Chartered
Tax
Consultant
Stage 3 Module 4
Tax Losses and Charges
Ruth Ní Dhondúin
24th & 25th June 2011
Chartered Accountants House
www.charteredaccountants.ie
EDUCATING
SUPPORTING
REPRESENTING
Tax Losses & Charges
•
•
•
•
•
•
•
Building on Stage 2
Sole Traders / Partnerships / Companies
Income Tax / Corporation Tax / CGT
Outlining / Interpreting / Applying
Revenue material
Case law
Practical tax planning tips
Overview
Losses and Charges
Schedule D Case I and II
•Income & Corporation Tax
Losses
•Commencement/Cessation
Schedule D Case III Losses •Capital Allowances
•Foreign Currency
Schedule D Case IV Losses •Trade and Non Trade Charges
•Compliance
Schedule D Case V Losses •Risk Issues
•Order of Reliefs
Capital Losses
•Groups
•Partnerships - restrictions
•Accounting for Tax
Sole Traders & Partnerships
•
•
•
•
Schedule D Cases I & II Losses and Charges
Trading loss before CA
Computed in same manner as trading profit
How are losses used?
• Sec 381 TCA 97
• Sec 382 TCA 97
• Sec 385 TCA 97
Other income in current year
C/F against trading income
Terminal Loss Relief
Sec 381 TCA 1997 Losses
Time Limit
2 Years from end of year of assessment
Order of Relief
Against
Step 1
Earned income of individual
Step 2
Unearned income of individual
Step 3
Earned income of spouse
Step 4
Unearned income of Spouse
Sec 381 TCA 1997 Losses
• Should a Sec 1018 TCA 1997 claim be
made?
• Offset against spouse – only where joint
assessment applies
• Are losses likely?
• Does Sec 1017 TCA 1997 apply?
• Consider current economic climate
• 1st April deadline to withdraw Sec 1017
TCA 1997 claim for single assessment
Sec 381 Claim v Carry fwd Loss?
•
•
•
•
•
Sec 381(5)(b) TCA 1997
Loss claim = total income
Portion of loss cannot be claimed
Tax Credits and reliefs may be lost
Check that there is sufficient income at
higher rate of tax to absorb loss
• Should loss be carried forward instead?
Example
Income
Sec 381 TCA 97
Salary
€32,000
Rents
€4,000
Case I Loss
(€28,000)
Sch E
No Sec 381 TCA 97
€32,000 Sch E
€32,000
€4,000 Sch D C V
Sch D C V
€4,000
Total Income €36,000 Total Income €36,000
Sec 381
(28,000)
(€0)
Taxable
€8,000
€36,000
Tax
€1,600
€7,200
Credits
€3,600
€3,600
Unused Credits
€2,060
€0
Loss of Tax Relief @
41%?
Future Profits?
Future Profits?
Trading Losses Forward
•
•
•
•
Sec 382(2) TCA 1997
No time limit for claim
Profits used first against earliest year
Balance carried forward to subsequent
year(s)
• Consider each client’s circumstances
• Sec 381 or Sec 382 claim?
• Cash flow and tax savings comparison
Losses on Commencement
• Section 66 TCA 1997
• Rules of assessment for commencement
Year 1
Profits from commencement to 31st December
Year 2
•12 mths accounts ending in 2nd year
•< 12 mths accounts in year
profits of 12 mths ending on that
date
•2+ periods in year
profits of 12 mths ending on latest date
•No accounts ending in period/trade commenced < 12 mths
before AP ending in year
Actual profits of year
Year 3
Profits of 12 mths AP ending in the tax year
Tax Losses Sec 381 TCA 97
• Strict position for Sec 381 claim
• Tax adjusted loss sustained in the year of
assessment
• Revenue accept loss for basis period in
cases of continuing business
• Tax losses for commencement and
cessation – calculated on actual basis
Case Law
• IRC v Scott Adamson
• Period in which loss occurs forms basis of
assessment for > 1 year of assessment
• Loss restricted to actual loss
• Tax Briefing 35
• Example: Commenced to trade June 2009
• Y/E 30th June 2010 = Loss (€18,000)
• Y/E 30th June 201 = Profit €6,000
Example
Year of
Basis
Assessment Period
Case 1 Sec
66 TCA 97
2009
1/7/2009 –
31/7/2009
(€9,000)
Case 1 Sec
381 TCA 97
Scott v
Adamson
(€9,000)
2010
Y/E
30/6/2010
(€18,000)
(€9,000)
2011
Y/e
30/6/2011
€6,000
€6,000
Losses on Cessation
• Sec 67 TCA 1997
Final Year of
Assessment
Profits 1st January to date of
cessation
Penultimate Year
•Profits of 12 mth AP ending in
year of assessment
•If actual profits of year> profits
originally assessed
revision to actual
Cessation
•
•
•
•
•
Client’s accounting year
tax year?
Plan for cessation date where possible
Penultimate year revision?
PT for final year may be insufficient
Avoid additional tax and interest
Terminal Loss Relief
•
•
•
•
Section 385 TCA 1997
No specific time limit
Sec 865(4) TCA 97 – 4 year time limit
Tax losses and CA of last 12 months
trading
• Carry back against Case 1/11 for 3 years
of assessment prior to cessation
• Sec 385(1) TCA 1997
Terminal Loss Relief
• Sec 385(3) TCA 97
• Relief against income of most recent year
first
• Sec 386(2) TCA 97 relief:
1. Loss from 1st Jan to date of cessation
+
2. CA in year of cessation
+
3. Loss in part of preceding year of asst
commencing 12 months before cessation +
4. Same proportion of CA as 3 above
TLR set against Trading Profits
• Sec 387(1) TCA 97 – terminal loss may be set
against:• Full profits assessable for that year
• Less CA for Year of Asst
• Less Annual Payment/Losses deductible where
not set against other sources of income
• Sec 387(2) TCA 97 – TLR reduced by annual
payment which has reduced taxable profits for
any of 3 years
TLR Example
Basis Period
2010 Case 1
Case V
1/1/1031/3/10
2009 Case 1
Case V
Sec 381
2008 Case 1
Sec 385 TLR
Case V
Total Income
Y/E 31/10
2009
2007 Case 1
Case V
Y/E 31/10
2007
Y/E 31/10
2008
€
0
15,000
0
15,000
(15,000)
60,000
(17,917)*
15,000
57,083
45,000
15,000
Comment
Loss in final year
No revision
Sec 381 claim made
first
*TLR Claim
(€15k * 2/5) +(€15K
*7/12) for 2010 +(€5k *
7/12) for 2009 as Sec
381 claim first for €15k
No TLR left
CA & Loss Relief Claims
• Chapter 2 Part 12 TCA 1997
• Order of set off for losses and CA
• Order depends on whether losses or CA
arise in current year v carried forward
• Sec 392(1) TCA 97 claim –
increase/create current year loss under
Sec 381 TCA 97 by deducting current year
CAs
• Sec 393 TCA 97 – deduct BC from CA first
CA & Loss Relief Claims
• Where income < Loss + CA
• CA not set off in Sec 381 claim and are
available for carry forward
• Sec 392(2) TCA 97 specifies trading loss
used against other income first
• CA carried forward are maximised
• Claim Sec 381 in current year and carry
forward CA to obtain tax efficiency?
