £25,000, respectively. Paragraph 25 meat processing and forestry Normally, the deduction for a tax reduces these minimum and industries. year is : maximum limits to £148 and £18,500, respectively. These Paragraph 31 rewrites the definition of n in the case of such expenses “income tax month” in section 530 incurred by one qualifying reductions will apply for the short tax “year” 2001 only. TCA 1997 - from 1 January 2002, an individual, the excess of the income tax month will be a calendar expenses incurred over £100, and Business Expansion Scheme: month. individuals qualifying for seed n in the case of such expenses capital relief Paragraph 31 also amends the incurred by more than one Paragraph 26 amends section 494 TCA definition of “qualifying period” in qualifying individual, the excess section 530 TCA 1997. Essentially, this of the expenses incurred over 1997 which sets out the conditions which must be satisfied by an is the 3 year “look back” period on £200. individual in order to qualify for seed tax compliance to determine whether Paragraph 22 provides that the capital relief under the Business or not a certificate of authorisation is amounts of £100 and £200 are Expansion Scheme. One of the issued to a subcontractor to enable reduced to £74 and £148, conditions is that the individual must the subcontractor to receive respectively. These reductions will not have been in receipt of income payments without deduction of RCT. apply for the short tax “year” 2001 chargeable to tax, other than The existing definition contains only. employment income, in excess of the references to the 5th day of April and lesser of : the 6th day of April, being the last Relief for investment in films day and the first day, respectively, of n Paragraph 23 amends section 481 TCA the aggregate of the individual’s an income tax year. To reflect the employment income, and 1997 which provides tax relief to change to a calendar income tax year, both companies and individuals for n £15,000. the dates in question are changed to investment in films. In the case of 31 December and 1 January - this individuals, the investor is given a This income test applies for each of change will apply from 1 January the 3 tax years before the tax year deduction from his or her total 2002. preceding the tax year in which the income for the tax year in which the investment is made in a qualifying individual makes his or her first seed Returns, payments and capital investment. There is no repayments film equal to 80% of the amount invested. However, a maximum limit restriction on the source of the Paragraph 32 fixes the return and individual’s income in the year which of £25,000 applies on the amount of a payment deadline for RCT as the qualifying investment or the total immediately precedes the year in 14th day of the month - this change which he or she makes that amount of qualifying investments in will apply from 1 January 2002. investment. respect of which such a deduction can be given to an individual in any Paragraph 32 also makes changes to Paragraph 26 provides that for the the definition of “the repayment one tax year. There is also a purposes of the income test the period” in section 531 TCA 1997. This minimum limit of £200 on a £15,000 limit will be reduced to qualifying investment. period is currently determined by £11,100 in the case of the short tax reference to an income tax year “year” 2001. Paragraph 23 now reduces the commencing on 6 April and an maximum and minimum limits to income tax month ending on the 5th £18,500 and £148, respectively. day of a month. To reflect the These reductions will apply for the change to a calendar income tax year short tax “year” 2001 only. and calendar income tax months, paragraph 32 provides that “the

24 CALENDAR YEAR OF ASSESSMENT repayment period” will be Capital Gains Tax: exclusion of account of a person’s presence in the determined by reference to the 1st certain disposals from taxation State in both the tax year in question day of the tax year and the last day of regime applying to development and the preceding tax year. Thus, a the income tax month in which the land person who spends an aggregate of payments subjected to RCT were Paragraph 36 amends section 650 TCA 280 days or more in the State over made. These changes will apply from 1997. That section provides that a the combined period of the 2 tax 1 January 2002. disposal of development land by an years is regarded as resident in the individual will not be subject to the State for tax purposes for the later tax Capital Gains Tax: annual year. Paragraph 42 reduces 280 days to exempt amount special capital gains tax regime applying to such disposals if the total 244 days. This reduction will apply Paragraph 34 amends section 601 TCA consideration accruing to the only in determining residence for the 1997 . That section grants a capital individual in the tax year concerned short tax “year” 2001 and the tax year gains tax exemption to an individual from all disposals of assets which are 2002. in respect of the first £1,000 of development land does not exceed Presence in the State for periods of chargeable gains in any one tax year. £15,000. Paragraph 36 reduces this 30 days or less in any tax year are to Paragraph 34 now reduces this annual annual limit of £15,000 to £11,100. be ignored for the purposes of the exempt amount to £740. This This reduction will apply for the 2 year residence test. For example, reduction will apply for the short tax short tax “year” 2001 only. “year” 2001 only. an individual who is present in the Retirement annuities: amount of State for 280 days over 2 tax years is Capital Gains Tax: disposal of relief for qualifying premiums normally regarded as resident in the principal private residence Paragraph 41 amends section 787 TCA State in year 2. However, if the Paragraph 35 amends section 604 TCA 1997 which sets out how retirement individual is present in the State for 1997. That section exempts from annuity relief is to be computed. 30 days or less in year 2, he or she is capital gains tax the gain made by an The relief is given as a deduction regarded as non-resident in that year. individual on the disposal of his or from or set-off against relevant Paragraph 42 reduces 30 days to 22 days. This reduction will apply in her dwelling house together with earnings for the tax year for which land occupied as its gardens or qualifying premiums are paid. determining residence for the short grounds up to an area of one acre, However, for the purposes of the tax “year” 2001 only. exclusive of the site of the residence. relief, an individual’s net relevant Relief is not given for any part of the Application of sections 17 and earnings for a tax year may not 18(1) and Chapter 1 of Part 3 in gain which is applicable to exceed £200,000. Paragraph 41 case of persons ordinarily “development land value”. However, reduces the £200,000 ceiling on the resident in the state if the total consideration accruing to relief to £148,000. This reduction Paragraph 43 amends section 821 TCA the individual in any one tax year will apply for the short tax “year” 1997. That section creates an from all disposals of assets which are 2001 only. development land, and which would exception to the general rule that a non-resident person is taxable only otherwise qualify for relief under the esidence of individuals R on Irish source income. It provides section, does not exceed £15,000, this Paragraph 42 amends section 819 TCA that a non-resident person is subject restriction on the relief does not 1997 which sets out 2 tests for apply. Paragraph 35 reduces this to income tax on foreign investment determining the residence status of income of £3,000 or more in any tax annual limit of £15,000 to £11,100. an individual for tax purposes. year for which he or she is ordinarily This reduction will apply for the resident in the State. Paragraph 43 short tax “year” 2001 only. The first and basic test is that a reduces the £3,000 limit to £2,220. person is resident in the State for tax This reduction will apply for the purposes for a tax year in which he or short tax “year” 2001 only. she spends 183 days or more in the State. Paragraph 42 reduces 183 days PAYE system to 135 days. This reduction will apply Paragraph 53 rewrites the definition in determining residence for the of “income tax month” in section 983 short tax “year” 2001 only. TCA 1997 which is the interpretation Where the time spent in the State in section for the primary legislation a tax year is less than 183 days, the governing the PAYE system. The second test comes into play. This is a current definition of “income tax 2 year test and involves taking month” is based on a 6 April to the Continued on page 26 25 Continued from page 25 Professional Services Withholding Tax following 5 April tax year and, Those taxpayers who customarily consequently, provides that an make up annual accounts to a date in income tax month commences on the 6th day of any of the months of the period from 1 January to 5 April will not have a 12 month period of April to March in any year. The account ending in the short tax “year” rewritten definition maintains this 2001 as their normal 12 month position for the period to period of account will end in the 5 December 2001, provides that the period from 1 January to 5 April short period 6 December to 2002. Notwithstanding this, such 31 December 2001 will be treated as taxpayers are to be assessed for the an income tax month and, to short tax “year” 2001 on the basis of coincide with the introduction of the calendar income tax year from 74% of the profits of the 12 month period of account ending in the 1 January 2002, secures that from Interpretation period from 1 January to 5 April that date an income tax month will 2002. The same 12 month period of be a calendar month. z This article gives an overview of Professional Services Withholding account will also be the basis period Tax (PSWT) and outlines the changes for the tax year 2002, albeit that for in relation to the changeover to the that year the taxpayer will be assessed calendar year of assessment. on the basis of 100% of the profits of that 12 month period of account. Schedule 2, paragraph 28 FA 2001 amends section 520 TCA 1997 which Under the definition of “basis is the interpretation section for period” in section 520 TCA 1997, PSWT. where there is an overlap between, or a coincidence of, basis periods, the PSWT deducted in a basis period for period common to both is regarded a tax year is available for set-off for the purposes of PSWT as being against the income tax chargeable for referable to the later tax year. On this that tax year. The term “basis period” basis taxpayers who prepare annual is defined in section 520 TCA 1997 as accounts to dates in the period from 1 being, in general, the period on the January to 5 April 2002 would not get profits or gains of which income tax any credit for PSWT deducted in the for a tax year is finally computed. In period of account against income tax the case of the commencement or payable for the short tax “year” 2001, cessation years of a business, or in since all of the PSWT would be cases where a business changes its treated as being referable to the basis accounting period, the basis periods period for the tax year 2002. for income tax purposes for two tax years can overlap or coincide or, Paragraph 28 amends section 520 TCA indeed, a period may not form part of 1997 so as to provide a special rule to a basis period for any tax year. The deal with such cases. In essence, definition of “basis period” provides where a 12 month period ending in rules to deal with such situations, the the period from 1 January to 5 April purpose of which is to ensure that 2002 is the basis period for both the each day in the life of a business on short tax “year” 2001 and the tax year which a payment subject to PSWT is 2002, the 12 month period in received is to be included in one, but question will be treated for PSWT only one, basis period for PSWT purposes as the basis period for the purposes. short tax “year” 2001 only. This will ensure that the taxpayers concerned In general, self-employed persons will get credit for PSWT deducted in will be assessed for the short tax that 12 month period against income “year” 2001 on the basis of 74% of tax payable for the short tax “year” their profits for the 12 month period 2001. The credit will not be deferred of account ending in the short “year”. to the tax year 2002.

