Transcript Transfer between Spouses - Chartered Accountants Ireland

Chartered
Tax
Consultant
Applied Tax Module 4
Capital Gains Tax
Céire Moynihan
15th &16th
February 2013
www.charteredaccountants.ie
EDUCATING
SUPPORTING
REPRESENTING
CGT in context
• Unassuming tax – be alert to it
• Pops up in many and varied transactions
• Building block tax – principles cannot be
emphasized enough
• Legislation key, some case law
• Exams: come across in Integrated Tax also
Capital Gains Tax
Learning Objectives
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Read, explain and interpret CGT sections
Calculate detailed liabilities and reliefs
Prepare Returns
Manage compliance/payment deadlines
Introduction and Overview
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Review of CGT core principles
CGT computational rules
Development Land
Share disposals
Company chargeable gains
Self assessment for CGT
History of CGT
Capital Gains Tax Act 1975
CGT (Amendment) Act 1978
Finance 1982
FA 1991
Corporation Tax Act 1976
Introduction of CGT wef 6th
April 1974 – all legal entities
Indexation
Development Land
Self Assessment
Provisions for charging CGT
on companies
Amended CGTA 1975 to
exclude gains chargeable to
CT from CGT
Corresponding UK Legislation Irish Courts influenced by UK
decisions
CGT – TCA 1997 Part 19
Sections 28-31
Basic Charging
Sections
Legal basis for charge to
CGT
Sections 532-613A
Main body of provisions Divided into 7 chapters
Chapter 1
Sections 532-543
Acquisition and disposals
Chapter 2
Sections 544-566
Computation of chargeable
gains and losses
Chapter 3
Sections 567-579F
Assets held in fiduciary
capacity - settlements
Chapter 4
Sections 580-592
Shares and securities
Chapter 5
Sections 593-595
Life Assurance and deferred
annuities
Chapter 6
Sections 596-600A
Transfer of business assets
Chapter 7
Sections 601-613A
Reliefs and Exemptions
CGT – TCA 1997 Parts 20-22
Sections 614Part 20 Chap 1
626C
Sections 627Part 20 Chap 2
629A
Sections 630-638 Part 21
General
Provisions
Companies ceasing
to be resident
Mergers/Divisions/
Asset Transfers
/Share Exchanges
–Companies in
other EU States
Sections 648-653 Part 22 Chap 2 Development Land
Basic Principles
• Limits to the CGT charge?
Charge to CGT
• Sections 28-31 TCA 1997 = Basic
charging sections
• CGT charged “in respect of chargeable
gains computed in accordance with those
Acts and accruing to a person on the
disposal of assets”
Is there a charge to CGT?
Analyse the transaction
•
•
•
•
Is there an asset subject to CGT?
Has there been a disposal of that asset?
Is the disposal by a chargeable person?
Does a chargeable gain arise on the
disposal?
Charge to CGT
• Section 28(2) CGTA
1975
• “Persons” and
“Individuals”
• Gains taxed in year of
assessment in which gain
accrues
• “Person” defined as
including a company and
most entities, corporate
and non-corporate
• Different rules can apply–
be alert
• Section 28(3)
• Rate applicable
• Sec 18, Part 4
Interpretation Act 2005
1. What is an Asset?
• Section 532 TCA 1997 – “All forms of
property..whether situated in the State or
not”
• Includes Debts, Options, Incorporeal
Property, Foreign Currency; Property not
acquired by owner
Assets - Sec 532 TCA 97
Debts
Options
Loan stock or debentures in
a company where holder
can insist on payment of
debt at specified times.
Excludes ordinary debts
owed by debtor
A right acquired by contract to
accept or reject a present offer
within a specified time period.
Section 540 TCA 1997. (Not
within scope of Stage 2)
Assets – Sec 532 TCA 1997
Foreign Currency
Other than Euro. A disposal occurs
where foreign currency is converted
into Euro or another currency
Property not acquired Assets developed or created by person
by owner
making disposal. Includes copyright,
business goodwill
Incorporeal Property
Term not defined in
TCA 97
Includes intangible property with no
physical form. Goodwill; Licences;
Copyright; Patents; Leases;
Mortgages; Property Rights
Assets – Case Law
• Sec 532 TCA 97 definition is very wide
• Look to Courts for guidance
• UK cases of Kirby v Thorn EMI 1987
STC 621 and O'Brien's v Bensons
Hosiery (Holdings) Ltd 1979 STC 735
• Three principles established
Assets – 3 Case Law Principles
1. Assets are one and the same with
property
2. An asset must be owned by disponer
prior to disposal*
3. Limitation on transferability of asset
does not affect the existence of the
asset for CGT
* Grant of option an exception to general rule
Thorn EMI Case (1987 STC 621)
• Sum received by Thorn EMI for “non
compete” undertaking
• Thorn EMI argued that ability to compete
was not an asset
• Court held
– Liberty/freedom to trade is not an asset
– Liberty/freedom to trade was not the source of
the payment
Thorn EMI Case (1987 STC 621)
• Next considered what is “property”?
– Normal legal meaning
– Something capable of being owned
– Property is synonymous with an asset
– Freedom to trade is not equal to property
– Asset must exist immediately before disposal
by disponer *
*
Granting of an option is an exception
Thorn EMI Case (1987 STC 621)
• FINALLY – THE COURT DECISION
• Non Competition payment was derived
from Thorn EMI goodwill
• Goodwill is an asset
• Payment held liable to CGT
O’Brien’s Hosiery Case 1979 STC 735
• Contractual rights = assets for CGT
• €50k paid by director for release from a
service agreement was from an asset
• Company’s rights could not be assigned
• Limitations on transferability of rights did
not affect existence of an asset
• €50k derived from asset and liable to CGT
Is there a charge to CGT?
Analyse the transaction
1.
2.
3.
4.
Is there an asset subject to CGT?
Has there been a disposal of that asset?
Is the disposal by a chargeable person?
Does a chargeable gain arise on the
disposal?
2. What is a Disposal?
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•
Section 534 TCA 1997
No comprehensive definition
Part disposals are a disposal
Rights or interests created in or over the
asset is treated as a part disposal
• Sec 28 TCA 1997 – there must be a
disposal of an asset for CGT to apply
What is a Disposal?