Loss & CA Set Off
•
•
•
•
•
•
•
2009 CA net of BC
= €4,600
2009 Sec 381 claim for losses = €12,000
No Sec 392 claim made for 2009
No loss of tax credits 2009
2009 CA carried fwd and claimed in 2010
Tax efficiency achieved
No Sec 392 claim made
CA carried forward
• CA forward cannot be used to
create/increase loss under Sec 392 TCA 97
• CA forward can be used to:
• Sec 393(2) TCA 97 – absorb BC in year
• Sec 391(2)(b) TCA 97 – reduce taxable
profits before current year CAs deducted
• BC not fully absorbed by CA fwd must be
deducted from current year CA
• CA fwd used in priority to current year CA
CA & Losses
2008
€
2009
€
2010
€
Profits
18,000
10,000
19,000
CA
BC
34,000
0
20,000
(3,000)
20,000
(500)
Sch F
CA claim
10,000
(18,000)
15,000
Fwd (3,000)* BC
Fwd (3,000)*
Current (7,000)
10,000
Current (19,000)
BC
(500)
Sec 392 claim as
S 381 Loss
Carry fwd
(10,000)
(13,000)
(500)
Assessable
0
2,000
9,500
6,000*
Losses C/Fwd and CAs
• Sec 382 TCA 97
• Trading loss forward offset future against
profits of same trade
• CA fwd can reduce future profits of same
trade and set against BC of trade
• Sec 391(2)(b) TCA 97 – CA b/fwd used in
priority to current year CA
Order of Offset
• Losses forward; current and carried
forward CAs
1. CA forward reduced by current year
balancing charges
2. Current year CA reduced by any
remaining current year balancing
charges
3. Finally use trading losses forward
Order of Offset
• Current Year and C/Fwd Losses and CA
Current Year
Subsequent Year
Fully utilised S 381 Loss
and CA claim
Current Year Loss
CA c/fwd
Reduced by current year BC
Current Year CA
Less BC > CA carried fwd
Current Year CA
Reduced by remaining current
year BC
Trading Losses Fwd
Sec 381 Claim
• Sec 382/304 claim(s) first made for
losses/CA
• Where Sec 381 claim made later (within 2
years)
• Original claims may need to be reduced
TLR & CA
• TLR includes CA for final 12 months
• Sec 386(2) TCA 1997
• Calculate tax losses and CA after revision
for penultimate year
• TLR cannot be increased by
– CA c/fwd from earlier year Sec 386(1) TCA 97
– CA utilised against profits of that year Sec
381/Sec 385(2) TCA 1997
– CA used in offsetting BC Sec 393(1) TCA 97
Cessation - Intervals
•
•
•
•
•
•
Y/E 31st October
Ceased 31st March 2010
No revision to penultimate year of asst
“Gap” between basis periods
1st Nov - 31st Dec 2009 = interval period
Interval period also if penultimate year of
asst revised to actual = gap between 2008
and 2009
• How are CA/BA/BC in gap period included?
Cessation - Intervals
• Sec 306 TCA 1997
• Interval periods (IP) included as follows
Interval Period Arising
•Interval between basis periods for
2 successive years of assessment
•Later year is cessation year
•Interval treated as part of first
basis period only
•Interval not between penultimate
and final years
•Interval treated as part of the
second basis period
Period of CA/BA/BC
•2010 = Year of cessation
•No revision to penultimate year
•Year ended 31st October
•IP = 1st Nov – 31st Dec
•CA/BA/BC in IP treated as arising in
2009
•Penultimate year revised to 2009
•IP 1st Nov 2008 – 31st Dec 2008
•CA/BA/BC in IP treated as arising in
2009
Sample IT Comp
Sources of Income
Schedule E
Schedule D Case 1/11/111
(Professional/Trading/Foreign)
Less:
1. CA fwd
2. Current Year CA
3. Trading Losses fwd
Case II
Self Employed Pension Contributions
€
XX
XX
(x)
(x)
(x)
XX
A/B/C
(D)
Sample IT Comp
€
Sources of Income
Sch D Case 111 Interest
XX
E
Sch D Case 111 Foreign Rents
XX
F
Sch
D Case V Irish Rents
Less:
1. CA fwd
2. Current Year CA
3. Trading Losses fwd
Sch F Irish dividends
Sch D Case IV Misc Income
XX
(x)
(x)
(x)
XX
XX
G
H
I
Sample IT Comp
Income from All Sources
€XX
Less:
Current Year Case I/II Loss
Case V Capital Allowances
Covenanted Income
Interest as a Charge
TOTAL INCOME
(xx)
(xx)
(xx)
(xx)
J
Sample IT Comp
TOTAL INCOME
€XX
Less Allowance:
Health Expenses N Home
Carer
PHI
BES/Film Relief
Gifts to Approved Bodies
ESPS
(xx)
(xx)
(xx)
(xx)
(xx)
(xx)
TAXABLE INCOME
J
K
Partnership Losses
• Sec 1008 TCA 97 – apportionment of
Partnership profits and losses
• Overall partnership loss
no profit for any
partner and no partner can claim loss>
partnership loss
• Overall partnership profit
no loss for any
partner and no partner assessed on profits>
partnership profit
• Each partner uses losses eg S381, 382 or
TLR
Limited Partnerships
•
•
•
•
Sec 1013 TCA 97
Anti Avoidance
Perceived abuse of limited partnerships
Commercial exposure to debts and
liabilities limited
• Tax losses and capital allowances shared
by limited partners
Limited Partner
Sec 1031 (1) TCA 1997 “Limited partner” definition – a person who:
•Carries on a trade as a limited partner – partnership registered under
Limited Partnership Act 1907
•Carries on a trade as a general partner
-Not entitled to take part in management of trade
-Entitled to have liabilities discharged by some other person
•Carries on a trade jointly and under laws of territory outside the State, is:
- Not entitled to take part in management of trade
- Entitled to have liabilities discharged by some other person
•Carries on trade as a general partner but not as an active partner
working for greater part of time in management of p/ship
•Carries on trade as a partner in a partnership registered under law
outside of State other than as an active partner
•Carries on trade jointly under any arrangement governed by law of
territory outside State if not working for greater part of time on day to day
management of trade
Limited Partners
• Sec 1013 TCA defines limited partner
• Does not define limited partnership
• Restricts reliefs that can be claimed by
LPs
• Provisions very wide
• Transitional provisions for seaside resorts;
car parks and double rent allowance
projects; whitefish fleet and renewable
energy projects
Limited Partners
• MacCarthaigh v Daly case (Hotel partnership)
• Mr Daly claimed CA against other income
• Sec 1013(2) restricts reliefs for limited partners
on interest, losses and CAs
• Set off against partnership income only
• Sec 1013(3) – reliefs restricted to capital
contributed
• Losses and CA can be c/fwd – not interest as
charge
Case Law
• Quigley v Harris -Cooks Island Partnership
• Claim to set losses/CA against other income
• Mr Harris able to take part in management of
trade while protected from unlimited exposure
• Definition of limited partner did not extend to
Mr Harris
• Loophole closed to catch p/ships registered
outside the State
• Claims for relief from 2005 – watch transition
Exclusions
• Sec 1013(2C) TCA 97
• Excepted expenditure of general partners
who are not active partners
• €31,750 excess CA Sec 409A TCA 97
• Certain 3*+ hotels ins border counties
• Transitional measure excluded Sec 419A
and 419B TCA 97
• Non trading partnerships not affected by
restrictions
General Partners
•
•
•
•
Key part of limited partner definition
Is non active partner a general partner?
Scope of S1013 very wide
General partners who are not “active” can
be within restrictions – includes genuine
commercial situations
• Review partnership agreements
• Could protection from unlimited liability be
offered to avoid restrictions?