26 PROFESSIONAL SERVICES WITHHOLDING TAX

Paragraph 28 also rewrites the preceding basis period have been In the case of claims for interim definition of “income tax month” in finalised and the tax for the tax year refunds of PSWT referable to a basis section 520 TCA 1997 - from referable to that immediately period for the short tax “year” 2001, 1 January 2002, an income tax month preceding basis period has been paid. paragraph 30 provides that the will be a calendar month. The amount of the interim refund is comparison for refund purposes will the excess of the total amount of be with 74%, and not 100%, of the Returns and collection PSWT deducted and vouched over income tax liability for the tax year Schedule 2, Paragraph 29 FA 2001 fixes the amount of the income tax liability 2000/2001. the return and payment deadline for for the tax year referable to the PSWT as the 14th day of the month - immediately preceding basis period, In the case of claims for interim this change will apply from 1 January less any value-added tax, PAYE tax, refunds of PSWT referable to the 2002. and PRSI contributions due but basis period for the tax year 2002, for unpaid. which year 100% of the profits of the Interim refunds basis period will be charged to The move to a calendar tax year income tax paragraph 30 provides that Paragraph 30 amends section 527 TCA 1997 which deals with interim involves a mismatch between the the comparison for refund purposes refunds of PSWT. A person carrying length of the short transition tax will be with 135% of the income tax on an ongoing business may make a “year” 2001 (270 days from 6 April to liability for the short tax “year” 2001. z claim for an interim refund of PSWT 31 December 2001) and the length of referable to a basis period for a tax previous and subsequent tax years year if the profits of the immediately (12 months).

RETIREMENT ANNUITY CONTRACTS

The legislation governing income tax The legislation is specific with regard (b) the period available between the relief for retirement annuity contract to the time limit for making an end of the year of assessment and premiums is covered in section 787 election. It allows almost ten months the return filing date in which a Taxes Consolidation Act 1997. after the end of the year of taxpayer may make RAC Generally, relief is given by way of assessment for individuals to finalise contributions and an election to deduction from an individual’s their accounts, make a decision on treat the premiums as paid in the relevant earnings (income from whether to take out a retirement preceding year of assessment if non-pensionable office or annuity for the preceding year, and to he or she so wishes, employment or from a trade or make a timely election to have the profession) for the year of assessment premiums treated as having been tax practitioners and taxpayers are in which the premium is paid. paid in the preceding year of reminded that Revenue apply the assessment if they so wish. election requirement strictly. Under However, section 787(7) provides that no circumstances will an election a premium paid after the end of the In view of : made outside the prescribed time year of assessment but on or before limit be admitted. z the return filing date may be treated (a) Revenue’s waiver of the as paid in the preceding year of requirement to submit RAC assessment if the individual so elects certificates in support of claims, on or before the return filing (see Tax Briefing, Issue 29) and date.

27 TAX RELIEF AT SOURCE (TRS) Mortgage Interest

In the December 1999 Budget, the Minister for Finance, mortgage interest to persons whose taxable income up to Mr Charlie McCreevy, T.D. announced that Tax Relief at now was insufficient to avail of the tax relief. These Source (TRS) would be introduced for certain tax borrowers will be entitled to the tax relief from 1 January allowances previously allowed through the Tax Free 2002. Allowance (TFA) System. From I January 2002, tax relief on interest payable on new and existing mortgages will no Commencing on 18 June and continuing into July 2001, longer be given through the tax system but will instead be Revenue will be writing to each of the 450,000 borrowers granted at source. This means that the tax relief element who are at present claiming mortgage interest relief on the mortgage interest will be administered by the through the tax system. Where Revenue have the full lending institutions and the relief will be “built into” the mortgage details, Revenue will be writing to confirm the monthly mortgage repayment. details with each borrower by letter and no further action is necessary unless some of the details need to be updated. The TRS system will apply to secured mortgage loans - For the remaining cases, the borrowers will be asked to these are loans secured by the mortgage of freehold or supply details of their mortgage account and return the leasehold estate or interest in a principal private residence. details to TRS Section, Collector-General, Sarsfield Any interest relief due on unsecured [non-mortgage] House, Limerick. home loans will continue to be given through the tax system - generally by way of a claim at the end of the tax Help Line year. Revenue is establishing a special TRS help line to assist borrowers with any queries they may have. The help line TRS will simplify the administration of mortgage interest will be open from 8am to 8pm each week, Monday to tax relief where the borrower will see the benefits of the Friday, commencing 18 June 2001. The Locall number is relief in the monthly mortgage repayment. In addition, 1890 463626. any future adjustment in tax relief (for example, arising from a change in interest rates) will be made automatically An explanatory leaflet on Tax Relief at Source (TRS) for by the lender. The introduction of Tax Relief at Source Mortgage Interest is available from any Revenue Office also provides an opportunity to extend the tax relief on and on the Revenue website at www.revenue.ie z

HEPATITIS C COMPENSATION PAYMENTS

Tax Briefing, Issue 35 (March 1999) contained an article Where it is medically certified that an individual is dealing with the tax treatment of Hepatitis C suffering from a degenerative condition which will compensation payments. ultimately cause a permanent and total incapacity by reason of mental or physical infirmity and the condition Section 189 Taxes Consolidation Act 1997 exempts from gave rise to the compensation payment, Revenue accepts income tax any income arising to an individual following that the requirements of subsection 1(a), section 189 Taxes the investment of any payment made Consolidation Act 1997 are met. n to or in respect of an individual who is permanently This applies to individuals who have been diagnosed and totally incapacitated by reason of mental or physical infirmity from maintaining himself or herself, positive for Hepatitis C antibodies or Hepatitis C. and The other provisions in section 189 Taxes Consolidation Act n following the institution by or on behalf of the 1997 relating to sole or main income and returns of individual of a civil action for damages in respect of income continue to apply. z personal injury giving rise to that mental or physical infirmity.