• Disposal takes ordinary meaning
• Transfer of ownership, including:
– sale, gift, scrappage, destruction of asset,
removal of asset from owner
Capital Sums derived from assets
• Section 535 TCA 1997
• Asset disposal takes place where capital sums
are received even though no asset
acquired/received by person paying the capital
sum
• “Capital sums” – section 535(1)
– “Money or money’s worth which is not
excluded from being taken into account as
consideration in the computation of the gain
on the disposal of an asset”
Sec 535(2)(a) TCA 1997
• Compensation for
•
loss of, or damage to
asset
• Insurance payments
•
for loss or damage to
asset
• Capital sums derived
•
from loss of rights
from the asset
• Capital sums for use •
of asset
Infringement of copyright
Damage covered under
insurance policy -theft,
fire, accident
Release from a contract
Premium for a lease
Statutory Exclusions
• Sec 537(1) TCA 1997 • Transfer of asset as
security eg mortgage
deeds
• Sec 567(2) TCA 1997 • Transfer of asset by
nominee/trustee to
person absolutely
entitled
• Sec 569 TCA 1997 • Transfer of assets to
assignee in bankruptcy
• Sec 573(2) TCA 1997 • Acquisition by personal
reps on death
Is there a charge to CGT?
Analyse the transaction
•
•
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Is there an asset subject to CGT?
Has there been a disposal of that asset?
Is the disposal by a chargeable person?
Does a chargeable gain arise on the
disposal?
3. Scope of CGT Charge
Resident?
Ordinary
Resident?
Domiciled ?
Charge to CGT
• PointYes
1
Yes
• PointNo
2
Yes
• PointYes
3
No
• PointNo
4
No
•
Point
5
Yes
Yes
• Point 6
Yes
No
Yes
Worldwide Gains
Yes
Worldwide Gains
Yes
Worldwide Gains
Yes/No
Irish Specified Assets
No
Irish Gains and Remittances
No
Irish Gains and Remittances
No
No
Irish Gains and Remittances
Yes
Resident, Ord Res and Domiciled
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Section 29(2) TCA 1997
Irish CGT on worldwide income
Liable on worldwide gains
Sale of property in France by individual
Res, O Res and Dom in Ireland in 2012
• Funds deposited to French bank account
• Liable to Irish CGT
Resident, Ord Res, Not Domiciled
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Section 29(4) TCA 1997
Liable on gains from Irish assets
Liable to remittances of foreign gains
Proceeds from loss making asset can be
remitted tax free but cannot be used
against capital gains
• Gains remitted before becoming resident
not taxable
Remittance Basis
• Applies to individuals who
• Sec 29(4)TCA 97
are not domiciled
• No remittance basis for
corporate entities
• No remittance basis for
trustees and personal reps
(not individuals)
• Sec 29(5) TCA 97 • Anti avoidance – debt
repayments are remittances
Remittance Basis Example
• French Domiciled, Irish resident individual
since 2005
1. Gain of €50k on Sale of French property
in 2004 - €20k remitted in 2012
2. Gain of €2k on Irish shares
3. Remittance of €10k in 2012 from gain of
€12K on US shares
Remittance Basis Example
• Total Capital Gains in 2012?
1. Nil as gain arose when individual was
non-Irish tax resident
2. Gain of €2k taxable – Irish assets
3. Remittance of €10k in 2012 from gain
on US shares
Non Res; Non Ord Res and Non Dom
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Sec 29(3) TCA 1997- Specified Irish assets
Land in the State
Minerals and mineral rights in the State
Assets in the State used for trade purposes
through branch/agency
• Unquoted shares >50% value from
land/minerals in the State
• Overseas assets of overseas life co used
by branch/agency in the State
Temporary Non-Residence
• Sec 29A TCA 1997 – anti avoidance
• Introduced Finance 2003 to counter Irish
domiciled individuals who become non
resident being outside scope of CGT
• Relevant assets = 5% of value of issued
share capital or shares worth>= €500,000
• Deemed disposal of shares in year of
return/residence in Ireland @ year end
MV when left Ireland
Temporary Non-Residence
• Sec 29A TCA 1997 applies where
– Individual is or was Irish resident and
domiciled; and
– Ceased to be resident in 2003 or later; and
– Left Ireland for a period not more than 5
“intervening” years; and
– Returned and resumed residence at end of
period.
Transfers between Spouses
• Anti avoidance to strengthen Sec 29A TCA
1997
• Prior to FA 2006, transfers to spouse who had
left Ireland fell outside Sec 29A
• Post amendment, inter-spousal exemption in
Sec 1028 TCA 1997 does not apply where a
subsequent disposal of the asset does not
come within Irish CGT charge
Example Liam O’Leary
• More than five years of non residence to
satisfy “intervening year” requirement
• If Liam becomes tax resident in (versus
returns to) Ireland in 2011 Sec 29A
applies
• If Liam returns to Ireland in 2012 Sec 29A
does not apply
• Take extreme care with intervening year
calculations
Is there a charge to CGT?
Analyse the transaction
•
•
•
•
Is there an asset subject to CGT?
Has there been a disposal of that asset?
Is the disposal by a chargeable person?
Does a chargeable gain arise on the
disposal?