Companies and Losses
•
•
•
•
•
Trading Companies Sch D Case I /II
Trade and non trade charges reviewed
Cessation of trade and losses
Group Relief for losses
Foreign currency and trading losses
Trading Losses
• Trading loss calculated in same way as
trading profit
• Relief allowed for trade losses of overseas
PE/branch (not Sch D Case III)
• Lidl Belgium case – ECJ held PE losses
could be disallowed if c/fwd in other Member
State
• No similar Irish provision – overseas branch
losses allowed in Ireland and overseas
Overseas Branches
• Initial trading losses expected in overseas
expansion?
• P/E may be tax efficient for Irish company
• Branch losses can be used by Irish Co
• Review tax legislation in foreign jurisdiction
Overseas Branches
• Sec 847 TCA 97 – foreign branch profits of
certain Irish resident companies exempt
• Creation of substantial employment in
Ireland
• Relief expired 31st December 2010
• Previously disregarded losses can be
c/fwd
• Set off against branch profits from 2011
Relevant Trading Income/Loss
• Sec 396A TCA 1997
“Relevant Trading Income”
•Sec 243A TCA 97
•12.5% trading income
Trading income of the company
for the AP (not Sch D Case 111)
excluding “excepted trade”
•“Excepted trade” – Sec 21A TCA Trade of land dealing, working
97
minerals and petroleum activities
•“Relevant trading loss”
•Sec 396A(1) TCA 97
Trading loss incurred in the AP
excluding excepted trade loss
•Certain leasing losses excluded
Leasing losses are ring-fenced
against income from leasing trade
Relevant Trading Loss?
• Is the loss a Sec 396 TCA trading loss?
• Relief under Sec 396 for loss other than a
relevant trading loss
• Is the loss a relevant trading loss?
• Relief under Sec 396A and 396B TCA 97
Petroleum Activities Losses
Sec 396 – Non Rel TL
Jewellery Manufacturing Losses Sec 396A/B – Rel TL
Working Minerals Losses
Sec 396 – Non Rel TL
Non Relevant Trading Losses
1 Against Total Profits & Gains in
current
.
AP before charges on
income
2 Set back to prior AP against Total
Profits
.
& Gains in AP before charges
on income – same trade
Sec 396(2) TCA 97
2 Year Time Limit
AP of equal length
Sec 396(2) TCA 97
2 Year Time Limit
AP of equal length
3 Carried forward to future APs against
profits
.
of same trade
Sec 396(1) TCA 97
• Sec 396(2) specifies that losses must be clamed in order 1
and 2 above
• Losses under Sec 396 are on a euro-loss for euro-profit
basis
Order of Losses
• Valid loss claims must be made in
prescribed order
• Subsequent disallowance of losses by
Revenue due to incorrect order
• Time limit for claims may have expired
Relevant Trading Losses
1 Against Relevant Trading Income*
in
. current AP before charges on
income
2 Set back to prior AP against Relevant
Trading
.
Income* in AP before charges
on income – same trade
3 Carried forward to future APs against
profits
.
of same trade
*As 1 and 2 against income of trade of non life insce
and life assce income attributable to shareholders and
foreign div income Sec 21B TCA 97
Sec 396A TCA 97
2 Year Time Limit
AP of equal length
Sec 396A TCA 97
2 Year Time Limit
AP of equal length
Sec 396(1) TCA 97
Sec 396A TCA 97
• Losses under Sec 396A are on a euro-loss for euro-profit
basis
Value Based Relief
• Sec 396A “ring fences” relevant trading
losses
• Sec 396B TCA 97 converts remaining
losses after S396A claims
• Conversion from allowance to a credit
• Credit used against CT payable in current
AP or carried back to prior AP
Value Based Relief
• Relevant Corporation Tax can be reduced
• Tax liability before:
– credits and debits for income tax S239/241
TCA 97
– value base group relief S420B TCA 97
– close company surcharges S440 and 441 TCA
97
Value Based Relief
• Value of loss = Loss x CT Rate in year
loss arises
• Sec 396A loss (relevant trading loss)
made in priority to S396B claim or it is lost
• S 396B TCA 97
– VB claim carried back to AP of similar length
– Same trade only in prior period
– Claim within 2 years of end of AP
Loss Relief Memo
• Prepare loss relief memos
• S 396B claims converted from tax credit
claimed to value of loss used
• Mixed Trader
– Loss incurred
– S396A claim
– S396Bclaim
– Balance fwd
€170,000
(€50,000)
(€80,000) (€10,000/12.5%)
€40,000
Trading Losses Forward
• Losses remaining after claims made under
S396(2); S396A; S396B TCA 97
• Carry forward against profits of same
trade
• Applies to losses of trades@ 10%,12.5%
and 25%
• No time limit – first available AP
• Has there been any change in nature or
conduct of a trade?
Case Law
•
•
•
•
•
•
•
Boland Ltd V Davis
Closure of mills and later reopened
Held same trade carried on
Gordon & Blair Ltd v CIR
Brewing company
Brewed and sold its own beer
Changed to outsource brewing – continued
selling beer
• Held company had ceased trade of brewing
Terminal Loss Relief
• Sec 397 TCA 97
• Loss in AP falling within last 12 mths of
trading
• Loss claim includes charges on income –
wholly & exclusively test
• Claim must be made – after all other claims
• Loss allowed against profits of same trade
• 3 year period prior to final 12 months trading
Trade & Non Trade Charges
•
•
•
•
S 238 and 238 TCA 97
Annual sums with legal obligation to pay
Payor withholds tax from payments
Patent royalties, deed of covenant,
interest
• Interest to Irish bank/building societies can
be paid without deduction of withholding
tax
Charges Summary
Sec 76(5)(b) TCA 97
Charges on income not deductible for
CT
•Annual or Yearly Interest
•Annuities or annual payments
•Patent Royalties
Sec 77(3) TCA 97
Deduction allowed for interest – trading
income
•Case V interest deductible
Sec 247 TCA 97
Deduction for interest on non-trading loans
•Interest on loans to acquire shares or lend
to another company
Sec 243(4)-(9) TCA 97
Provisions relating to charges
•Not charged to capital
•Made under a liability for valuable
consideration
Sec 243(1) TCA 97
•Charges deductible on paid basis
“Relevant Trading Charges”
Patent Royalties
Annual payments
Charges paid wholly &exclusively for trade
@ 12.5%
Charges Examples
Interest paid and
accrued on working
capital
•Interest paid and accrued for the
year is deductible in arriving at
Case1
•Add back accrued patent royalty
•Allow patent royalty paid as a relevant
trading charge
•IT deductible unless Treaty Relief/EU
Directive applies
Interest paid on new
•Interest accrued added back as not
loan to acquire 20% of trading interest
share capital of trading •Interest paid allowed as a non trade
company
charge
Patent Royalty by a
manufacturing
Relevant Trading Charges
• Sec 243A TCA 97
• Charges paid “wholly & exclusively” for the
company’s trade which is not an
“excepted trade”
• Excepted trade:
– Land dealing
– Working minerals
– Petroleum activities
Relevant Trading Charges
•
•
•
•
Sec 243A(3) TCA 97
Relevant charges ring fenced
S 396A trading losses claimed first
Off set on a euro for euro basis against
1.
2.
3.