28 PERSONAL INJURIES Exemption of Income

Exemption of income arising It is recognised that an asset may over compensation funds and party by a from the investment of the period of an investment mortgage that the full amount of the compensation payments in appreciate in value and any rental income is treated as exempt. respect of personal injuries re-investment of such funds may also Revenue have re-examined that qualify for exemption. precedent and it is now withdrawn. Introduction The policy in regard to assets Section 189 TCA 1997 exempts from For example, say in 1990 an financed by borrowings which is set tax certain income arising to individual had used £200,000 from a out above in connection with Section permanently incapacitated qualifying compensation payment to 189 will also now apply to exempt individuals from the investment, in acquire a property the full cost of income under Section 192 TCA 1997. whole or in part, of compensation which came from the compensation Any cases which had availed of payments in respect of personal payment. The property was let and precedent 391 can continue to do so, injury claims made by the Courts, or the rental income generated was however, any new additional under out-of-court settlements. The covered by the exemption under financing by borrowed funds in such Section 189 TCA 1997. If the exemption only applies where the cases will not be covered by the income in question forms the sole or property was sold in the year 2000 relief. main income of the individual. for £600,000 and all the proceeds (after costs and CGT) were Special Trusts for Permanently This article considers whether the re-invested in another investment Incapacitated Individuals. exemption applies: property, the exemption would also Revenue policy as set out above, apply to all the rental income from where investment assets funded applies also to the exemption under t the new property. In these by the compensation payment Section 189A TCA 1997. circumstances the source of income have been realised (perhaps Conclusion appreciating in value) and clearly arises from the investment of the compensation funds alone and reinvested in other assets and The primary purpose of Section 189 is not from any other source. to grant exemption from income tax t where assets have been financed on the investment of the partly by the qualifying Assets financed partly by borrowings compensation funds. While it is compensation payment and partly Revenue’s intention to interpret the by borrowings. However, where a relevant individual section in a broad manner so as, for finances the purchase of an asset Re-investment in other assets example, to allow for capital partly with a qualifying appreciation and not to impose The section specifies that the compensation payment and partly restrictions on the switching of exemption from income tax applies with say a loan, then only a portion investments, income derived from to income arising from the of the income will qualify for borrowed funds does not come investment in whole or in part of exemption. The income which within the scope of the section. such payments or of income from qualifies is the proportion to which such payments. the compensation payment (together Finally, it should also be noted that with any capital appreciation thereof) the provisions of Section 189 require Income (in this subsection referred to as used to finance the asset bears to the that the exempt income (relevant “the relevant income”) which arises to an total funds expended to finance the income) be the sole or main income individual, to or in respect of whom asset. The exemption can only be of the individual. ‘Sole or main’ payments to which this section applies are given, as the legislation requires, in means more than 50%. Where the made, from the investment in whole or in respect of income arising from the person claiming the exemption is in part of such payments or of income from investment of the compensation receipt of certain payments by the such payments, being income consisting of payments. Department of Social, Community dividends or other income which but for and Family Affairs in respect of the this section would be chargeable to tax Revenue Precedent 391 same injury or disability which gave under Schedule C or under Case III, IV regarding Section 192 TCA 1997 rise to the compensation payment (by virtue of section 59 or section 745 or V Revenue Precedent 391 dealt with those benefits are not taken into of Schedule D or under Schedule F, shall compensation payments in account when calculating whether be exempt from income tax... (Section 189 thalidomide cases. The precedent the investment income is the sole or (2) TCA 1997) indicated that where a rental property main income of the individual. z is financed partly by thalidomide

29 STAMP DUTY Revenue Certificates in Deeds

of certification that currently apply Certificate under Section 29/53 are described below. Stamp Duties Consolidation Act 1999 Transaction Certificate (Nos. 2A/B or 3A/B in Leaflet (Nos. 8A-D in Leaflet SD10) SD10) This was the first form of Section 29 (in the case of a certification introduced for stamp conveyance / transfer) and section 53 duty purposes and one that (in the case of a lease) apply to the practitioners will be most familiar acquisition of a site where there is an with. Originally this certificate dealt arrangement to build a house on the solely with the amount or value of site. Under these sections a charge to the transaction but now it also stamp duty is imposed on the Introduction identifies whether the property is aggregate of the consideration paid residential or non-residential in for the site and the consideration This article sets out the treatment of nature since the introduction of paid in respect of the building of the Revenue Certificates in Deeds in different rates of duty for residential house on the site. relation to stamp duty. It outlines the and non-residential property. situations where certification is Both sections have similar wording necessary and gives the rationale The rationale for this certificate is to except that section 29 deals with behind the wording of the various prevent the breaking up of a larger conveyances / transfers and section 53 Revenue Certificates involved. transaction into a number of smaller deals with leases. The reason for this transactions in order to avoid a apparent duplication is that istorical Background H higher rate of duty. However, in a conveyances / transfers and leases are The concept of certification in deeds mixed property situation the chargeable under separate headings for stamp duty purposes first came residential part of the transaction is in the Stamp Duties Consolidation Act into use as far back as 1910. Under not aggregated with the 1999. the Finance (1909-10) Act 1910 lower non-residential portion for the rates of stamp duty were introduced purposes of determining the Every instrument chargeable as a for property transactions under a appropriate rate of duty. The conveyance / transfer or lease must certain value and in the absence of consideration should be apportioned contain a certificate that section 29/53 what is commonly known as the between the residential and either applies or does not apply to the “transaction certificate” the non-residential elements and each deed. Additional certification will be maximum stamp duty rate was type of property is separately certified required to determine the payable. to the applicable threshold and the appropriate stamp duty rate which appropriate rate of duty is chargeable applies. Over time certification in deeds has in respect of the residential and been expanded to identify non-residential parts of the Occupancy Certificate (Nos. 7A-C in Leaflet SD10) n the type of property being transaction. The current rates of transferred under a deed stamp duty are included in the This certificate is required in order to Leaflet SD10. obtain the reduced stamp duty rates n the nature of the transaction in the case of the acquisition of a involved and The position where contents of a house by a first time buyer or other property are acquired is that they are owner-occupier. n situations where certain to be taken into account for the exemptions or reliefs from stamp purposes of the threshold to be The certificate may be given where: duty are being claimed. inserted in the transaction certificate t the property is to be occupied as a The rationale behind certification in even though the contents themselves person’s only or principal place of deeds is that the maximum rate of do not attract a charge to stamp duty residence for a period of 5 years stamp duty will be chargeable unless where they pass by delivery. The from the date of the instrument, the correct certificates are endorsed contents of residential property are t the occupancy is by the purchaser to support the lower rate or deemed to be residential property for or a person in his right and exemption being claimed. aggregation purposes. t no rent is to be derived from the The wording of the current Revenue The wording of the transaction property other than rent received Certificates is set out in Leaflet SD10 certificate should be adapted in the after 6 April 2001 under the which is available on our website at case of a lease or gift. rent-a-room scheme introduced www.revenue.ie . The different forms under the Finance Act 2001. 30 STAMP DUTY