Location of Assets Sec 533 TCA 97
Sec 533(a) Land and Buildings Where situated
Sec 533(b) Chattels
Where situated
Sec 533(c) Debt
Sec 533(c) Judgement Debt
Ireland if creditor is resident in Ireland
(contrary to general law)
Where recorded
Sec 533(d) Shares/ Securities
Country of creating authority
Sec 533(e) Registered Shares
/Securities
Where registered/ principal register
Sec 533(f)
Ireland if owner resident
Ships and Aircraft
Sec 533(g) Goodwill
Where trade/business/prof carried on
Sec 533(h) Patents, Trademarks Where registered
Connected persons & MV rules
• General rule: tax calculated on consideration
received by the seller on the disposal of
asset
• Consideration paid forms the base cost in
the calculation of gains arising on the
subsequent disposal of the asset
Market Value Rules - Acquisitions
• Sec 547(1) TCA 1997
• OMV is substituted for consideration if:
– Bargain not at arm’s length – includes a gift
– Distribution in the winding up of a company
– Where consideration cannot be valued
– Were asset acquired from a connected person
(Sec 549(2))
Connected Persons and MV
• Sec 549 – Connected Persons as defined
by Sec 10(3)-(8) TCA 1997
1. Husband, wife, civil partner or relative
• Who is a relative? Brother, sister, uncle,
aunt, niece, nephew, ancestors, lineal
descendants, relatives-in-law
Connected Persons and MV
2. Trustee of trust are connected to the
settlor*and persons connected to settlor
• Only where settlor is an individual and not a company
3. Partnership
• A person is connected with any partner of
his and with the husband/wife/civil partner
or relatives of his partners
Connected Persons-Companies
4. A company is connected with another
company if:
– the same person has control of both or a person
has control of one and persons connected with him
or he together with persons connected with him,
have control of the other; or
– A group of 2 or more persons control each company
and the groups consist of the same persons or
would if a member of either group was replaced by
a person connected with that member
Connected Persons-Companies
• A company is connected to another
person where the other person has
control of it or where he and persons
connected with him together have control
of it
Meaning of Control - Sec 432 TCA 97
A person has control of a company if he is
entitled to:
• The majority of issued share capital or
voting power, or
• Entitlement to >50% of income on total
distribution, or
• Entitlement on a winding up or otherwise
to >50% of distributable assets
Connected Persons - Losses
• Sec 549(3) - loss on a disposal to a
connected person is restricted
• Loss only allowed against a chargeable
gain to the same connected person
EG: Loss on transfer of farm by father to daughter of
€750k. Loss of €750k can only be used on further gains
arising on disposal by father to daughter
Assets Owned at 6th April 1974
• Sec 556(3) TCA 1997
• Assets owned 6th April 1974 deemed to be
sold and immediately reacquired for MV
• Date CGT came into effect
• Includes goodwill developed pre 06/04/74
Consideration Rules
• General rule: Consideration = Sale
proceeds/price paid
• OMV for connected persons
• Special rules also for
Transfers between spouses; transfers on
death; deferred/contingent proceeds/
payment by installments
Consideration: Inter-Spouse Disposals
• Sec 1028 TCA 97–Spouses living together*
• Sec 1031M TCA 1997 – Civil Partners
• Consideration deemed to be an amount that
would give rise to “no gain/no loss”
• On a subsequent disposal spouse “steps into
shoes” of other spouse
• Original acquisition date and base cost applies
• Deferral?: CGT on disposal by acquiring
spouse
* Special provisions apply for marital/civil partnership breakdown
transfers (Integrated Tax CTC)
CGT and transfers on death
• Sec 573(2) TCA 1997
• Deems no disposal on death
• Assets deemed acquired by personal
reps/legatees @ MV at date of death
• House sold for €250k in 2012 which was
inherited in 2007 – MV on death €420k
• CGT base cost is €420k
• Loss of €170k arises
Consideration
• What amount of consideration should be
taken into account?
• ‘Consideration’ not defined in TCA 1997
• Everything that is received in return for
what is given
• Must be capable of being measured in
money or money’s worth
Consideration
• Consideration is the actual amount
received
• Subject to deemed consideration rules
• Fielder v Vedlynn (1992) STC 553
– Consideration = the sum of money specified,
it cannot be valued as more if it is guaranteed
by a creditworthy third party
Deferred or Contingent Proceeds
• Sec 563 TCA 97
• Full amount of consideration ignoring discount
for deferred proceeds or proceeds contingent
on future event
• Adjustment made if consideration becomes
irrecoverable and tax refunded
• Applies in earn-outs where shares disposed of
for cash plus future amount linked to profit
targets*
* Integrated Tax CTC
Payment by Instalments
• Section 981 TCA 1997
• CGT calculated as if sale proceeds
received in full at date of disposal
• Tax computation will be revised if
proceeds are irrecoverable
• Revenue may allow payments by
instalment for hardship cases
• Maximum period 5 years + interest
Consideration charged to Income Tax
• Sec 551 TCA 1997
- Consideration charged to income tax; or
- taken into account in computing income,
profits, gains or losses for income tax
Is not taken into account in computing
chargeable gains for CGT
CGT Computational Rules
• Disallow expenditure allowable for income tax
purposes – Section 554 TCA 1997
• Section 552 TCA 1997
– Allowable expenditure must be “wholly and exclusively”
incurred:
a) by, or on behalf of, the taxpayer on the asset; and
b) for the purpose of enhancing the asset value
– Must be reflected in state or nature of asset at time of
disposal e.g. tennis court
• Notional cost of taxpayer’s own labour is not
allowable – Oram v Johnson (1982) TC 319
CGT Allowable deductions
• S552 TCA 1997 - legislation reflects case
law rules
• Cost, plus incidental costs, of acquisition
• Enhancement expenditure
• Expenditure to establish/preserve legal
title
• Incidental costs of disposal
Costs - Title
• Costs of establishing or maintaining legal
title to an asset
• Example – legal costs in Court to defend
or establish title to an asset but once
established further defending costs are
considered revenue expenses
Incidental Costs
• Sec 552(2) TCA 1997
• Must be wholly and exclusively incurred for
acquisition or disposal
• Costs of professional services of surveyor,
valuer, auctioneer, accountant*, legal advisor,
agent
• Advertising and reasonable valuation costs
• Cost of transfer and conveyance (incl. stamp
duty)
Transactions in Foreign Currency
• Sec 552(1A) TCA 97 - introduced after €
- convert at the exchange rate pertaining at the date the
expenditure was incurred
• Based on case of Bentley v Pike (1981) STC
360
- Convert acquisition costs to € @ date incurred
- Convert sale proceeds to € @ date of contract
not date of receipt [Loffland Bros North Sea Inc v
Goodbrand (1977) STC 102]
Foreign Currency Example
• Shares in UK plc bought on 03/01/2001
for Stg£3,000
• Sold on 07/06/2011 for Stg£4,000
• Not £1,[email protected] = €1,122
Stg£
Exch Rate
€
Sale
Proceeds
£4,000 .89115
4,488
Cost
£3,000 .95488
3,141
Gain
1,347
Interest
• Sec 552(3)(b) TCA 1997 - Interest not generally
allowable
• S553 – exception: deductible for corporates if:
1. Company incurs construction expenditure;
2. Expenditure is allowable for CGT;
3. Expenditure defrayed out of borrowings; and
4. Interest was charged to capital.
Grants
• Sec 565 TCA 1997
• Grants or subsidies met by any
Government, Statutory Board, public or
Local Authority in the State or elsewhere
is not allowable as a deduction for CGT
Insurance Premiums
• Sec 552(4) TCA 1997
• No deduction for insurance premiums
• Insuring “risk of any kind of damage or
injury to, or loss or depreciation of, the
asset”
CGT and Capital Allowances
•
•
•
•
•
•
•
Sec 551(1) TCA 1997
No account taken of CA where gain arises
CA taken into account where loss arises
CGT loss is restricted by amount of CA
Calculate net capital allowances claimed
Take into account any BA or BC
If a gain arises after CA  “No gain/No
loss”
CGT and CA Claim
•
•
•
•
•
Sale Proceeds Ind Building
Cost
€450,000
IBA
(€10,000)
BA
(€140,000)
CGT Gain/Loss
€300,000
€300,000
NIL
• Apparent CGT loss was €150,000 which
was restricted by CA claimed of €150,000
VAT Deduction?
• No deduction for CGT for recoverable VAT
• Irrecoverable VAT is deductible
• VAT subject to Capital Goods Scheme
– Revenue eBrief No. 19/10
– VAT adjustments needed on sale of CGS
property for CGT purposes
– VAT and CGS in Integrated Tax
Wasting Assets
• Sec 560 TCA 1997
• Freehold Land is never a wasting asset
• Life of asset determined by reference to
use disponer bought asset for
• Plant and Machinery is always a wasting
asset
Wasting Assets
• Allowable expenditure for CGT is restricted
for wasting assets
• Wasting asset
– An asset with a predictable life of less than 50
years
• Cost and enhancement expenditure wastes
over life of the asset on straight line basis
• See EG on page 364
Wasting Assets
• Are there assets that are wasting assets
where the expenditure is not restricted?
• Yes - Sec 561 TCA 1997
• No restriction on wasting assets which are
business assets used solely for
trade/profession and which qualify for
Capital Allowances
• Subject to restriction for CA if loss arises
Chattels
• Tangible moveable property
• Two separate CGT Reliefs
– Durable (non wasting) Chattels – Sec 602
TCA 1997
– Wasting Chattels – Sec 603 TCA 1997
Non-Wasting/Durable Chattels
• Sec 602 TCA 1997
• Sale proceeds ≤ €2,540 – gain exempt
• Marginal Relief – CGT restricted to:
(Consideration - €2,540) * 50%
• Antiques, paintings, jewellery, stamp
collections
Durable Chattels
• Sale of Painting
• Proceeds €2,800
• CGT Cost €1,500
• (€2,800-€1,500) * 30% = €390
Marginal Relief
• (€2,800-€2,540) * 50% = €130
• CGT restricted to €130
Durable Chattels - Sets
• Sec 602(5) TCA 1997
• Sale of parts of “set” of durable chattels treated
as one transaction where sold to:
– The same person
– Persons acting together (in concert)
– Connected persons
• Revenue Guidance “set” = ‘broadly a group of
articles which are essentially similar and whose
value as a whole is greater than the sum of the
value of parts’
Durable Assets
• Losses restricted where sale proceeds do
not exceed €2,540
– Sale proceeds deemed to be €2,540
– EG page 366
• Part disposals of durable assets – Sec
602(6) TCA 1997
- Consideration includes value of the interest
retained for €2,540 limit, marginal relief and
loss restriction
Wasting Chattels
•
•
•
•
Sec 603 TCA 1997
CGT exemption – tangible moveable property
Expected useful life ≤ 50 years
Bloodstock, livestock, motor cars, household
furniture (not antiques) and appliances
• Special rules for business wasting assets
Business Wasting Assets
• Assets qualifying for CAs excluded
– Burnham v Westminster Press 1982 STC 669
• Asset partly used for business purposes
– Exemption applies to non-qualifying part
– Car used 70% business and 30% private
– 30% of gain is exempt
Part Disposal
• When is the allowable cost apportioned?
• Sec 559 TCA 97
– Assets deriving from other assets
• Sec 557 TCA 97
– Part Disposal
Part Disposals
• Sec 557 TCA
• Apportionment Rules
• Base Cost x A
A+B
A = Proceeds of part disposal
B = MV of remaining property
Part Disposals
•
•
•
•
100 acres bought in May 2007 for €250k
Sold 30 acres in 2012 for €90k
MV remaining 70 acres in 2012 is €196k
Allowable base cost?
– €250,000 x €90k/(€90k+€196k) = €78,671
• Balance can be used in the CGT calculation
of a disposal of the remaining 70 acres
Assets derived from other assets
•
•
•
•
Sec 559 TCA 97
Calculation of allowable cost
Rule is to apportion original cost of asset
Apportionment based on MV of assets
disposed and MV of assets retained
• Applies where assets have merged, divided
or changed their nature or
• Rights or interests have been created or
extinguished
CGT Reliefs
• Indexation
• Annual Small Gains Exemption
• Principal Private Residence
Indexation
•
•
•
•
•
Sec 556(2) TCA 97
A form of relief for inflation
Abolished for expenditure post 31/12/2002
Asset must be held for 1 year+
Cannot create a loss or increase actual
loss
Indexation
Effect of
Indexation
Loss converted
to a gain
Gain converted
to a loss
Loss increased
CGT
Legislation
No gain/No
Loss
No Gain/No
Loss
Actual Loss
Sec 556(4)(a)
Gain increased
Actual Gain
Sec 556(4)(b)
Sec 556(4)(b)
Sec 556(4)(a)
Annual Exemption
• Sec 601(2) TCA 1997
• First €1,270 of chargeable gain is exempt
• Not transferrable between spouses/civil
partners
• EG on page 371 of notes
Principal Private Residence
• Sec 604 TCA 1997
• Exemption on sale of PPR and land up to
1 acre occupied as garden or grounds
• Overseas properties could qualify as not
specifically disallowed in legislation
• Apportionment of gain for periods of
ownership not occupied as PPR
Principal Private Residence
• Deemed periods of occupation
– Last 12 months of ownership
– Periods working wholly outside State where
required by employment and
• Periods ≤ 4 years working elsewhere in the
State.