Income from 12.5% trades
Sec 21B dividend income @ 12.5%
Trading income from reinsurance activities –
S21A(4)(b) TCA 97
Relevant Trading Charges
• S243B TCA 97
• Value basis relief for charges not
absorbed by relevant trading income
• Offset against relevant CT on other profits,
income and gains
Relevant CT
• S 243B(1) TCA 97 = CT liability before
S 239 and 241 credits/debits deducted
from receipts/payments
S396B Value based loss relief
S420B Value based group relief
S440/441 Close company surcharges
Order of Set Off
Relevant Trade Charges
1. Against current year relevant
trading income
S 243A TCA 97
2. Value based relief against relevant S 243B TCA 97
CT on other income and gains in
current year
3.Carry forward against trading
S 396(7) TCA 97
income
4.Added to Terminal Loss Relief
claim
S 397 TCA 97
Non Trade Charges
•
•
•
•
•
S 243(2) TCA 97
Deductible on a euro for euro basis
Against total profits ie income + gains
Interest on S247 TCA 1997 loan
Deducted from total income after all other
reliefs but before group relief
• Can be set against 25% before 12.5% income
• Non trade charges* not available for carry fwd
* Exc interest as a charge by investment co
Trading Losses Fwd
& Non Trade Charges
• S 396B(5)(c) TCA 97
• Exercise care where claiming non trade
charges – where trading losses fwd
• Losses treated as used against profits
before charges deducted
• Losses deemed used have impact on
trading losses forward
• Losses fwd must be adjusted to reflect the
trade charges claimed
Order of Losses and Charges
1. Losses forward from previous AP
S 396(1)
2. Set off current year losses:
•Relevant trading loss against non 25% income in current period* and
•Non relevant trading losses against other income and gains in period
S 396A
S 396(2)
3. Carry back current period losses:
•Relevant trading loss against non 25% income in prior period* and
•Non relevant trading losses against other income and gains in prior period
S 396A
S 396(2)
4.Current period relevant trade charges against non 25% income in current
period
S243A
5. Any excess relevant trading losses/charges – relief on value basis
against relevant CT of current period with excess carried back
•Excess relevant trading charge
•Excess relevant trading loss* (not leasing trade)
S243B
S396B
6. Carry forward excess trading losses to future APs against same trade
S 396(1)
* S 396A and 396B relevant trading losses must be claimed before non-trade charges;
management expenses and other amounts against profits (exc excess CV CA S308)
Group Loss Relief
•
•
•
•
•
•
EU influence
EU Law and ECJ decisions
Article 43 EU Treaty
ICI v Colmer 1996
Non resident companies and group relief
Sec 411(1)(c) TCA 97 amended to include
EU/EEA resident companies
Group Loss Relief
• Definition of group enlarged but losses
surrendered only between companies within
charge to CT
• Marks & Spencer case – UK denied claim for
group loss relief from EU subs
• ECJ held that losses can be surrendered
where foreign sub losses not available for set
off in foreign country
• Surrender up to 75% parent – Sec 411(2A)
TCA 97
Group Definition
•
•
•
•
Sec 411 TCA 1997
75% direct or indirect ord share capital
Subsidiary – Sec 9(5)-(10) TCA 97
Calculate indirect shareholdings on
proportionate basis
• Sec 412 TCA – 75% profits on distribution
and assets on winding up
Group Definition
HC
B
A
D
C
E
F
Consortium Relief
• S 411(3) TCA 97
• Surrender of group relief by trading co to
consortium members
• Relief can only be surrendered upwards
• S 411(3)(a) TCA 97:
– 75% or more of share capital
– Directly owned by 5 or fewer companies
– Resident in EU State(s)
Consortium Relief
• S 411(3) TCA 97
• Relief can be claimed where:
• Surrendering co is a trading co owned by
a consortium and not a 75% sub of any co
• Surrendering co is a trading co that is a
90% sub of a HC owned by a consortium
and not a 75% sub of any other co
• Surrendering is a holding co owned by a
consortium and not a 75% of any co
Group Relief Losses
Losses for Surrender
S 420
Cannot be
TCA 97 surrendered
Trading Losses
S 420(1) •Capital Losses
•Relevant trading
•Case V Losses
losses/charges ring fenced
•Case 111/1V Losses
against 12.5%
income/excess claimed as
value based tax credit
Excess Case V CA
S420(2)
Excess Management
S420(3)
Expenses
Excess non-trade Charges S420(6)
Payments for Group Relief
•
•
•
•
Tax efficient way of moving case in group
Also relevant where minority shareholdings
Sec 411(5) TCA 97
Claimant co can make payment up to value
of losses surrendered
• Payment by sub to parent > value of losses
– Sec 130(2)(d) distribution?
• Payment by parent to sub > value of losses
– Sec 243(4) charge?
– Sec 621 depreciatory transaction?
Order of Offset
• Only current year losses and charges
• Offset against current year profits as
Group Relief claim
• Claim Loss relief forward (S 396(1))
before Group Relief
• Claim Group Relief before:
–
–
–
relief carried back (S396)
Excess Ca (S308(4)
TLR (S 397)
Corresponding APs
• S 420(1) TCA 97
• Trading Loss against profits of
corresponding AP
• >75% shareholding – full loss relieved
• Apportion profits and losses to common
period in AP
• Claim = lower of the time apportioned
profit or loss
Joining or Leaving Group
• Sec 423 TCA 97
• Group Relief affected by companies
joining or leaving group
• Losses and profits time apportioned to
actual period of membership of group
Compliance
• Sec 429(1) TCA 97
• Consent of surrendering company
• Within 2 years of end of surrendering
companies AP in which loss arises
• S 1085 TCA 97 – late submission of CT
Return
– 25% restriction if filed within 2 months
– 50% if later than 2 months
– Max €31,740/€158,715
Foreign Currency & Losses
• S 79 TCA 97
• Tax treatment of FX gains and losses
• FX gains/losses on converting trading
assets to € follows accounting treatment
• Sec 79(2) FX gains and losses on
monetary item movements
credited/debited to P&L are treated as
trading profits/losses
• Charged to CT
Foreign Currency & Losses
• “Relevant monetary item”
• Money held or payable for purposes of
trade
• Foreign currency and monetary amounts
due – creditors and long term loans
• Trading companies only for trading
purposes
• S 79(2) provides tax relief for FX losses
on capital borrowings and taxes FX gains
Foreign Currency & Losses
•
•
•
•
FX gains/losses on “relevant contracts”
Treated as relevant monetary items
Trading profits/losses for CT
“Relevant Contract” = any contract
entered into to reduce/eliminate risk of
loss from FX on monetary items
• Hedging contracts
• S 79(3) – contracts are outside CGT
FX Hedge for Tax Liability
• S 79(4) TCA 1997
• Hedge entered into to purchase €s to pay
tax liability
• Gain/Loss on hedge matched by
movement in tax liability
no taxable
gain or loss arises
• Applies to trading companies only
• Non-trading companies
first principles
Functional Currency
•
•
•
•
Euro
Accounts prepared in functional currency
Sec 402(2) TCA 97
CT comps and CA in Functional Currency
Sec 402(3) – losses under S 396/396A/397
computed in functional currency
• Prepare loss memo in functional currency
and translate @average rate for year of claim
• CT liability translated into Euro @ average
rate for period of account
Anti Avoidance
•
•
•
•
Sec 401 TCA 1997
“Loss buying” provisions
No S 396 loss relief
Sec 401(2)
– Within a period of 3 years there is a change of
ownership and a major change in trade
activities
– At any time activities become small/negligible
and there is a change of ownership
Anti Avoidance
• “Major change in the nature or conduct of the