Under the rent-a-room scheme the divorce / nullity where that spouse or purchaser or the person in right of has: t the greater of (i) the site the purchaser must continue to t left the former family home and consideration or (ii) 25% of the occupy the property as his principal aggregate of the site consideration place of residence while deriving rent t not retained any interest in that home and the consideration paid for the from the letting of part of the building of the house, where it is property. and the other spouse continues to certified that section 29 / 53 Stamp occupy the former family home since Duties Consolidation Act 1999 A clawback, of an amount equal to the separation / divorce / nullity. the difference between the higher applies. An occupancy certificate rate of stamp duty and the reduced Exemption for new grant-size is also required. stamp duty paid, arises where rent, houses Stamp duty will then be chargeable other than under the rent-a-room (No.1 in Leaflet SD10) on the basis of the reduced scheme, is derived from the property There is an exemption from stamp consideration (exclusive of VAT) at during the 5 year period. duty in Section 91 Stamp Duties the appropriate rates for first time Consolidation Act 1999 for the purchasers or other First Time Purchaser Certificate acquisition of new grant-size houses. (No. 6 in Leaflet SD10) owner-occupiers subject to the The exemption is available for all appropriate certification already In this certificate a person certifies owner-occupiers whether first time referred to. The full range of that he/she is a first time purchaser in buyers or not. certificates required is set out in order to avail of the reduced rates of Table 2 in Leaflet SD10. stamp duty for first time buyers. An The certification required to avail of occupancy certificate is also required the exemption confirms that: The clawback provisions apply where rent, other than rent under the in conjunction with this certificate. n the house is newly erected rent-a-room scheme, is obtained The term “first time purchaser” is n a floor area certificate (must not during the five years after the date of defined in section 92B Stamp Duties exceed 125 sq.m.) has issued by the acquisition. Consolidation Act 1999 (which was the Department of the inserted by the Finance (No.2) Act Environment and Local Second-hand house certificate (No. 5 in Leaflet SD10) 2000). The definition broadly Government and includes a person who has not on any This certificate confirms that the previous occasion, either individually n the occupancy criteria previously transaction relates to the purchase of or jointly, purchased or built on referred to has been satisfied. a house and is required in his/her own behalf a house in the The clawback provisions apply where conjunction with the owner State or abroad. Where there is more rent, other than rent under the occupancy certificate and / or the first than one purchaser each of the rent-a-room scheme, is obtained time buyer certificate where the purchasers must come within the during the five years after the date of benefit of the reduced rates are scope of the definition in order to the acquisition. claimed in connection with the avail of the reduced rates. purchase of a second-hand house. Relief for new houses with no There are a number of special floor area certificate The full range of certificates is set situations to which the first time (No.2A/B or 4A/B in Leaflet out in Table 2 in Leaflet SD10. purchaser relief applies on a deemed SD10) basis. The category of persons Section 92 Stamp Duties Consolidation The higher 9% rate of stamp duty originally catered for was a spouse to Act 1999 provides that the chargeable applies in the case of an investor a marriage which was the subject of a consideration in the case of the acquiring a second-hand house judicial separation or a decree of purchase of a non-grant size house regardless of the consideration paid. divorce. The Finance Act 2001 for owner occupation is: educed rates for New Houses extended the legislation to situations R t 25% of the total consideration in acquired by investors where there is a decree of nullity or a the case of the purchase of a (No.2A/B or 4C/D in Leaflet deed of separation. completed house subject to SD10) The effect of this provision is to certification that the house is Under the Finance Act 2001 reduced grant first time buyer relief to a newly erected and that sections 29 / stamp duty rates were introduced for spouse in any of the above situations 53 and section 91 do not apply. An new houses acquired by investors. in the case of the first acquisition of a occupancy certificate is also The reduced rates are set out in column 4 of Table 1 in Leaflet SD10 house following the separation / required. Continued on page 32 31 STAMP DUTY Continued from page 31 and apply to instruments executed on Young Trained Farmer n Spouse exemption (section 96 or after 27 February 2001. The Exemption Stamp Duty Consolidation Act 1999) certification confirms either: (No. 11 in Leaflet SD10) - a certificate may be included if desired to confirm the n in the case of a completed house Section 81 Stamp Duties Consolidation relationship of the parties. Spouse that the house is newly completed Act 1999 provides for an exemption and that section 29 / 53 does not from stamp duty on certain transfers do not require to be apply conveyances / transfers of property to presented for stamping in order to obtain the exemption. or young trained farmers. The parties do not have to be related and the n Relief for intra-group transfers n that section 29 / 53 applies where relief applies to both sales and gifts (section 79 Stamp Duty there is a site acquisition but does not apply to leases. Full Consolidation Act 1999) - no combined with a building details of the relief are contained in certification is required in the contract. Leaflet SD2 and the relevant deed but adjudication is necessary. The charge to duty arises on the qualifications must be satisfied as at A statutory declaration setting out entire consideration paid for the the date of the transfer. the basis of the claim should be house exclusive of VAT. The filed. appropriate rate is then determined Where relief is claimed the on the basis of the threshold instrument should contain a n Relief for company included in the transaction certificate that section 81 applies. reconstructions/amalgamations certificate. Adjudication is also required. (section 80 Stamp Duty Consolidation Act 1999) - no oodlands Relief elationship Certificate W certification is required in the R (No. 12 in Leaflet SD10) (No.10 in Leaflet SD10) deed but adjudication is necessary. Stamp duty at half the normal rate is This relief is contained in section 95 A statutory declaration setting out chargeable where the relationship Stamp Duties Consolidation Act 1999 the basis of the claim should be certificate is included in a deed. This which excludes from the charge to filed. is known as consanguinity relief and stamp duty that portion of the consideration attributable to trees Exemption for transfer of site in order to avail of this relief each of from parent to child for building the persons to whom the property is growing on lands for commercial purposes. The relief only applies to purposes transferred must be related to each of (No. 9 in Leaflet SD10) the transferors to the required sales and the consideration must be apportioned between the lands and This exemption was introduced degree. The degree of relationship is under the Finance Act 2001 by the mainly based on direct ancestry and the trees and the rate of duty insertion of section 83A Stamp Duties extends to nieces / nephews but does chargeable on the lands is determined by the amount of the Consolidation Act 1999. It applies to not include cousins or in-laws. The instruments executed on or after relief is not available where only one total consideration for the sale. 6 December 2000 and adjudication is of the parties is related to the Where this relief is claimed the required degree and there is no required. The certificate required to instrument should contain a obtain the exemption confirms that: provision for granting the relief to certificate that section 95 applies. t a site only is being transferred the part of the transaction between While the section does not provide the related persons. for adjudication it is in practice t the transferee is a child of the transferor The relief is provided for in required. t the value of the site does not paragraph 15 of the heading eliefs not requiring R exceed £200,000 “Conveyance or Transfer on sale of certification any property ....” in Schedule 1 Stamp Certification does not arise in the t the purpose is the erection of a Duties Consolidation Act 1999. The case of every relief or exemption house to be occupied as the only relief is available in the case of either provided for under the Stamp Duty or main residence of the a sale or a gift of property but does code. Listed below are a number of transferee and not apply to a lease or to the transfer examples of situations where there is t this is the first occasion that the of stocks or marketable securities. no statutory requirement for having a child has claimed this relief. Adjudication is required where the relief is sought. certificate in the deed.