• If exceeds 4 years then max 4 years deemed
occupation
PPR Deemed Occupation
• Further conditions
– No other PPR owned at the same time
– Period of absence preceded by and followed
by actual occupation
– No occupation of another residence abroad
owned by individual
– EG: work through on page 373
PPR Relief Occupation
Period
Not
Occupied
Occupied
1/7/71-5/4/74
Pre CGT
Pre CGT
Actual
Deemed Comment
Lived in house

6/4/74- 30/9/79
66 mths
1/10/79 -31/12/81
27 mths*

Worked in Cork
* Max 48 mths
1/1/82-30/6/91
114 mths

Worked in US
1/7/91-30/6/92
12 mths
1/7/92-31/3/95
1/4/95-30/6/00
33 mths
42 mths
1/7/00-31/12/00
1/1/03-30/6/09

Lived in house

21 mths*
30 mths

Connemara
12 mths
132 mths
Worked in Limerick
Lived in house
78 mths
1/7/09-30/6/10
Totals
Travelled
303 mths

Last 12 Mths
435 mths total
PPR Relief Solution
Sale Proceeds
Costs
€8k x 7.528
Gain
PPR Relief *
Gain
* PPR €340k x 315 mths = €233k
459mths
€000
400k
60k
340k
236k
104k
Apportionment
• House used partially for trade, business or
profession
• Apportion gain to exclude part used for business
from PPR exemption
• Example – Office in home
PPR Development Value
• Sec 604(12) TCA 97
• Restricts PPR where Sale Proceeds/MV >
Current Use Value
• Gain on disposal calculated in the normal way
(as development land)
• Gain then reduced by restricted PPR relief
• Balance of gain chargeable as development
land gain
PPR- Dependent Relative (DR)
• Sec 604(11)TCA
• PPR Relief extends to gain on home
occupied by DR
- Residence provided rent free
- Occupied by DR during ownership period
- DR = Relative of owner or spouse
incapacitated by old age or infirmity or
widowed parent
Insurance and Compensation
• Relief from CGT on charge arising from
capital sum derived from asset
• Insurance or compensation
• Sec 536 TCA 1997
• Relief for non wasting assets - < 50 years
1.
2.
3.
Asset not lost or destroyed;
Asset lost or destroyed; or
Asset lost or destroyed – only part of compensation
re-invested.
Asset not Lost or Destroyed
• Sec 536(1) TCA 1997
• Building damaged – but not destroyed
• Capital sum received must be for:
–
–
–
–
–
Damage or injury to asset
Loss, destruction or dissipation of asset
Depreciation or risk of deprecation to asset
Insurance proceeds
Forfeiture or surrender of right or refraining from
exercising a right
– Consideration for exploitation of asset
Asset not Lost or Destroyed
• No chargeable gain where:
- Capital sum used in full to restore asset;
- Revenue disregard 5% of capital sum not
reinvested; or
- Capital sum received is deducted from cost
otherwise deductible.
Asset Lost or Destroyed
• Sec 536(2) TCA 1997
• Capital sum applies in acquiring a replacement
asset
• Reinvest within 1 year unless longer period
allowed by Revenue
• Old asset treated as disposed of for No
Gain/No Loss
• Reduce cost of new asset by chargeable gain
that would have arisen plus scrap value
• Revenue Precedent - buildings/land
Asset Lost or Destroyed – Partial
Reinvestment
• Relief on part of capital sum that is reinvested
• Where part of capital sum not applied in
acquiring new asset < gain
– Gain reduced by amount not applied; and
– Cost of new asset is reduced by amount of
the reduction.
• Effect is that part of the gain is deferred
Time of Disposal
• General Rule: Date of disposal = date of
transfer of asset
• Date of disposal determines rate of CGT
and due date for tax
• Specific Rules for disposals under
contract and CPOs
Disposal under Contract
• Sec 542(1) TCA 97
• Date of disposal under a contract is the
date of signing the contract
• It is not the date of conveyance or
transfer, if later
Disposal under Contract
•
•
•
•
Contract dated 20th October 2012
Closing date 5th December 2012
Date of disposal = 20th October 2012
CGT due 15th December 2012
Conditional Contract
• Where contract is conditional, the date
of disposal is the date the condition is
satisfied
• Example of condition is a contract
subject to planning permission (PP)
• Date of disposal is date PP obtained
Compulsory Purchase
• Time of disposal where no contract is the
earlier of the time the compensation is
agreed or date authority enters the land
Sec 542(1)(c) TCA 97
• Disposal to Local Authority after 4/2/2010
where CPO powers used – disposal is
earlier of date compensation received or
immediately before person’s death
CGT Losses
•
•
•
•
Sec 546 TCA 97
Calculate loss in same way as gain
No loss relief for non chargeable assets
Sec 31 TCA 97 – Current year losses can
be set against gains in the year
• Unutilised losses can be c/fwd against
gains of future years
CGT Losses
•
•
•
•
Sec 546A TCA 97
Introduced in FA 2010
Anti avoidance section
Restricts capital losses arising from an
“arrangement” to secure tax advantage
• Widely drafted – could include commercial
transactions as well as artificial schemes
Losses and CGT Rates
• Sec 546(6) TCA 97
• Where there are losses available
• And there are gains taxable at more than
one CGT rate in the year of assessment
• Losses are first set against the gains
taxable at the higher tax rate
CGT Rates
Period
CGT Rate
1/12/1999-14/10/2008
15/10/2008-7/4/2009
8/4/2009 to 6/12/2011
From 7/12/2011
20%
22%
25%
30%
Transfer between Spouses
• Sec 1028 (3) loss can be transferred
between spouses living together
• Application can be made for subsection
not to apply
• Sec 1031M(4) applies same treatment
to civil partners living together
Loss and Death
• Losses cannot be carried back under
general loss rules
• Sec 573(3) TCA 97 deals with losses in
year of death
• Losses allowed against gains in year of
death
• Excess losses may be carried back for
previous 3 years of assessment
Losses and Territoriality
• Sec 29(4)(c) TCA 97
• Loss on foreign asset subject to CGT on
remittance basis is not an allowable loss
• Sec 546(4) – NR and NOR individual can
only claim a loss if a gain on the disposal
would be chargeable
• Only losses on “specified assets” allowed
Losses and Connected Persons
• Sec 549(3) TCA 97
• A loss on a disposal to a connected
person can only be allowed on a gain
arising on a subsequent disposal to the
same person
• Effect is to “ring fence” losses on
connected party disposals
Negligible Value Claims
• Sec 538 TCA 97
• Exception to normal rule that losses must be realised