trade”
• S 401(1) TCA 1997
• Type of property dealt with/services provided
• Major change in customers or markets
• Sch 9 TCA 1997
– >50% of OSC acquired by a single person or
– >50% of OSC acquired by 2 or more persons
where each acquires 5%+ OSC
Case Law
Willis v Peeters
Picture Frames
Pobjoy Mint Ltd v
Lane
Cronin v Lunham
Bros Ltd
Sold products directly to
No major
customer and later sold them change
through distribution
companies
Minting business. Purchased its Major change
main suppliers stock of gold
and purchased directly form
wholesaler. Substantial
increase in stock levels
Cessation of trade by company
with a resumption 16 months
later
No Change
Co Reconstructions & Losses
• S 400(6) TCA 1997 – common ownership
• 75% or more of trade owned by same
person within 1 year before and at any
time within 2 years after change
• Trading losses can be transferred
• Succession planning – separation of
trades
• S 410 TCA anti avoidance
• Bona fide test and Revenue pre approval
Sch D Case 111 Losses
• Sec 71(1) TCA 1997
• Income not subject to Irish tax at source
from:
• Interest, annuities and other annual
payments - Government Securities
• Foreign securities
• Foreign possessions – rental, employment
and trading income
Sch D Case 111 Losses
• Sec 70(1) TCA 1997
• Single source
• Revenue view – loss from one Case 111
source cannot be set against another
Case 111 source
• Form 11 and Form CT1 – no provision for
offset of losses
Sch D Case 111 Losses
• Foreign trade carried on wholly outside
the State
• Trade carried on partly in the State is
taxable under Sch D Case 1
• Case Law – a trade is not foreign if
controlled and managed by persons
resident in Ireland
Sch D Case 111 Losses
San Paulo (Brazilian) •Held not wholly carried out abroad
Railway Co
•Under control of persons resident in UK
•Acting through agents/managers abroad
Egyptian Hotels Ltd v
Mitchell
•Where control is exercised in a country
•Trade is at least partly carried out in that country
Colquhoun v Brooks
•Case 1 applies to a trade carried on partly in UK
and partly abroad
Ogilvie v Kilton
•Warehousing business carried on entirely by
managers in Toronto
•UK owner had oversight of business from UK
•Held business not carried on wholly abroad
Foreign Trades
•
•
•
•
Sch D Case 111 trade v Case 1
Impact on loss relief claims
Companies – 25% v 12.5%
Advise client to manage foreign trade from
Ireland
• Case 111 Trade – Sec 71(1) and (4)
• Foreign income and rents calculated in
same manner as Irish source income
Foreign Income Losses
• Trading losses – by concession losses
forward allowed for individuals/corporates
under Case 111 Sch D for offset against
future profits from same foreign trade
• TLR Relief allowed for foreign trades
• No Group Relief for foreign trading losses
• Foreign Rental losses allowed by
concession – carry forward
– Revenue: Irish tax implications of Foreign
Property Ownership
Sch D Case IV Losses
• Sec 18(2) TCA 1997
• Sec 74(1) TCA 1997
• Examples of Sch D Case IV:
– DIRT Interest
– Post Cessation Receipts
– Patent Right capital sums
– Certain capital gains from land
– Partnership income not allocated
– Certain Profits from leasing plant and machinery
Sch D Case IV Losses
• Sec 383(1) TCA 1997
• Offset against Case IV profits of same year
• Sec 383(3) - carry forward unused losses for
set off against first available Case IV income
• Sec 305(1) – excess Sch D Case IV CA claim
against total income in same year
– CA for patent rights/ IBA lessor
– No claim for leased P&M
– Time limit to claim – 2 years
Sch D Case IV Losses
• Sec 814 TCA 1997
• Loss arising from transaction in certs of
deposit and assignable deposits
• Can be set against other Sch D Case IV
profits and
• Against interest arising on the money, (the
right to receive which has been disposed
of)
Companies
• S 399(1)(a) TCA 97
• Sch D Case IV loss set against Case IV
income for same AP
• Unused balance c/fwd against Case IV or
offset against earliest possible AP
• Loss on S 814 transaction allowed for
company as for individuals
• S 308(4) excess Case IV CA- same and P/Y
• Sec 402 – Cos leasing P&M can use
functional currency
Individual v Company
Individual
Company
•Offset against Cas IV income in
same or subsequent years (Tax
Years)
•Offset against Cas IV income in
same or subsequent years (Aps)
•Election within 2 years for offset
of excess CA against total
income in same year
•Excludes Ca on leased P&M
•Election within 2 years for offset
of excess CA against total income
in same or preceding years
•Excludes Ca on leased P&M
•Sec 814 transaction losses
offset against Case IV income
•Sec 814 transaction losses offset
against Case IV income
Sch D Case V Losses
•
•
•
•
Rental Losses
Individuals and companies
CA on furnished lettings
Industrial Buildings Capital allowance
claims
• Offset rules for companies, individuals and
spouses
Rental Losses
• Sec 75(1) TCA 97 – Case V charging
section
• Sec 97(1) TCA 97 – rental profit/loss
calculated separately for each property
• Total rental profit/loss calculate by adding
all profits and deducting losses
Individuals
• Sec 384(2) TCA 97 – c/fwd of losses
• Sec 384 (3) TCA 97 – against earliest year
first
• Can be carried forward indefinitely
• No set off against other sources of income
• Revenue Tax and Duty Manual (part
4.18.3)
• Spouse cannot use unused C V losses to
reduce income of the other souse
Rental Capital Allowances
•
•
•
•
•
Sec 284(7) TCA 1997
CA on P&M
Wholly & Exclusively on furnished dwelling
House rented on commercial terms
Sec 300 TCA 97 – CA deducted from
Case V rental – no excess CA claim
• Sec 304 TCA 97 – excess CA offset
against Case V of same year and balance
c/fwd
Rental Capital Allowances
• Sec 287 TCA 1997
• Lessors of industrial buildings
• Sec 305(1) – CA deducted in priority to
Case V losses
• Sec 305(1)(b)(i) – excess CA can be offset
against own and spouse other income
• Sec 409A restrictions apply - €31,750
• Claim within 2 years of end of tax year in
which loss arose
Rental Capital Allowances
• IB > €31,750 and each spouse liable @
41%/
• Purchase property in joint names to utilise
allowances asap
• Balance forward against rental income
only
• TB 39 – rental income first reduced by CA
fwd and then by CA of current year
Order for Claiming Relief
•
•
•
•
•
Sec 384(4) TCA 97
Introduced by FA 2010
CA first set against Case V income
Case V losses claimed after CA claim
Effect is that a reduced CA claim for set
off against total income
Companies – Case V Losses
• Sec 399(2)(a) TCA 1997
• Case V Loss set against Case V income
of previous AP (equal length)
• Balance carried forward
• Losses forward used before losses back
• Sec 399(4) -Claim for carry back of losses
within 2 years of end of AP in which loss
arises
Companies – Case V Losses
• Restriction of relief – late filing of Tax Return
• 25% restriction if delay <2 months €31,740
max
• 50% restriction if delay >2 months €158,715
max
• Companies entitled to W&T claim on
furnished lettings
• Sec 406 TCA 97 disapplies Sec 308(4)
• No claim for excess CA against other income
Case V Companies
• Sec 278 TCA 97 – CA by lessors of IB
• Sec 308(1) TCA 97 – Case V CA must be
claimed first against rental income of period
• Sec 308(4) – Excess non-trade CA offset
against total profits of current AP and carried
back to prior AP
Case V Companies
• Excess first claimed against total profits of
period in which it arises – balance against
prior AP
• Relief for earlier CA/Losses in prior AP
allowed before excess CA carried back