32 STAMP DUTY

Exemption from Fixed Duty Transitional Certificate preparation of a deed where incorrect of £10 information is furnished or Under the Finance (No.2) Act 2000 (Nos.13A-D in SD10) non-disclosure occurs. transitional arrangements apply Instruments, which are liable to the where the purchase of a house was Under section 17 Stamp Duties fixed duty of £10 under the following the subject of a contract evidenced in Consolidation Act 1999 the furnishing headings in Schedule 1 Stamp Duties writing prior to 15 June 2000. Under of an incorrect certificate for stamp Consolidation Act 1999, are exempt these arrangements a person who was duty purposes is a Revenue offence from this charge where they bear the disadvantaged as a result of the stamp which may be subject to the appropriate certificate. duty changes can opt to have the sanctions provided for in section 1078 rates in force prior to 15 June 2000 “Conveyance or Transfer of any kind Taxes Consolidation Act 1997. applied to the instrument of not already described in Schedule 1". conveyance/lease provided that the Further Information “Exchange” (other than an exchange instrument has been executed on or For further information, please chargeable under section 37 Stamp before 31 July 2001 (extended from contact Duties Consolidation Act 1999. This 31 January 2001 under Finance Act section imposes a charge to ad 2001). Capital Taxes Division, Stamp Duty Customer Service Unit, valorem on exchanges involving immovable property.). To avail of the transitional Stamping Building, arrangements the instrument of Dublin Castle, “Release or Renunciation of any conveyance/lease must contain the Dublin 2 . property, or right or interest in any following certificate: property”. Dublin Office: “It is hereby certified that this Telephone: 01 6792777 “Surrender of any property, or of any instrument was executed solely in ext. 48552 / 48176 / right or interest in any property”. pursuance of a contract evidenced in 48093 writing prior to 15 June 2000". The transactions involved do not Fax: 01 6793261 attract ad valorem duty as they are Incorrect Certificate Cork Office: not on sale or by way of gift. There is Section 8 Stamp Duties Consolidation no need to present such instruments Act 1999 requires full disclosure of all Telephone: 021 4968783 for stamping where they are so the facts and circumstances at the ext. 73191 / 73142 / 73103 certified. time of stamping. Penalties can be incurred by either the parties to a Fax : 021 4318088 z deed or any person involved in the

FOREIGN EFFECTIVE RATES Current foreign effective rates are as follows:

Belgium 49% Italy 46% Canada 47% Japan 44%

France 46% Luxembourg 42%

Germany 37% Norway 35% z

33 PARTITION OF FAMILY TRADING COMPANIES CGT

Introduction u Applies to 100% family companies only The intention of this article is to explain the relief u All parties must be Irish tax resident available in the case of a partition of a family trading u Applies to separation of trading companies only i.e. company together with the circumstances in which the trades capable of division into separate trading entities, relief may be granted. This article essentially sets out how e.g. a number of retail outlets, two distinct trading precedent 701* is to be applied. activities such as manufacturing and distribution/sales. In practice where the value of non-trade assets does Background not exceed 10% of the value of the trading entity as a There are occasions where a family carries on separate whole relief will be given identifiable trades under the umbrella of a single company u The separate trades must continue post partition / not (or a single trade which is capable of division into more available as an alternative to a partial winding up or to than one separate trade). Similarly, the trades may be be used as a mere separation into trade assets and carried on by more than one company or within a group investment assets structure. This might arise, for instance, where the u Where the partition involves the division of a group of original corporate structure was put in place by a deceased companies, the entity to be transferred can be a 100% parent and inherited by the various family members. For trading subsidiary of a 100% family company. The commercial or other reasons the family members may provisions of section 623 TCA 1997 will, however apply now wish to divide the separate trades between the family Relief does not extend to stamp duty members so that each trade can be owned and carried on u wholly by individual members. u Must be for bona fide commercial reasons and not to secure a tax advantage of any kind. Partition Where, in the case of a family trading company Advance Approval n shares are reorganised into separate classes Advance approval should be sought for this relief. Requests for approval should identify the parties involved n new companies are formed to take over the separate (quoting full tax references) and outline the existing trades allocated to the different classes structure, the reasons for the partitioning and the n with each group of shareholders receiving shares in a proposed new structure together with the proposed steps different company to achieve the new structure. Undertakings may be sought in relation to some of the conditions above. the reliefs provided by section 587 and 615 will apply, if the Requests for approval should be made direct to: conditions set out below are satisfied. The desired separation must occur on the transfer of a trade to another Office of the Revenue Commissioners company, in exchange for the issue of shares by that Direct Taxes Interpretation and International Division, CGT company. Stamping Building Dublin Castle onditions C Dublin 2 u No money or moneys worth changes hands

Telephone: 01 6475000 u No value shifting takes place, i.e. the value of each shareholder’s holding before and after the partitioning Fax: 01 6799287 is identical u Acceptance that assets transferred between companies *Precedent 701 reads: pass to the transferee company at the original date of “Where a family trading company (or group of companies) is acquisition and cost to the transferor company broken up into separate individual trading companies, such an event will not be regarded as a disposal for CGT purposes u Acceptance that new shares received in exchange take provided that the value of each individual’s holding in the on original date of acquisition and cost of old shares company or group remains strictly unaltered and also provided u Applies to ‘family’ partitions only [‘family’ as defined certain other conditions are met.”z in section 598(1)(a) TCA 1997]

34 PARTITION OF FAMILY TRADING COMPANIES CGT

Example 5. A holds all the shares in Co. X, which now carries on A & B hold shares 50/50 in Co. X, which carries on two the trade of T1. B holds all the shares in Newco, trades, T1 & T2. The following steps could be put in which now carries on the trade of T2. place to achieve the relief under this precedent: If the conditions outlined above are satisfied, the relief 1. Co. X reorganises its share capital into two separate provided by section 587 will apply to the shares issued by classes to reflect the trades, which are to belong to the Newco and the transaction will be treated as an exchange respective shareholders post partition. [There would of shares. The new holding will be treated in the hands of then be two classes of shares, one class held by A the shareholder as if it was the original holding. which derives its value solely from the assets and trade Additionally, the relief provided by section 615 will apply to of T1, and the other class held by B, which derives its the transfer of the trade by Co. X to Newco, so that no value solely from the remaining trade, T2.] corporation tax will be charged in respect of chargeable gains accruing to Co. X, but Newco will be treated as if it 2. B sets up Newco which he owns 100% had acquired the assets at the time and the price, at which they were acquired by Co. X. 3. Co. X transfers trade T2 to Newco in return for Newco issuing new shares to B in respect of his holding in Co. X 4. B’s shareholding in Co. X is cancelled.