from an actual disposal
• Claim to Revenue that asset has become negligible
• No definition of “negligible” in Tax Acts therefore takes
its normal meaning, i.e., not worth considering;
insignificant (Revenue TB 52)
• Assets must be worthless and documentation needed
• There is a deemed disposal and reacquisition at MV
of the asset
Negligible Value Claims
• Loss not allowed in year earlier than year in
which claim is lodged
• Anglo Irish Bank Corporation Act 2009
• Transfer of shares to Minister for Finance
• eBrief No. 76/09 - Revenue confirmed Sec 538
claim could be made and a deemed disposal of
shares
Development Land
• Sec 648 TCA 97
• Definition
– Land in the state for which the consideration
on disposal exceeds the current use value of
the land
• Land does not need planning permission
and does not have to be developed – the
use is irrelevant
Current Use Value
• Land
– “amount which would be the MV of the land if
calculated on the basis that it was and would
remain unlawful to carry out any development
…other than of a minor nature”
• Shares in a company
– MV calculated on same basis in relation to the
land from which shares derive their value
Development Land
• Proceeds on disposal of the land CUV  it is a
disposal of development land
• Sec 651 TCA 1997 restricts indexation relief
• Indexation only applied to CUV @ date of acquisition
and incidental costs
• No indexation for enhancement expenditure
Development Land Small Gains
• Sec 650 TCA 97
• Total consideration/proceeds  €19,050
in year then ordinary CGT rules apply
• Actual amount of gain or loss is
irrelevant
• Only applies to individuals not
companies
Development Land Losses
• CGT losses on non-development land by
individual cannot be used against DLGs
• Sec 653 TCA 1997- DLGs can be set against
non-DLGs
Development Land - Companies
• Sec 649(1) TCA 97
• DL gains are not treated as profits liable to
Corporation Tax
• Company is liable to CGT on DL gains
• No Sec 650 exemption for companies
Development Land - Companies
• DL losses can be used against DL gains
• Non DL losses cannot be set against DL
gains
• Non DL losses and DL losses can be
used against non DL gains
• CGT filing and payment dates apply
Companies and CGT
1.
2.
3.
4.
5.
6.
Scope of Charge
Non Resident Companies
Exit Charges – change of residence
Company Capital Losses
Market Value Rules
Appropriation to trading stock
Scope of Charge
• Sec 4 TCA 97 – definition of company
– Includes any body corporate
– Excludes certain entities eg HSE, Local
Authorities, etc
• Excluded entities remain within charge to
CGT and not CT
• Resident Company is liable to Irish tax on
worldwide income and gains
Calculation of Gain
•
•
•
•
Taxable gains computed under CGT rules
Chargeable to CT
Gains included in CT profits
Charged to tax using a formula which
effectively taxes the gain @CGT rate 30%
• Treatment of DLGs – CGT treatment
Non Resident Companies
• Sec 25 TCA 97
• Within charge to CT if carrying on a trade in
Ireland through a branch or agency
• Charged to CT in respect of gains on specified
assets and other branch assets if:
– Trade through branch/agency in Ireland
– Asset(s) used for purpose or held/acquired
for purpose of branch/agency
– Assets located in the state at disposal
Non Resident Companies
• Otherwise liable to CGT on specified
assets
• Liable to CGT on DL disposals
(irrespective of residence of company)
Exit Charge
• Sections 627-629 TCA 97
• CT or CGT charge arises where a co
ceased to be resident and holds certain
assets
• Co is deemed to have disposed of and
immediately reacquired all its assets at
mv @ date of ceasing residence
• Bona Fide liquidation not included
Exit Charge – Exclusions
1. Assets continue in use in the State by a
branch or agency of the company
2. “Excluded company” - 90% of issued
share capital held by “foreign company”
– “Foreign company” – under the control of
person(s) resident in tax treaty state and
which is not under control of person(s)
resident in the State
Exit Charge – DTA Exclusion
• Mr G Dane, resident in
Spain, owns 100% of
France Res Co
• France Res Co owns 100%
Irish Co
• Irish Res Co ceases Irish
residence
• S 627 Charge ?
Mr Great
Dane
France Res Co
Irish Co Ceasing
Residence
Postponement of Exit Charge
• Sec 628 TCA 97 – deferral of charge
• Applies where co ceasing residence is a 75%
subsidiary of an Irish resident company
• Election in writing by both co’s within 2 years of
change of residence – deemed disposal deferral
• Tax crystallises on parent co if within 10 years
– Migrating co ceases to be a 75% sub
– Parent co ceases to be resident
– Migrating co disposes of assets
Capital Losses
• Losses can be used against capital gains
in current accounting period
• Excess losses c/fwd for offset against
capital gains liable to CT in future periods
• Cannot be offset against total income
Capital Losses
• Development land (DL) losses can be
offset against capital gains on DL and
other gains liable to CT and carried forward
for offset in the same manner
• DL gains are liable to CGT and only losses
from DL disposals can be offset against
them
MV Rules for Companies
• Connected persons rules apply for disposals of
companies
• Sec 10(6) TCA 97 – a company is connected
with another company if:
– The same person has control of both
companies
– A person controls one company and persons
connected with him (or he together with
persons connected with him), control the other
company
Losses and Connected Persons
• Sec 10(7) TCA 97 – a company is
connected with another person if that
person controls it or he and persons
connected with him together have control
of it
• A loss on a disposal to a connected
person can only be offset against gains on
disposals to the same person- Sec 549(3)
Appropriation to Trading Stock
• Sec 596 TCA 97
• Appropriation of capital asset to trading
stock
• Deemed disposal for CGT
• Asset brought into stock at MV
• Election for gain to be treated as reducing
MV of stock so net figure is the value for
CT purposes
Appropriation to Trading Stock
• Sec 596 TCA 97
• A fine arts rug was bought by John for
personal use in 2005 – cost €1,200
• He transferred it to his furniture business
in 2012 when the MV was €1,500
• Chargeable gain?
• Stock value?