• Sec 308(6) – claim for excess CA must be
made within 2 years of AP in which CA arose
• Sec 308(3) – carry fwd unused excess
against C V
Individual v Company
Relief
Individual
Company
Case V Loss
1. C/Fwd against future Case V
1. Against rental income of
prior AP
2. Balance c/fwd against
CV
Case V CA on
furnished lettings
1. Against rental income in current 1. Against rental income of
year
current AP
2. Balance c/fwd against Case V
2. Against rental income of
previous AP
3. Balance c/fwd against
Case V
Case V CA on IB
1. Against rental income in current
year
2. Excess against total income in
year- balance against spouse
total income
Max €31,750
3. Balance c/fwd against Case V
1. Against rental income
2. Excess against total
profits of current AP and
carried back to prior AP
3. Balance c/fwd against
future Case V
4. Excess CA group relief
Capital Losses
– Scope of CGT charge for individuals and companies and
impact of losses
– Utilisation of Capital Losses
– Negligible Loss claims
– Indexation
– Capital Allowances
– FX transactions
– Development Land
– Connected Party disposals
– Rollover Relief
– Capital Losses in Group
– Case Law and anti avoidance
Charge to CGT
• Sec 546(2) TCA 97 – loss calculated using
same principles as gains
• Sec 546(1) TCA 97 – a loss is not an
allowable loss if a gain would not be
chargeable
• Disposal of chargeable asset and loss
generated
• Exception for negligible loss claims
Residence and CGT
Tax Status
Legislation CGT Charge
Res/Ord Res and
Domiciled
Sec 29(2)
CGT on worldwide assets
Resident or Ord
Resident not
domiciled
Sec 29(4)
CGT on Irish assets and
remittances of gains of
foreign assets
Not Resident and
not Ord Resident
Sec 29(3)
CGT on Irish specified
assets – Land /buildings;
Irish business assets;
minerals, certain shares
Losses and Remittance Basis
• Sec 29(4)(c) TCA 97
• Losses on foreign asset disposals are not
an allowable loss
• Individual taxed on remittance basis for
CGT cannot use loss on foreign asset
disposal against CGT charge on foreign
assets
• Separate (loss) proceeds from foreign
property disposals if losses and gains arise
Losses – Non Residents
• Sec 546(4) TCA 97
• Non resident and not ordinary resident
person
• Relief for losses confined to losses on
disposal of assets* that would be
chargeable under Sec 29(3) TCA 97
• Specified Irish assets
• If charge is on Irish property only
losses
can only be clamed on Irish asset gains
Irish Companies
• Sec 78 TCA 97 – Irish resident companies
are liable to CT and not CGT on gains
• Exception for development land gains
• Computation prepared under CGT rules
• Notional CGT converted to chargeable gain,
liable at standard rate of CT
• Capital Gain x CGT Rate = Notional Gain
• Notional Gain x 1000/125 = Chargeable Gain
Irish Companies
• Sec 78(4) TCA 97
• Capital losses not “converted” for CT
• Anti avoidance FA 2010 – capital allowance
disallowed if arising from “arrangements” to
secure a “tax advantage”
• Applies where no real monetary loss arises
Utilisation of Losses
Individual
Company
•Against capital gains of same year
•Carried forward against future
capital gains
•Gains forward against earliest year
•Euro for euro basis
•Value from pre 2008 losses
•Loss of annual exemption
•Carry back of losses
•Losses in year of death
•Carry back against gains in 3 years
prior to year of death
•Against capital gains in same AP
•Carried forward against gains of
future APs
•Gains forward against earliest year
•Euro for euro basis
•Value from pre 2008 losses
No Carry back of losses
CGT Losses
• Losses cannot be carried back
• Review timing of disposals
• Should loss be realised at an earlier
date?
• Is a negligible loss claim possible?
Development Land Losses
• Sec 653 TCA 97
• Development land gain can only be
reduced by a development land loss
• Development land losses can be used
against other gains
• S 649 TCA 97 – company development
land gain liable to CGT
• Trading losses or group relief cannot
reduce the development land gain
Indexation and Losses
• Sec 556 TCA 97
• Expenditure after 31st December – no
indexation
• Sec 556(4) – indexation cannot
– Increase an actual loss
– Increase an actual gain
– Turn an actual gain into a loss - “no gain/no
loss”
– Turn and actual loss into a gain – “no gain/no
loss”
Negligible Value Claims
• Sec 538 TCA 1997
• Asset treated as disposed of and
reacquired for market value
• Unrealised loss can be cyrstallised
• Relief must be claimed – Revenue
submission
• Details of acquisition, valuation, legal
documentation, accounts
Negligible Value Claims
• Williams v Bullivant & Larner v
Warrington
• Loss can only arise in year of claim
• Revenue allow claim if filed within 12
months of end of relevant year of AP
• Revenue Precedent G35(2)
Connected Parties
• Sec 547 TCA 97 – MV Rules
• Restrictions on losses between connecter
persons – Sec 10 TCA 97
• Sec 549(3) TCA 97 – ring fencing of
losses to disposals to the same person
Non € Denominated Transactions
• Sec 552(1) TCA 97
• Convert costs into € @ date of
expenditure
• Convert Sales Proceeds @ date of
transaction
Foreign Currency Bank Accounts
• Sec 532 TCA 97 – “asset” definition
• Asset for CGT includes currency other that
Irish currency ie other than €
• Holding of foreign currency = chargeable
asset
• Buying and selling of foreign currencyCGT issues
• Sec 79 TCA 97 – FX gains/losses of
trading company = income
Debts
• Sec 532 TCA 97 – a debt is a chargeable
asset
• Sec 541 TCA 97 – no chargeable gain
where original creditor disposes of the
debt
• Sec 546(1) – exemption does not apply to
foreign currency owed by a bank unless
FC acquired for personal expenditure
outside State for self/family
Foreign Currency Matching
• Hedging of FX risk for trading purposes =
trading profits/losses
• Sec 79A TCA 1997 – gains and losses
where:
– Co acquired share capital in FC
– Company owns 25% or more of shares
– Investee co is a trading or HC of trading co
Foreign Currency Matching
• Investor co notifies Revenue within 3 weeks
• Matching of investment with FX liability
• Gain on disposal of shares can be matched
with FX loss on liability but
• FX Gain on repayment of liability deemed to
be sale proceeds
• Additional proceeds cannot exceed a capital
loss on shares
• Deemed discharge if liability not discharged
Foreign Currency Matching
• Sec 79B TCA 1997
• Matching of FX assets with redeemable
share capital in same currency
• Companies allowed match unrealised FX
movement on share capital with
movements on assets/loans – effect of tax
neutral hedge
• Applies to € and non € functional
currencies
CAs and Loss Relief
•
•
•
•
Sec 560 TCA 97 – wasting assets
Predictable life of < 50 years eg lease
Deductible base cost wasted over life
Sec 561 TCA 97 – where asset qualifies
for CA
full base cost deductible
• Sec 554 and 555 TCA 97
– Exclude expenditure deductible for IT/CT from
CGT comp
– Deduction still available where asset qualified
for CA
CA and CGT
• Sec 555(1) TCA 1997
• Restriction in computing allowable loss
• Capital loss ring fenced by reference to
CA granted
• Restriction cannot turn capital loss into a
capital gain
CA and CGT
Proceeds Tax WDV
Machine A NIL
Cost
€50,000
NIL
Machine B
Cost
€70,000
BA
Total CA
NIL
NIL
€50,000
€8,750
€8,750
€70,000
CA and CGT
Machine A
Machine B
€
€
Proceeds
Base Cost
Loss
NIL
(50,000)
(50,000)
NIL
(70,000)
(70,000)
Sec 551(1)
Restriction
50,000
70,000
CGT Loss
NIL
NIL
CA and CGT
Asset Cost
Sold for
1. €100
€120
2. €100
€100
3. €100
€70
Tax
Treatment
•Gain or
Loss?
•BC claw
back of
losses?
