CHARTERED TAX
CONSULTANT
APPLIED TAX
MODULE 3
Income Tax
Ken O’Brien
19th January 2013
www.charteredaccountants.ie
EDUCATING
SUPPORTING
REPRESENTING
Introduction
• Learning Objectives
– Understand key sections of TCA 1997
– EU Case law and policy
– Calculation of Income Tax liabilities and
reliefs
– Preparation of Income Tax Returns
– Managing compliance deadlines for clients
Income Tax - Outline
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Main concepts of law and practice
Understanding the sources of income
Computational Rules
Residence and Domicile status
Taxes Consolidation Act 1997
Territorial Provisions
• Charging section of tax legislation
• Tax arises under a tax head
• Scope of tax charge
– Residency; Ordinary Residence; Domicile
– Location of Assets
– Residency rules apply across number of tax
heads
– CGT – Module 4
– CAT Module 8
Residence
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Sec 819 TCA 1997
Present for 183 days, or
280 aggregate days
Ignore ≤ 30 days or
Residence
• What is a day?
• Presence at any time during the day
• Cinderella rule gone from 1st January
2009
• Revenue e Brief N0 3/2009 – in transit
and unavoidable circumstances
Residence - Example
• Andrew Cameron commutes from the UK
to work in Ireland
• He arrives in Ireland on Monday mornings
and leaves on Friday mornings
• During 2012 he works here for 38 weeks
• Is he resident in Ireland in 2012?
Residence Example
• Andrew is resident for 2012
• 5 days a week x 38 = 190 days
• If he left on Thursday evenings?
– 152 days* = not resident
* Aggregation rule if repeated over 2 or
more years = resident
Election to be Resident
• Section 819(3) TCA 1997 – Elect?
Election
No Election
Personal Credits and Reliefs Avoid or delay becoming
ordinarily resident
Worldwide Income and
Gains taxable
Taxable on Irish source
income only
Split Year, Remittance Basis Not taxable on gains and
and DTA access
non employment income pre
arrival
Spilt Year Treatment
• Section 822 TCA 1997
• Applies to employment income only
• An election to be resident may be needed
to avail of SYT
• Applies to year of arrival and departure
Split Year Treatment
• Is election for
residence needed?
• If election needed,
check benefit of SYR
• Will foreign income or
Resident in
gains be taxable?
year of
arrival?
SYT
applies
Employment
Income?
Not
Resident?
Consider
electing
to be
resident
Foreign
non emp
income?
Foreign
gains?
No SYT
Ordinary Residence
• Section 820 TCA 1997
• Acquired if resident for 3 consecutive
years
• Worldwide Income Charge
• Continues until non resident for 3 years
Ordinary Residence Example
• Irish resident leaves Ireland 1 January
2012
• Employment in USA for 2 years
• Returns to Ireland 2014
• Remains ordinarily resident for 2012,
2013 and 2014
Ordinary Residence Example
• Individual left Ireland on 1 January 2012
• Does not return before 2016
2012
Ord Res
2013
Ord Res
2014
Ord Res
2015
Not Ord Res
Domicile
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Country of birth and parents’ domicile?
Has a domicile of choice been acquired?
Long term intentions?
Case law and legal advice?
Domicile Case Law
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Intention to return to country of origin
Form and content of will
Domicile of origin must be abandoned
Family, social and property ties
Effect of Residence and Domicile
Res
Ord
Res
Dom
Income Liable
Legislation
Yes
Yes
Yes
Worldwide
S 18 TCA 1997
Yes
Yes
No
Irish income + Irish
Emp Income
Foreign Remittances
Sec 71(3) and Sec
18(2)(f) TCA 1997
Yes
No
Yes
Worldwide
Sec 18 TCA 1997
No
Yes
Yes
Worldwide-exceptions
Sec 821 TCA 1997
No
No
No
Irish
Sec 18 TCA 1997
Resident Ord Res and Domiciled
• Which sources of Mr Smith’s income are
liable to Irish income tax?
• Salary
• US and UK Dividends
• French Rents
• All above sources – worldwide income
Resident, Ord Res, Not Dom
• Orla Kenny’s income has the following
income in 2012
• Irish Salary all duties performed in Ireland
• US and UK Dividends remitted to Ireland
• French Rents held in French bank
account
Resident, Ord Res, Not Dom
• Are any of Orla Kenny’s income sources
not liable to Irish income tax?
• Irish Salary all duties performed in Ireland
• US and UK Dividends remitted to Ireland
• French Rents held in French account
• French rents not liable as not remitted
Not Resident, Ord Res, Dom
• Irish income taxed in full
• Foreign income is taxable – except for
– Trade or Profession carried on abroad
– Office or Employment no duties in Ireland*
– Other Foreign income <= €3,810
– *incidental duties allowed up to 30 days
Not Resident, Ord Res, Dom
• Who is likely to be within this category?
• John Shields, Irish resident moves to USA
• US Salary €100,000* and US dividends
€4,500
• John is liable to Irish tax on €4,500
*No duties in Ireland
Remittance Basis
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Section 71(3) TCA 1997
Non domiciled individuals
Income v Capital
Anti avoidance Sec 72 – loans
Pre Arrival Earnings
• Income earned prior to becoming resident
• Must be clearly identified
• Avoid a “mixed” account-Scottish Prov Case
• Can be remitted tax free
Remittances Example
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What advice would you give Ana?