CGT and Shares
• On disposal must identify base cost and acquisition
date of shares
• Can be difficult if shareholding subject to share offers
or reorganisation
• Share identification rules
• Each share is a separate asset
• Sale of 10 shares = 10 disposals
• Sec 580(1) TCA 97 FIFO
• First In First Out rule
• Each block of shares treated as separate disposal
and separate calculation needed
CGT and Shares
• On disposal must identify base cost and
acquisition date of shares
• Can be difficult if shareholding subject to
share offers or reorganisation
• Share identification rules
– FIFO rule (same class shares) – Sec 580
TCA 1997
– 4-week rule – Sec 581 TCA 1997
FIFO Rules
• 3,000 shares in Y Ltd sold in Sep 2012
Share History for Y Ltd Shareholding
Bought/Sold
Number
Cost
Sold
Remaining
Cost FIFO
1/1/1979
1,000
€1,000
(1,000)
0
€1,000
1/5/1990
1,500
€3,000
(1,500)
0
€3,000
10/6/1992
2,000
€5,000
(500)
1,500
€1,250
29/8/1995
1,000
€3,000
1/9/2012
(3,000)
1,000
(3,000)
Four Week Rule
• Anti-avoidance
• Shares sold within 4 weeks of acquisition
of shares of the same class
• Ignore FIFO Rules
• Shares sold are treated as the shares
acquired within previous 4 weeks
• Excess shares dealt with under FIFO
Shares - Four Week Rule
• Sec 581(3) TCA 1997 – ‘B&B loss
restriction’
• Loss on share disposal & repurchased
within 4 weeks
• Loss only available against gains on
shares acquired within 4 week period
• Husband and Wife treated as a single unit
for 4 week rule
Share Disposals
• Disposal of shares include:
– Sale
– Acquisition by a company of its own shares
– Disposal in liquidation or winding up
– Exchange of shares in reconstruction or
amalgamation
– Sale of a right or option to subscribe for
shares at an agreed price
Exchange of Shares
• Exchange of shares is a disposal
• Three reliefs from CGT on reorganisation
and reduction in share capital:
1. Exchange of Shares: Sec 584(3) TCA 1997
– Exchange of old shares for new shares in
same company
– Deemed no disposal of old shares
– New shares acquired at date and cost of old
shares
Share Reorganisation Reliefs
2. Exchange old shares for new shares plus
other consideration received
• Sec 584(5) TCA 1997
• Deemed part disposal of old shares
• New shares acquire cost of old shares,
after part disposal
Share Reorganisation Reliefs
3. Exchange old shares plus new
consideration for new shares
• Sec 584(4 )TCA 1997
• Amount paid is treated as enhancement
expenditure for new shares
• Base cost of original shares also forms
part of the cost
Share Reorganisation
• Sec 584(1) TCA 1997
• Reorganisation of share capital includes?:
– Allotment of shares or debentures of co in proportion
to holdings of shares
– Where more than one class of shares and rights
attached to shares are altered
• Special treatment applies
• Must be for bona fide commercial reasons and not
tax avoidance
1. Bonus Issues
• Shareholder receives additional shares in
co in proportion to existing holding
• No payment made
• Shares deemed to have been acquired on
same date as original shares
• No CGT cost
2. Rights Issues
• An offer to existing shareholders to acquire
additional shares
• In direct proportion to existing shareholding
• Shares acquired under rights issue deemed
acquired at same time as original holding
• Cost is treated as enhancement expenditure
CGT and Shares
3. Subscriptions – ordinary share purchase
4. Shares in lieu of dividends – treated same
as a rights issue
5. Share split – increase in number of shares
with same base cost
• Shares acquired by way of gift – deemed
acquired at MV
• Sale of rights – part disposal of underlying
shareholding
CGT and Options
• An Option is an asset for CGT
• A right to sell or buy an asset at agreed
price
• Option is irrevocable for predetermined
period of time
• No contract comes into existence until
option is exercised
• Sainsbury v O’Connor 1991 STC 318 –
option is not a contract but an offer
CGT and Options
• Typically have a grant price, exercise
price and exercise period
• Option can bind party to purchase or sell
an asset
• Option can be disposed of by holder
• Option can be abandoned by holder
CGT and Options
• Sec 540 TCA 1997
• Grant of option is a disposal of an asset
for CGT
• Exercise of option merges options and
sale into one disposal
CGT and Options
• Option binds grantor to sell an asset:
– Consideration for grant added to exercise price to get
seller’s total CGT sale price and purchaser’s total CGT
cost
• Option binds granter to buy an asset:
– Consideration for grant deducted from purchaser’s CGT
acquisition cost and allowed as deduction for seller
• Put and Call Options:
– Grantor is bound to buy and sell – treat as two
options, half of consideration is contributed to each
Option as a Wasting Asset
• Option for < 50 years
• Treated as wasting evenly over life of
option
• Exercise period of 20 yrs – base cost
will waste over 20 yrs straight line basis
• Does not apply to option over quoted
shares
– Straight line basis over life – written down at
5% per annum
Abandonment of Option
• Abandonment of option by person
entitled to exercise is a CGT disposal
• Edward J Kearns v TA Dileen
- Abandonment of option for full
consideration is not an “abandonment”
- No merger – grantor subject to CGT on
grant price of option
Abandonment of Option
• Grantee abandons option – loss occurs as
consideration paid for option but no asset has been
acquired
• CGT loss granted only if:
1. Option to acquire trade assets for purpose of
trade or commence trade within 2 years of grant;