BEFORE AFTER A B A B

50% 50% 100% 100%

Co. X Co. X Newco

Trades T1 & T2 T1 T2

35 DEPOSIT INTEREST Whether a Trading Receipt?

The followingRevenue Information Capital which is integral to the n Trustee/Custodian company Notice was published in May 2001. trade n Agency treasury manager/Captive Deposit interest arising from deposits finance company manager. Deposit Interest - Whether a held by banks and insurance Trading Receipt companies (life and non-life, IFSC Certificates - Clarification The purpose of this statement is to including reinsurance) is chargeable While the views expressed in the clarify Revenue’s position in relation as Case I income on the grounds that previous paragraphs have always been to deposit interest arising to such deposits are integral to the Revenue’s position on the companies generally and, in trades of banking and insurance. circumstances in which deposit particular, to specific classes of interest would be acceptable for The same treatment applies to financial services companies. inclusion as trading income for tax deposits held by the following classes Revenue considers that the views purposes, it is acknowledged that, in of financial services companies expressed in this Notice are in line the context of some financial services with the relevant case law on this n Agency treasury company companies trading in the IFSC, there subject, including J. A. Browne may have been some confusion n Standalone treasury company (Inspector of Taxes) v Bank of Ireland regarding the scope of the certificates Finance Ltd. [3 ITR 644] and Nuclear n Captive finance company issued by the Minister for Finance Electric v Bradley [68 TC 670]. under Section 446 TCA 1997. It n Asset finance company (where should be noted, however, that the General Rule deposits are an integral part of the following proviso is included in all The general position in relation to financing arrangement) such certificates: deposit interest is that it is prima n Leasing company (where deposits facie passive income and is assessable ‘any income arising from the trading are an integral part of the lease operations...... is chargeable to tax as Case III/Case IV income. In order arrangement) for an alternative treatment to apply, under Case I of Schedule D as part of there is a very high burden of proof n Investment trader. the Company’s trading income. [The question of whether or not the on the taxpayer. In the case of managers of financial services and other similar type Company is trading, and if so, Exceptions companies, deposit interest on whether any of its particular operations are trading operations and Revenue accepts that deposit interest deposits held will not be regarded as arising in the following specific arising in the course of the therefore chargeable to tax under Case circumstances is assessable as Case I company’s trading operations and I of Schedule D is primarily one of income: will be taxable at the full rate of fact to be determined after the events in corporation tax unless the company question have taken place.]’ Regulatory Capital Requirement can satisfy the very high burden of For the sake of clarity, the Revenue Where a company is required by Irish proof that the deposits are integral to view is re-stated hereunder: or foreign regulatory authorities, e.g. its trade. In this regard, the company t the return on funds which are the Central Bank of Ireland, the must be able to demonstrate that the merely placed on deposit is not Department of Enterprise, Trade and holding of the deposit is an essential part of the business of the company regarded as constituting income Employment, to retain a certain level taxable under Case I in its own of permanent capital in the business, and that they are necessarily held in right - section 18(2) TCA 1997 any deposit interest which derives the course of that business. The refers from the investment of such funds on deposit must be actively regulatory capital is assessable Case I. employed and at risk in the business. t while it may be the case that the This includes capital in excess of the management and investment of minimum capital requirement where Examples of managers of financial funds on behalf of clients is an services and other similar type the amount concerned has been integral part of the activities of companies are: agreed by a regulatory authority as IFSC certified companies which being appropriate to a particular n Insurance Manager/Reinsurance act as managers of financial company, provided that the amount Manager services companies, there is a is reasonable and is not excessive. clear distinction between this n Insurance broking company activity, which is after all part of n Fund management/administration the service for which the company company is paid, and the making

36 VAT COMMITTEE DEPOSIT INTEREST GUIDELINES of deposits by the company out of regarded as non-trading income, The following Guideline has been fee income received and share the total of such interest income approved for publication following capital may be apportioned on a suitable review by the EU Commission Services of Guidelines agreed from t the proviso contained in the IFSC basis e.g. the proportion of the meeting of the VAT Committee certificate ensures that unless a regulatory capital to total capital source is, of its own right, part of invested. held on 14 November 2000. the Case I profits, it cannot Effective Date become so simply by being Meeting No. 62. - included in the overall trading In regard to cases where there has 14 November 2000 operations described in the been ongoing debate, it should be noted that it is Revenue’s intention to Articles 9 and 21—Place of certificate. supply when the supplier of the apply the above rules for service is registered in the Other Points accounting periods commencing Member State of establishment on or after 1 January 2001. u Where deposit interest is regarded of the client as trading income assessable under This statement replaces any previous All the delegations believed that, Case I rules, it will be regarded as practices which were applied in according to Article 9(1) of the Sixth such for all of the purposes of the dealing with this matter. VAT Directive, the place of supply of Taxes Acts. a service should be deemed to be the u In considering the question of the Further Information place where the supplier had established his business or had set up tax treatment of interest income, Any person who has a query on the Revenue will look at each case on application of this information notice a fixed establishment from which the the facts and circumstances of that or requires an opinion in relation to a service was supplied. The fixed case. Account will not be taken of particular set of circumstances should establishment should be regarded as the fact that a company is part of a contact: determining the place of supply of larger group nor will Revenue taxation only when it was obvious have regard to the activities of the Office of the Chief Inspector of Taxes, that the service was effectively group but will make its Technical Services, supplied from that fixed determination solely on the basis Setanta Centre, establishment. If this condition was of the specific circumstances Nassau Street, not fulfilled the principle of taxation surrounding the placement of Dublin 2 at the place where the supplier had funds on deposit by the company established his business should be itself. Telephone No. 01-6470710 maintained. u Revenue will not, under any If the query or request for an opinion The question as to whether or not circumstances, regard deposit relates to a financial services the branch in question took part in interest which arises from the company, correspondence can be the supply of services, to what proceeds of a sinking fund for referred to extent, and whether this intervention potential future liabilities, as was of such a kind as to change the trading income even where the Dublin Audit District No. 5, place of taxation, should be liabilities being provided for relate Lansdowne House, examined on a case by case basis. to a future occurrence or event Lansdowne Road, such as the replacement of a Dublin 4 Finally, the Committee accepted wasting asset or, providing for that, in order to simplify control Telephone No. 01-6316700 changes to computer equipment procedures, Member States might arising from (say) the “millennium However it should be noted that the create a rebuttable presumption bug”. final determination in a case is a (juris tantum) whereby once a u Where part of the deposit interest matter for the person to agree with foreign trader was established and arising to a company is regarded as the appropriate Inspector of Taxes. z registered with a VAT registration in trading income and part is their territory the supply was considered to take place from that establishment. Nevertheless, it is certain that the presumption could never reverse the principle laid down in Article 9(1) of the Sixth VAT Directive. z

37 BLOODSTOCK INDUSTRY VAT Rates

Goods and Services in the Bloodstock Industry The list below sets out the VAT rates applying to goods and services in the bloodstock industry. Category VAT rate applicable

Category VAT Rate Applicable Category VAT Rate Applicable

1. Accommodation 12. Jockey Services: 12.5% exempt (or 20%, if waiver (a) If letting only of paddocks, 13. Jeeps: stables of exemption in place) (b) Letting, minding etc. supplied by Commercial 20% unregistered farmers not taxable (c) Letting, minding etc. supplied by 14. Livery: others 12.5% Feeding and keeping 12.5% 2. Bridles 20% 15. Nominations: 3. Exports of horses zero (a) By unregistered farmers not taxable (b) Other 4.3% 4. Equine swimming pools: (c) Mares in the ownership of Lettings Short- term exempt (or 20%, if waiver foreigners imported for services of exemption in place ) by stallions owned by taxable persons and afterwards exported zero 5. Farrier’s services: 16. Pedigree Research 20% (a) Repair and maintenance of 12.5% hooves 17. Pony Trekking 12.5% (b) Supply and fitting of shoes 20% 18. Prize money not taxable 6. Livery: 19. Racing admissions: ( a) By unregistered farmers Not taxable (b) Other 12.5% Spectator exempt

7. Groom’s services: 20. Racehorse training: 20% (payable on appropriate (a) By unregistered farmers not taxable (b) Other 12.5% turnover) 21. Repair Services: 12.5% 8. Horses: 22. Riding Schools: 12.5% The supply of horses by not taxable (a) Unregistered farmers 4.3% (b) Other 23. Show jumping admissions: The hiring / leasing of horses by Spectator exempt (a) Unregistered farmers not taxable (b) Other 4.3% 24. Stabling (the erection of): 12.5%

9. Horse boxes: 20% 25. Transport: (a) Within the state - 20% 10. Imports of horses: (b) International zero (a) Permanent 4.3% (b) Temporary not taxable 26. Valet’s services: 20%

11. Insurance and Agency 27. Veterinary Fees: services: (a) Treatment 12.5% exempt (b) Oral medicines zero (a) Intra E.C. 20% (b) Outside E.C. zero (c) Other medicines