•Restriction of
loss?
Rollover Relief
• Sec 597 TCA 1997
• No Rollover Relief for disposals after 4th
December 2002
• Transitional rules where “new assets”
acquired prior to 4th December 2002
• CGT deferral on certain trade assets
Rollover Relief
Proceeds of “old” assets not
reinvested
CGT due on disposal of new and
old (deferred) assets
Full reinvestment of proceeds
•Gain on old asset continues to be
deferred
•Claim for deferral must be made –
Sec 597(4)
•Reinvestment must be made within
time limits
•Sec 597(5)
•deferred gain taxable to extent of
excess proceeds
•Proceeds not reinvested> Deferred •Full deferred gain crystallised
gain
Partial Reinvestment
•Reinvestment < proceeds
Deferred Gains
•
•
•
•
•
Maintain schedule of deferred gains
Needed for future disposal
Due diligence
Risk management – reduction of interest
Deferred gain calculated by reference to
actual disposal date
• Rate of CGT is rate on crystallisation date
• Deferred gains? Use losses if possible as
CGT rate increasing
Transfer of Capital Losses
• No transfer of CGT losses between group
companies
• CGT group defined in Sec 616(1)(b) TCA 97
• Principal company and “effective 75%
subsidiaries”
• Transfer of assets between group
companies– Sec 617 TCA 97
• Realise loss in same company as gain
arises
CGT Groups Anti Avoidance
• Sec 621 and 622 TCA 1997
• Depreciatory Transactions
• Dividend Stripping
CGT Groups Anti Avoidance
• Sec 621 TCA 97 – depreciatory transactions
• Value of shares in group co materially
reduced due to intra-group transfer
• Loss on disposal of those shares disallowed
to the extent of prior depreciatory transaction
• Just and reasonable basis
• Loss can be set against gain on share
disposal of any company that benefited
• 10 year time limit
CGT Groups Anti Avoidance
• Sec 622 TCA 1997 -Dividend Stripping
• Capital loss on disposal of “stripped” shares
is restricted
• Distributions that materially reduce value of
shares
• Affects CGT loss and negligible value claims
• CGT Group not necessary
• Applies to 10% holdings – connected parties
• Sec 621 TCA 1997 applies
Loss Buying
• Sec 626A /Sch 18A TCA 97
• Counters buying and selling of companies
with aim of using capital losses
• Group includes co resident in EEA State/
DTA with Ireland
• Ring fencing of capital losses:
– Losses prior to becoming a group member
– Subsequent losses on assets held at time of
joining group
Loss Buying
• Sch 18A Para 2
• Pre entry portion of any future loss is lower of:
1. Actual loss on disposal of pre-entry asset
and
2. Allowable loss that would have accrued on
pre-entry asset if sold and reacquired @
mv at time co joined group
• Loss relating to period prior to joining group
is restricted
Loss Buying
• Wide application
• Applies where a company joins a group
• Applies where company no longer a
member of group
• Documentation of key dates by companies
• Update records when company joins/leaves
group
Use of Pre Entry Losses
• Pre-entry losses can be set against gains:
– On assets disposed of by company before it
joined group
– On assets disposed of after entry which were
held by company before entry
– On assets disposed of which were acquired by
the company on or after entry from a 3rd party
and which have been used for trade purposes
engaged in prior to joining group
Pre Entry Losses
• Two or more companies in a group
• Join a new group
• Companies treated as one for purposes of
setting pre-entry losses against gains on
disposal of assets acquired before
entering new group
Change of Trade
• Sch 18A para 4 TCA 97
• Change in trade can restrict offset of pre-entry
losses
• Within a 3 year period a company enters group
• Nature of trade alters fundamentally or
• Reactivates after being dormant
• Activity prior to entry is disregarded
Change of Trade
• Pre-entry losses – no offset against gains
on assets purchased from 3rd parties after
joining group
• Change of trade outlined in Sch 18A
• Customers, markets, suppliers,services
• Willis v Peeters Picture Frame Ltd
• Pobjoy Mint Ltd v Lane
Changing Groups
• Sec 18A para 5 – co changes groups due
to disposal of shares in that co for no
gain/no loss
• Include period of membership in 1st group
• Pre-entry losses and assets determined on
basis of joining 1st group
• Revenue Guidance – mergers and group
reconstructions
• Application of provision not clear – Sec 584
and 617
New Principal Company
• Sch 18A Para 1(6) TCA 97
• Change of principal company -new
group
• Companies in first group treated as
having joined second group at that time
• Sec 616(3)/(3A) does not apply
New Principal Company
• New company inserted into existing group?
• Is new group formed?
• “Yes” unless owners of old parent = owners of
new parents
• Sch 18A Para 1(7) exception
– Owners of second group = owners of first group
– PC of second group was not PC of previous group
– PC of second group holds most of share capital in
company which was PC of first group
Time Limits for Loss Relief Claims
Schedule TCA
D
Case I/II
Individuals S381
Relief
Time Limit
Trading losses against total
income
2 Years from
end of tax year
S382
Carry forward trading losses No limit
S392
Increase current year loss
with CA
2 Years from
end of tax year
S385
Terminal Loss Relief
No Limit
S237
Relief for Charges
No Limit
Time Limits for Loss Relief Claims
Schedule D TCA
Case I/II
Companies
Relief
Time Limit
S396(1) Carry forward trading losses
No limit
S396(2) Non relevant trading losses
against profits current and
prior APs
2 years form
end of AP of
loss
S396A
Relevant trading loss against 2 years form
relevant trading income of
end of AP of
current and prior AP
loss
S396B
Relevant trading loss as tax
credit against relevant CT in
current and prior AP
2 years form
end of AP of
loss
Time Limits for Loss Relief Claims
Schedule D TCA
Relief
Case I/II
Companies S397
Terminal Loss Relief
S 243A Offset relevant trading
charges against relevant
trading income
S243B Offset relevant trading
charges on VB against
relevant CT
S243
Offset non –trade
charges against total
profits
S429
Group Relief
Time Limit
No limit
No Limit
No Limit
No Limit
2 years form end of
AP surrendering cos
AP of loss of loss
Time Limits for Loss Relief Claims
Schedule D TCA
Case III
Individuals S 382
S385
Companies
Relief
Time Limit
C/Fwd trading losses by
concession
Terminal loss relief
No Limit
No Limit
S396(1) C/Fwd foreign trading
losses
No Limit
S397
Terminal Loss Relief
No Limit
S70
Offset C 111 losses
against C 111 profits
No Limit
Time Limits for Loss Relief Claims
Schedule D TCA
Case IV
Individuals S 383
Companies
Relief
Time Limit
Offset C IV losses
against C Iv profits and
c/fwd against C IV
income
S 305(1) Excess Case IV CA
against total income in
current year
No Limit
S 399(1) Offset C IV losses
against C Iv profits in
same AP and c/fwd
against C IV income
No Limit
S308(4) Excess Sch D C IV CA
against total income in
current AP and prior AP
2 years from end of
AP to which claim
relates
2 years from end of
tax year to which
claim relates
Time Limits for Loss Relief Claims
Schedule D TCA
Case V
Relief
Individuals
Carry fwd Case V loss No Limit
S 384(2)
Time Limit
S 305(1)(b) Excess IB CA against 2 years of tax year of
total income of current excess
year
Companies
S 399(2)
Against Case V of
immediately prior AP
2 years from end of
AP of loss
S308(4)
Excess IB CA against
total profits of current
and prior AP
2 years from end of
AP of excess CA
Time Limits for Loss Relief Claims
Capital
Gains Tax
TCA
Relief
Time Limit
S31
No Limit
S 573(3)