She has savings from her job of €10,000
She moves to Ireland in February 2012
She wants to bring €3,000 into Ireland
Remittances Solution
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Keep savings in a separate account
Do not lodge any income into that a/c
Earnings saved pre 2012 can be remitted
No Irish income tax if no mixed a/c
Note - €3,000 could be remitted in 2011
i.e. year of non residence
Remittance Basis & Employment
Foreign Contract – duties in Ireland:
• Sec 18(2)(f) / 985C,D,E,F, TCA 1997
• Duties in Ireland = Irish source income
• Remittance basis does not apply
• PAYE obligations for employer/Irish entity
Remittance Basis
Special Assignment Relief Programme
(SARP):
New SARP Regime FA 2012
• Limited remittance basis for employments
• Non domiciled individuals
• Section 825C TCA 1997
• Where conditions met – claim refund
2008 SARP
• 2008 – Sec 825B TCA 1997
• Continues to apply to 2015 for employee
entitled to claim
• More favourable to higher earners
First Year of Claim
Year of Claim
2009
2012, 2013
2010
2013, 2013 ,2014
2011
2012, 2013, 2014, 2015
2012 SARP
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Tax deduction = Specified Amount
(A-B) x 30%
A = Lower of:
Employment Income* or
€500,000
B= €75,000
*Less deductible pension contributions and earnings on which
DTA relief granted
SARP
• John Gilmore resident in US
• Seconded to Ireland to work
• US salary 2012 is €300,000 (subjected to
Irish PAYE of €120,000)
SARP?
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Salary > €75,000
SARP applies
A = €300,000
B= €75,000
(€300,000-€75,000) x 30% = €67,500
Relief: €67,500 x 41% = €27,675
Revised Tax: €120,000 - €27,675 =
€92,325
SARP
• Employee claiming SARP is a chargeable
person for self assessment
• Relief through payroll allowed
• Employer reporting to Revenue
• €5,000 tax free school fees and trip home
Domicile Levy
• Section 531AB TCA 1997
• Annual Domicile levy of €200,000
• Applies to certain Irish domiciled
individuals
Domicile Levy
• Irish Domiciled?
• Irish Citizen? (2010
and 2011 only)
• Irish property mv >
€5m?
• Worldwide income >
€1m?
• Irish income tax <
€200,000?
• Yes
• Yes
• Yes
• Yes
• Yes
Categories of Income
• Income sources are divided into
categories
• Trade/Profession; Rental; Employment;
Investment income
• Each category comes under a Schedule
• Basis of Assessment for each category
Schedule D Sec 18 TCA 1997
• Cases I and II
• Case III
• Case IV
• Case V
• Trades and
professions
• Investments/foreign
source income
• Broad category, DIRT
interest, taxed
income, other
• Rental
Income Schedules
• Schedule E
• Sec 19 TCA 1997
• Irish offices and
employments
• Directors’ Fees
• Salaries, Wages,
BIKs, Pensions
• Schedule F
• Sec 20 TCA 1997
• Distributions from
Irish companies
Income and Expenses
• Accounts
• Basis of Assessment
• Commencement and
Cessation
• Expenditure
• Expenditure
prohibited?
• Earnings Basis
• AP ending in tax year
• Special Rules
• Wholly and
Exclusively
• Ex: Entertainment
and Depreciation
Schedules D Cases I and II
• Case I Trade
• Case II Profession
• Self Employed - Income Tax
Schedules D Cases I and II
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What is a trade?
Sec 3(1) TCA 1997 – very broad
Case Law
The Six Badges of Trade
6 Badges of Trade
• Subject Matter
• Manufactured items,
Commodities, Property
• Held for a short time?
• Similar and frequent?
• Length owned
• Frequency of
transactions
• Supplementary Work • Advertising, office?
• Circumstances
• Any special ones?
• Motive
• Never irrelevant
Trading?
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Jay Sugar is a self employed painter.
He invests some money in shares
He buys and sells shares
Is he carrying on a trade or liable to cgt?
Jay Sugar
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Apply Badges of trade to his activities
Regular buying and selling?
Is only one Badge met?
Revenue Guidance – “whole picture”
Exemptions
• Part 17 TCA 1997
• Exemptions are subject to “High Earner
Restrictions”
• Effective Rate of at least 30%
Artists Exemption
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Sec 195 TCA 1997
FA 2011 limit of €40,000 from 1st January 2011
Writers, composers, sculptors, artists
Original and Creative Work
Exemption must be claimed
Guidelines – Arts Council and Minister
Resident or ord res in Ireland and not
elsewhere
Other Exemptions
• Section 216 TCA 216 – Lottery Wins
• Sec 43(1) Government Securities owned
by individuals not ordinarily resident
• Sec 141/234 TCA 1997 Patent
Exemptions abolished
• Exemption does not apply to dividends
paid or income from a qualifying patent on
or after 24th November 2010