2. Quoted option to subscribe for shares in co; and
3. Traded option.
• Applies to disposals or abandonments of
options
Connected Persons
• Sec 549(5) TCA 1997
• Option granted to connected person
• Loss not allowable unless loss accrues on disposal
at arm’s length @ MV
• Sec 549(7) – MV determined as if right or restriction
does not exist
• Provisions cannot increase loss or convert gain to
loss
• Sec 29/30 TCA 1997 – option not ignored if person
making disposal is not within the charge to CGT
Forfeited Deposits
• Forfeited deposits treated as consideration:
– Given for grant of option
– Option not exercised
• CGT treatment for person receiving deposit
• No allowable loss for payor – unless within 3
exceptions for abandonment of an option
• Example: Land purchase terminated after deposit
paid where purchaser unable to complete due to
lack of finance
• Revenue Concession – date of disposal ie when
option exercised versus when disposed
Self Assessment and CGT
•
•
•
•
•
Self-assessed tax
Interest and penalties for non-compliance
Appeal system to remedy injustices
Risk management
Common errors in CGT compliance
Self Assessment Tax Returns
• Sec 951 TCA 1997 applies to every chargeable person:
must make return
•
•
•
•
PAYE – Form 11/Form 11 Directors
Self Assessed Individual - Form 11 or 11E
Trusts and Estates – Form 1
Non Residents/persons not required to file IT return
– Form CG1
• Company: chargeable gains subject to CT – Form
CT1
• CGT details must be included or penalties imposed
Pay and File requirements
• Sec 950(1) – Specified Return Date
– 31st October (individuals and corporate with
Development Land Gains)
– Gain in 2012 must be returned on 31.10.13
– Corporates – CT filing dates
• Surcharge for late filing
– 5% if filed within 2 mths max €12,695
– 10% if filed after 2 mths max €63,485
Notices of Assessment
• Cannot be raised by Revenue earlier than
Return made or before due date
• Normally issues after Tax Return filed
• Timings do not apply in certain cases:
1. NR re certain Irish assets;
2. 15% WHT on certain land disposals;
3. Donee to collect CGT on a gift
Time Limits - Assessments
• Sec 955 TCA 97 – four year time limit unless:
– Return does not contain full & true disclosure;
– Give effect to Appeal determination against an
assessment;
– Fact or matter arising after Return submitted;
– Correction of error in calculation; and
– Correction of mistake if facts disclosed not
reflected in statement.
• No time limit for fraud and neglect
Full and True Return
• Sec 955 TCA 1997
• Obligation to make full and true return of
all material facts
• Provision for “Expression of Doubt” by
reason of error
Due Date for Payment
• Sec 958 TCA 1997 – 2 periods in tax year
Disposal Made
Due Date
1st January-30th
November
15th December in
same year
1st December-31st 31st January in
December
following year
Interest
•
•
•
•
Sec 1080 TCA 1997
Rate from 1/7/2009 = 0.0219% per day
Sec 981 TCA 97 – hardship cases
Covers delays of 18mths+ on signing of
conditional contract to completion date
• Revenue have power to defer CGT
• But – e Brief 20/2008 very strict
CGT Appeals
• Sec 957 TCA 97 -Right to appeal
• Cannot be based on information in Return or
on figures agreed with Inspector
• Notice of appeal should specify each matter
• Appeal Commissioners: independent officials
• Taxpayer: right to Appeal hearing to the
Circuit Court
• Revenue right to Appeal to High Court on
point of law only
Tax Clearance and Withholding
•
•
•
•
Sec 980 TCA 97
Withholding tax applies to certain disposal
NR, NOR, ND
Purchaser obliged to withhold 15% of sale
proceeds
• Payable to Revenue within 30 days
• Interest applies for late payment on purchaser
Tax Clearance and Withholding
Sec 980(2) TCA 97
1. Consideration > €500k
2. Asset is ‘specified assets’ and goodwill:
a)
b)
c)
d)
e)
Irish land and buildings
Minerals and mineral rights
Irish Continental Shelf exploration rights
Unquoted shares* deriving >50% value from (a) –(c)
Goodwill of a trade carried on in Ireland
Tax Clearance and Withholding
•
•
•
Sec 980 applies to residents and non residents
VAT inclusive proceeds for limit
No withholding tax if purchaser obtains CG50
Clearance Certificate
CG50 issued by Revenue on application if:
•
–
–
–
–
Resident; or
Satisfy Revenue that there is no liability; or
Calculate, agree and pay CGT due; or
Irish solicitor undertakes to discharge CGT out of
sale proceeds
CGT and Risk Management
COMMON MISTAKES:
• Deduction of revenue expenses – only capital
expenses allowed
• Late payment – watch contracts: date of signature will
trigger CGT payment date
• Payment of tax on time but Return not made
– easy to make this error as payment made earlier
– Surcharge will apply if no return
• Gifts not treated as disposal for CGT and/or
MV rules not applied
Professional Skills
• Be alert to transactions when CGT triggered…sale
of property/business, disposal of gift/inheritance
• New client for CGT transaction?
• Risk Management Issues…correct consideration, date,
rate, MV rules
• Have you the skills and experience for the
issues?
• Review all documents
• Record analysis of transaction
Professional Skills
• Case of Michael and client (page 428)
• Did you ask enough questions?
• Did you consult primary research
sources?
• Communication skills? No contact with
solicitor
• RM procedures – file notes?
CGT Round Up
• Legislative Basis
• CGT introduced into legislation CGTA
1975
• Applies to disposals on or after 6/4/1974
• CGT Legislation consolidated into TCA 97
• Secs 28-31 : CGT charging provisions
CGT Round Up
• Deductible Expenditure
• Incidental Expenditure – wholly and
exclusively
• Grants excluded
• No deduction for revenue expenditure
• Irrecoverable VAT is deductible
CGT Round Up
•
•
•
•
Wasting assets
Chattels – Relief for durable chattels
Chattels – Business use
Part Disposals:
– formula
CGT Round Up
•
•
•
•
Reliefs
Indexation up to 31 Dec 2002
Annual exemption €1,270
PPR Relief:
– Restrictions to PPR for periods of nonoccupations
– Deemed occupation periods
CGT Round Up
•
•
•
•
•
Time of disposal
Date of contract
Conditional contracts
Compulsory Purchase Orders
FA 2010 change to CPOs
CGT Round Up
• Losses
• Restrictions to losses for connected party
transactions
• Carry forward of losses
• Adjust losses for net capital allowances
• Use of losses in year of death
• Negligible Loss Claims
CGT Round Up
•
•
•
•
•
•
•
Development Land
Meaning of development land
Current Use Value
Restriction of indexation
Use of DL losses
Small gains
PPR and development land rules
CGT Round Up
•
•
•
•
Companies CGT
Resident and non-resident companies
CGT charge v CT charge
MV Rules and connected parties
CGT Round Up
• CGT and Shares
• Identification Rules
– FIFO
– 4 Week Rule
• Company Reorganisations
– Bonus and Rights Issues
• Share Exchanges
• Options
CGT Round Up
•
•
•
•
•
•
Self Assessment Pay and File
Time Limits to amend assessments
Appeals
CG 50 Tax Clearance
Key risk areas
Professional skills
THE END