38 LOSSES, CHARGES & GROUP RELIEF OFFSET CT

Offset of losses, charges and group relief for Example corporation tax purposes : Prior to introduction of Section 90 This article sets out the position in relation to the offset of Techno Ltd is a distribution company and had the charges, losses and group relief following the enactment following results for the y/e 6/3/01: of Section 90 Finance Act 2001. It also covers the Revenue practice in relation to the tax treatment of losses, charges Trading Losses (800,000) and group relief. Rental Income 250,000 Interest Income received gross 200,000 Section 90 : Patent royalties paid 100,000 Section 90 Finance Act 2001 introduces a provision with effect from 6 March 2001 to restrict the use of trade Draft tax computation year ended 6/3/01 losses/charges and group relief. Where a company is Case III 200,000 engaged in an activity which is taxable at the standard rate CaseV 250,000 of corporation tax or at the 10% rate, losses, charges and 450,000 group relief may only be used against ‘relevant trading income’ i.e. trading income of a company for an Less: Trade charges (S.243) (100,000) accounting period other than trading income which is Trade losses (S.396) (350,000) taxable at the 25% rate. Taxable Income NIL

This rule is subject to the second rule which provides that Loss Summary for the financial years 2001 and 2002, charges and losses incurred in a trade, the income from which is taxable at Trading loss 800,000 the 10% corporation tax rate, may be set sideways in the Less: utilised year ended 6/3/01 (350,000) current accounting period, backwards (in the case of losses Unutilised loss 450,000 only) to the previous accounting period or against income This unutilised loss may be carried back to the year ended of a related company under group relief only against 6 March 2000 and set off against the company’s total income which is taxable at the 10% rate. profits. Alternatively, it may be carried forward for offset The 1988 and 1992 Finance Acts ring-fenced the sideways against future trading profits of the company. and backward offset of losses and charges incurred in a After application of Section 90 trade which was within the 10% corporation tax regime. Such losses could only be so offset against income taxable Results for year ended 6/3/02 at the 10% rate and not against profits taxable at the higher Trading Losses (800,000) corporation tax rates. However, this ring-fence has not worked satisfactorily in the case of charges and Rental Income 250,000 Interest income received gross 200,000 group relief since the introduction in 1999 of a 25% corporation tax rate on non-trading income. The Patent royalties paid 100,000 legislation concerned is being amended by this section to Draft Tax computation y/e 6/3/02 ensure that the ring-fence works as intended. The amendment will prevent the offset of “10% losses” of an Case III 200,000 accounting period against income of the accounting Case V 250,000 period, or of the previous accounting period, which is taxed at the 25% rate. It will also prevent such losses Taxable Income 450,000 being offset against income taxed at the 20% rate in 2001 Corporation Tax @ 25% : 112,500 and the 16% rate in 2002. There will be no barrier on their offset against income taxable at the 12½% rate from Loss Summary 2003. Relevant trading loss 800,000 n Unused losses may be carried forward for offset Relevant trading charges 100,000 against all trading income of the trade in which Unutilised losses and charges 900,000 the loss was incurred n Where an accounting period crosses the In accordance with Section 396A and Section 243A, commencement date viz. 6 March 2001 or 1 January relevant trading losses and relevant trading charges may 2003 it is to be divided into two accounting periods, only be offset against profits from a trade liable to the one before the date in question and the other after it. standard corporation tax rate. They may be carried back Continued on page 40 39 GROUP RELIEF Continued from page 39

(in the case of losses only) to the preceding accounting element of profit was proportionately relieved rather than period and offset against trading profits taxed at the allowing offset of losses, etc. against income chargeable at standard corporation tax rate. Alternatively, these the highest rate. Although this basis has been generally unutilised losses may be carried forward for offset against accepted it is felt that the matter may not be entirely free future trading profits. from doubt and therefore company Returns in respect of losses etc. incurred up to 5 March 2001 which claim offset Results as above with the following addition: of these losses against income chargeable at the highest rate will be accepted. (see Note 1.3 on the new CT1 Manufacturing Profits 400,000 form). In this case, the unutilised relevant trading losses and Equally, as non-trade charges are not affected by the relevant trading charges may be offset against the ring-fence introduced by Finance Act 2001 in respect of manufacturing profits. The only restriction in relation to trade charges it is accepted that such charges may be manufacturing activities applies to the ability to offset manufacturing losses and manufacturing charges against claimed against income chargeable at the highest rate. non-manufacturing profits. This treatment will apply to returns submitted after the publication of the Finance Act 2001 and to cases under Off-set of charges, losses and group relief incurred enquiry. Liabilities which have been determined in up to 5 March 2001 : accordance with the previously prevailing practices will Prior to this enactment it had been the practice to allocate not be disturbed. z charges and losses proportionally across total profit. Each

40 TOPICAL QUESTIONS

Rent-a Room Relief must be in use for residential Whether a payment is rent within the purposes. meaning of section 473 depends on The following Questions and the facts of each case. Where the facts Answers address a number of queries Is the income that qualifies for and circumstances are such that relief liable for PRSI and Health in relation to the new relief. Section 473 applies the rent allowance Levy? When does the relief apply? may be claimed. In the case of No. Where the relief applies the payments made by children in Rent-a-room relief applies where an profits/gains are nil for income tax respect of the family home it is individual receives sums in respect of purposes and accordingly the income Revenue’s view that, in general, such the use, for residential purposes, of a is not liable for PRSI or the Health payments are not rent within the room or rooms in the individual’s Levy. meaning of section 473. sole or main residence. The sums received may include payment for Does the letting of an entire house qualify? I ndustrial Buildings meals, cleaning, laundry and other Allowance similar services. The total amounts No. We have been asked for a view received cannot exceed £6,000 per on situations where a house owner Section 843 Taxes Consolidation Act annum (£4,440 for the year 2001). lets an entire house. The relief 1997 applies the industrial buildings Where more than one individual applies to the letting of a room or allowance provisions to expenditure receives such sums in respect of a rooms in a “qualifying residence”. It incurred on the construction of “qualifying residence” the limit of does not apply to the letting of an certain buildings and on the £6,000 is divided between the entire residence. Also, the residence provision of plant and machinery in individuals concerned. must be occupied by the person use for the purpose of third level receiving the rent as his or her sole or education. Subsection (5) of that What is a “Sole or Main main residence. Where an entire section provides that a balancing Residence”? house is let, this condition is not charge will not be made in relation to The “qualifying residence” must be satisfied. the qualifying premises where certain part of the individual’s sole or main events occur more than 7 years after residence. Does the income have to be the qualifying premises is first used. included in a tax return? Whether a property is the sole or Yes. Where an individual is in receipt Does this balancing charge main residence of an individual is a of such income it must be included provision also apply to the plant question of fact. In general, a and machinery in such a in the individual’s tax return. premises? property will be an individual’s sole or main residence if it is the Can rent allowance be claimed Do the ring-fencing provisions individual’s home and it is the place by a tenant where the relief of Section 404 TCA 1997 apply in where friends and correspondents applies? respect of the leasing of such would expect to find him/her. The Section 473 Taxes Consolidation Act, plant and machinery? residence does not have to be owned 1997 provides relief for rent paid by The expenditure on plant and by the individual, for example, it an individual in respect of residential machinery that comes within section could be rented accommodation. premises which is the main residence 843 is treated as expenditure that of the individual. Rent includes any qualifies for industrial buildings oes rent from a self-contained D periodical payment in the nature of allowance. unit qualify for the relief rent but excludes a payment or part question of a payment where: A balancing charge will not apply to Yes. A “qualifying residence” for a the plant and machinery by reason of u it is paid for the maintenance or year of assessment is a residential repair of the premises for which any of the events specified in section premises situated within the State the tenant would generally be 274 (1) which occurs more than which is occupied by the individual 7 years after the plant and machinery liable as his/her sole or main residence is first used. during the year of assessment. A u it relates to the provision of goods “qualifying residence” includes a self or services The ring-fencing provisions of contained flat where that flat is part u it relates to any right or benefit section 404 Taxes Consolidation Act of the sole or main residence of the other than the bare right to use, 1997 do not apply to plant and individual e.g. a basement flat, a occupy and enjoy the premises, or machinery that qualifies as converted garage which is attached to u any part of the rent is recoverable expenditure for the purposes of a house. The self-contained unit by the tenant. section 843 Taxes Consolidation Act 1997. z

41 SUPREME COURT DECISIONS Summaries

Case: Patrick J. O’Connell (Inspector of Taxes) v Thomas Keleghan

Points at issue: (i) Whether an inducement payment was assessable to tax under Schedule E.