Against current and
future gains
Year of death offset
and carry back 3
years
S 538
Negligible loss claim
S617(4)
Group relief not to
apply to intangible
assets
12 mths from end of
tax year or AP in
which asset was of
NV
12 mths from end of
AP of transfer
No Limit
Time Limits for Loss Relief Claims
Capital
TCA
Gains Tax
Relief
Time Limit
S 980
CGT Clearance
S 79A
Matching investment in
FC with foreign liability
Prior to disposal of
asset
3 weeks of acquisition
S 79B
Match FC asset with
3 weeks of acquiring
redeemable share capital loan
in same currency
S 597(4)
Continuation of deferral of No Limit
CGT on disposal of “old”
assets
Manner of Claims for Loss Relief
• Depends on claim
• Form 11 / CT1 / Letter to Revenue
• Schedules of claims and manner of claim
on pages 430-434
Loss Relief – Risk Areas
•
•
•
•
•
Failure to make timely claim
Failure to claim in correct order
Late filing of Tax Return
Submission of overstated loss relief claim
Can result in significant adverse tax
consequences
Loss Relief – Risk Areas
Legislation
Trading Losses S 381,
396(2), 396A 396B
Impact of late claim
Losses must be carried forward – loss
of favourable offset
S 392 – loss increased by
CA
S305(1)(b), 399(2) and
308(4)
Excess CA only available for carry
forward against same trade
Case IV/V losses and CA carried
forward against same future Case IV/V
4
S382,396(1), 384(2),
243,243A and 243B
5
S429 Group Relief
6
S 31 Capital Losses
Trading and rental losses fwd
Impact of 4 year time limit S 865 TCA
97
Carry fwd by co against profits of same
trade
S 865 4 year limit
1
2
3
Loss Relief – Risk Areas
7
8
9
Legislation
Failure to claim loss in
correct order
Impact of late claim
Time limit expires – additional tax,
interest and penalties
S - 617(4) Election for
Group relief will apply – no gain/no loss
group relief not to apply to
intangible assets
S 980 CGT clearance
15% withholding tax applies – no refund
until CGT paid and Tax Return filed
10 Sec 385 and 397 TLR
Repayment of tax for prior years subject
to 4 year time limit S 865
11 S 538 Negligible Value
claim
Capital loss not allowed in the year
Loss Relief – Risk Areas
Legislation
Impact of late claim
12 S 573(3) Capital Losses
year of death
S 865 4 year time limit for refund
13 Late filing of CT Returns
S 1085
Restriction on claims under
S308(4),396(2), 396A(3), 399(2), 396B,
420, 420A, 420B
14 S79A or 79B
FX matching claims
CGT liabilities on transactions
15 S 597- deferred CGT on
old assets not paid
Revenue view- relief should be claimed
when new assets bought and not when
old asses sold. Exposure to interest,
penalties and surcharge
Accounting for Tax
• When is it appropriate to recognise value
of tax losses as a deferred tax asset?
• Manner and timing of recovery of value of
deferred tax must be clear
• Consistent with basis for recognising
assets for DT
• Future economic benefit arising
Accounting for Tax
• GAAP and IFRS – 3 basic recognition
criteria
1. Availability of suitable tax profits
2. Recovery of asset against DT liabilities
3. Tax planning opportunities which can be
exploited to recover DT asset
• Judgement and prudent approach
required
• Future profitability; earnings history
Accounting for Tax
• Taxable timing differences – GAAP
• Taxable temporary differences – IFRS
• Detailed analysis of periods in which
reversal expected
• Tax planning to avail of tax loss/credit
• Irrevocable elections with other
disadvantages
• Disclosure of unrecognised DT Assets
required
Wind-Up Accounting
• Going concern concept is fundamental
• Impact of current economic climate
• Little formal accounting guidance where
going concern not applicable
• Post Balance Sheet events – GAAP/IFRS
• Intention to liquidate or cease trading
• Directors’ assessment for going concern
Adjustments – Wind Up Basis
• Assets and liabilities restated at net
recoverable amounts
• Termination costs provided for
• Future estimated operating profits/losses
recognised
• Tax liabilities to date of liquidation
recognised
• Provision made for liquidation costs
Adjustments – Assets
• Net recoverable amounts = estimate of
amount to be realised by wind up date
• Forced sale situation
• Fixed Assets presented as current assets
where realisitaion expected within 1 year of
balance sheet date
• Deferred income items written off
• Parent co commitment to capital contribution
– assets may be shown as receivable
Adjustments – Liabilities
• Long term liabilities classified as current
• Contingent liabilities may crystallise eg
Government grants
• Provision for all tax liabilities on wind up
recorded
• Surplus to shareholders may be shown as a
liability
Adjustments – Other adjustments
• Termination costs recognised – even where
decision taken after balance sheet date
• Estimate of operating profits/losses to date of
wind up in P&L
• Provision for tax on results and termination
included
• Liquidation costs provided for
Presentation of FS
• Presentation format not prescribed
• P&L – wind up adjustments as single line after
“Profit for financial year”
• Balance Sheet- adjustment to carrying values
made on face of balance sheet
• Single provision amount for future results/costs
• Accounting policies expanded
• Analysis in notes to FS
• No change to comparative figures
Round Up
• Sch D Case I/II – Sole Trader and
Partnerships
• Losses and Capital Allowances
• Time Limits
• Order of reliefs
• Commencement and cessation rules
• Anti avoidance for limited partnerships
Round Up
• Sch D Case I/II Trading Losses and
Charges for Companies
• Overseas losses
• Excepted Trades
• Relevant and non relevant losses and
charges and use of excess
• Terminal Loss Relief
• Change of ownership – anti avoidance
Round Up
•
•
•
•
•
Non trade charges – no carry forward
Group Relief
EU Influence
Foreign subsidiaries
Order of claims in single company and
group
• Consortium Relief
• Companies joining and leaving group
Round Up
•
•
•
•
•
•
Sch D Case III Losses
Foreign securities and possessions
Foreign trades – wholly outside State
Case Law
Concession for foreign trading losses
Terminal Loss Relief
Round Up
•
•
•
•
•
Sch D Case IV Losses
Charge to tax
Loss relief for individuals and companies
Excess Cas IV Capital Allowances
Sec 814 TCA 97 transactions
Round Up
•
•
•
•
•
•
Sch D Case V Losses
Separate calculations for each property
Spouses
CA on furnished letting
Excess Case V IB Capital Allowances
Group relief
Round Up
•
•
•
•
•
•
•
Capital Losses
Territoriality
Indexation
Foreign Currency
Connected persons
Negligible Value claims
Capital Allowances – loss restriction
Round Up
•
•
•
•
•
•
•
•
FX Gains and losses – conversion
CGT Groups
Rollover Relief
Claw back of relief on intra-group transfer
Claw back – company leaving group
Use of CGT losses in groups
CGT clearance certs
Anti avoidance – artificial creation of capital
losses
Round Up
•
•
•
•
Compliance
Time Limits for Loss Relief claims
Format of making Loss Relief claims
Risk Areas if Loss Relief claims not
made
• Adverse consequences for clients for
late filing/claims
Round Up
• Accounting for Tax Issues
• Deferred Tax – recognition of deferred
tax assets
• Wind Up Accounting
• Adjustments to assets and liabilities
• Presentation of Financial Statements
Learning Outcomes
• Identify key sections of tax legislation on
losses and charges and apply to specific
client situations
• EU Treaty freedoms impact on Irish
legislation and ECJ rulings
• Maximise claims for loss relief in
computations
• Make timely claims
• Understand accounting for tax issues for
losses