(ii) Whether the redemption of a loan note, which had been acquired for shares in a “paper for paper” exchange, was to be treated as an a disposal of the original shares and whether the loan note was a “debt on a security”.

Decision made by: The Supreme Court

Decision Date: 16 May 2001 Relevant Legislation: (i) Section 110 Income Tax Act 1967 (Section 112 Taxes Consolidation Act 1997)

(ii) Schedule 2 to the Capital Gains Tax Act, 1975 (Sections 584 to 586 Taxes Consolidation Act 1997)

(iii) Section 46 of the Capital Gains Tax Act, 1975 (Section 541 Taxes Consolidation Act 1997)

Summary of Supreme Court decision: (i) The payment was found to be assessable under Schedule E - Shilton v Wilmshurst [1991] STC 88 approved.

(ii) The asset realised by way of redemption was, in law, as it was in fact, a disposition of the loan note. The loan note was found not to be a “debt on a security”.

Case: Sean MacAonghusa (Inspector of Taxes) v Ringmahon Company.

Point at Issue: Whether a payment of interest was laid out wholly and exclusively for the purposes of a company’s trade.

Decision made by: The Supreme Court

Decision Date: 29 May 2001

Relevant Legislation: Section 61(a) Income Tax Act 1967 (Section 81(2)(a) Taxes Consolidation Act 1997).

Summary of Supreme court decision:

The Supreme Court found unanimously that interest paid on a loan taken out to redeem preference shares was laid out wholly and exclusively for the purposes of the company’s trade. Mr. Justice Geoghegan found considerable support in the Canadian case of Trans Prairie Pipelines Limited v Minister of National Revenue 70 DTC 6351 for the views he had taken.

These summaries is for reference only and readers are recommended to read the full text of the judgments. z

42 REVENUE’S ON-LINE NEWSLETTER SERVICE www.revenue.ie

Did you know that Revenue have an On-Line Newsletter Service?

You can access this on our site at www.revenue.ie Go to “What’s New” and then to “Subscribe to Newsletter”.

What is the purpose of the On-Line Newsletter? n PAYE Tax Credit System As part of our ongoing commitment to providing a quality Notification of, and link to, the latest information on the Customer Service and using the internet to deliver an PAYE Tax Credit System enhanced information dissemination service to our n Procurement by Revenue customers, we are delighted to have available an electronic means of contacting customers to advise of items of Notification of, and link to, the latest information on Procurement by Revenue i.e. Request for Information. particular interest. One of the ways we have chosen for this is the electronic newsletter. Requests for proposals and Requests for Tenders n Tax Briefing How does the On-Line Newsletter work? Notification of, and link to, the latest edition of Tax Subscribers to this free service will be issued with periodic Briefing e-mails relevant to the topic selected. These e-mails will contain a link to the relevant part of our site containing n Euro Buletin the information. For example, if you have indicated that Notification of, and link to, the latest Euro Bulletin. you are interested in Tax Briefing, we will send an e-mail to advise you that the latest edition is now on the web. A How do I subscribe to this service? link on the e-mail will bring you directly to the Tax The steps are easy Briefing issue on the website. Its simple and effective. u Go to our website at www.revenue.ie. What type of information is available using the u Go to “What’s New” newsletter? u Go to “Subscribe to Newsletter”.

Currently there are five different headings. You can u Click the box(es) that interest you choose any, or indeed all, of the headings. The table below u Enter your name and your e-mail in the boxes provided outlines what information is available under each heading. u Click Submit z n What’s new on Revenue’s Web Site Notification of, and link to, the latest information on What’s New?

43 REVENUE NEWS Update

PAYE Tax Credit System Toll Charges - VAT Customer Service Action Plan 2001-2004 (May 2001) An interactive spreadsheet containing Toll charges are liable to VAT at 20% This Action Plan a sample Notice of Determination of with effect from 1 September 2001 sets out the steps Tax Credits and Standard Rate - this change was provided for at the Revenue will take Cut-Off Point for the period 6 April Report Stage of the Finance Bill over the next three 2001 to 31 December 2001 is 2001. years to deliver available at under each of the www.revenue.ie/wnew/taxcredx.htm on New and Updated Leaflets/Guides 12 Quality our website. You will need Microsoft Customer Service Excel 5 or later, or equivalent Guide to the Functions and Structures of the Office Principles which, compatible software to open this as part of the (May 2001) spreadsheet. The spreadsheet may be Strategic Management Initiative, the useful for practitioners who wish to Revenue’s Guide to the Functions and Government have endorsed for the Structures of the Office which we become more familiar with the new Public Service. tax system. publish under section 15 of the Freedom of Information Act 1997 PAYE/PRSI for Small Employers Form P11D year ended has been updated. The material has - IT50 (March 2001) 5 April 2001 been revised to reflect changes since This simplified guide shows how the A selective issue of Forms P11D has its first publication in 1998. We have PAYE/PRSI system is operated. It is taken place in respect of the year also developed its design and layout. designed to cater for employers new ended 5 April 2001. Form P11D The reference book outlines: to the operation of PAYE/PRSI or requires the employers concerned to those who have a small number of u Revenue’s structure and employees with straightforward pay return details of benefits, non-cash functions emoluments and payments not arrangements. u Services provided subjected to PAYE provided to Scheme of Tax Relief for employees with emoluments of u Classes of records held. Donations to Eligible Charities £1,500 or more and to all directors. A Special Savings and Approved Bodies euro version of the form is available Incentive Account - CHY 2 (April 2001) for employers who have elected to - CG12 (April 2001) This leaflet sets out details of the new switch to the euro for Employer’s This leaflet outlines scheme of tax relief for certain PAYE and PRSI. The return filing details of the new “eligible charities” and other date for these forms is 30 June 2001. Special Savings “approved bodies” in respect of Incentive Scheme donations received on or after 6 April Form SO2 which came into 2001. A selective issue of Forms SO2 has operation on 1 May Relief from Income Tax and also taken place in respect of the year 2001. Corporation Tax for Certain ended 5 April 2001. Form SO2 Sporting Bodies - GS1 (April 2001) requires employers to provide This leaflet outlines: particulars of: Mortgage Interest u the tax exemptions for - Tax Relief at Source - CG13 u share options and other rights Games/Sports bodies. granted, assigned or released (May 2001) From 1 January 2002 u the eligibility conditions for u shares allotted and assets tax relief for home exemption. transferred in pursuance of a mortgage interest u how a Games/Sports body may share option or other right to acquire shares or assets will be granted at apply for exemption. source i.e. the tax to employees and directors. u the conditions which apply once relief element on the exemption has been granted. Notwithstanding that an employer mortgage interest The leaflet also incorporates a simple may not receive a Form SO2 for will be built into the declaration procedure for clubs completion the return of particulars mortgage repayment. applying for exemption. must be made in all cases where Leaflet CG13 sets share options or other rights are out details of the The leaflets / guides listed above are granted, assigned etc. The return new system. avalable from the Revenue Forms & filing date for these forms is 30 June Leaflets Service at 01-8780100, local 2001. tax offices or from our website at www.revenue.ie z 44