Part 1 Past Papers

Summer 2015

QUESTION 1

(a) Carla started a new job on 1 April 2014. As she had never worked in Ireland before, she did not have a Form P45 from her previous employer. Although she supplied her new employer with her PPS number on 1 April 2014, her employer did not receive a Notice of Determination of Tax Credits and Standard Rate Cut-Off Point until 1 June 2014. Carla’s gross salary for April and May was €2,500 per month.

Calculate the PAYE and USC deductible from Carla’s salary for April and May based on the above.

(3 marks)

(b) Donncha was made redundant on 31 October 2014 and received only a statutory redundancy payment of €11,000.

Calculate the tax payable on this payment and state the statutory reference which provides for the income tax treatment of statutory redundancy payments.

(2 marks)

(c) Ellen pays for medical insurance for herself and her two children, Fiona and Gerard. Fiona is 13-years old and Gerard is 22-years old and in full-time employment. The gross premiums for each member of the family for the policy renewed on 1 February 2014 are as follows:

Ellen 1,200
Fiona 580
Gerard 400

Calculate the tax relief to be granted at source on the above premiums for the year 2014.

(2 marks)

(d) Hank is anxious that some of his personal financial details are not disclosed to his wife Irene and is considering electing for single assessment or separate assessment for income tax purposes.

State the deadlines for Hank to elect for single assessment or separate assessment for the year 2014 and state the sections and subsections of the Taxes Consolidation Act 1997 that set these deadlines.

(4 marks)

(e) James earns a gross salary of €340 per week from his employment working in a clothes shop. His employer offers him some extra hours so that his gross salary will increase to €380 per week.

Calculate the weekly Employer’s and Employee’s PRSI liability on James’ current salary and the weekly Employer’s and Employee’s PRSI liability that will arise if he takes the extra hours and increased weekly income.

(2 marks)

(f) Kathleen is 67-years old and does not have a medical card. Her income in the year 2014 was a State pension of €11,796 received from the Department of Social Protection and a private pension of €9,500.

Calculate Kathleen’s USC liability for the year 2014, giving reasons for any exemptions that may apply.

(3 marks)

(g) What is the PRSI Class for PRSI contributions made with respect to:

Self-employed income; and

Employment income (in most private sector employments)

(2 marks)

(h) Andreas is a German resident who has never been to Ireland. He owns shares in an Irish resident company, Bruno Ltd, which pays a dividend to its shareholders in 2014. The gross dividend to which Andreas is entitled is €1,000.

Calculate the dividend withholding tax, if any, that Bruno Ltd should deduct from the dividend payable to Andreas and the correct procedure for applying this rate.

(2 marks)

(i) State the Part of the Taxes Consolidation Act 1997 which provides the new rules for self-assessment for income tax purposes from the tax year 2013 onwards.

(2 marks)

(j) Briefly explain the difference between a “perquisite” and a “benefit-in-kind” and how each is valued for the purposes of calculating an employee’s tax liability.

(3 marks)

Total 25 Marks

QUESTION 2

Antonia is a self-employed accountant working as a sole trader with an accounting year end of 31 December. She had the following Statement of Comprehensive Income for the year ended 31 December 2014:

Notes
Income 1 197,800
Administrative expenses
Salaries (including Employer’s PRSI) 2 55,375
Interest 3 1,600
Motor expenses 4 8,200
Insurance 5 9,940
Bad and doubtful debts 6 1,340
Total administrative expenses (76,455)
Profit before taxation 121,345

Antonia has a daughter, Bernice, who is 19-years old and attending a full-time undergraduate course at university. Antonia paid for Bernice’s college fees for the year 2014 totalling €3,500, of which €3,000 was tuition fees and €500 registration fees.

Antonia incurred the following medical expenses in 2014:

Speech therapist for Bernice 400
New glasses for Antonia 800
Laser eye surgery for Antonia 1,100
2,300

Antonia recovered €900 of the cost of the laser eye surgery under her health insurance policy.

Antonia and Colin, Bernice’s father, were never married and have not been in a relationship for several years. Bernice stays in Antonia’s house for four or five days a week but spends most weekends at Colin’s house. Antonia and Colin have been growing closer recently and they are considering giving their relationship another chance and moving in together.

Notes to accounts

(1) Included in the income figure is €500 that Antonia received from selling a laptop. She had never claimed any capital allowances on the laptop.

(2) The salaries figure in the accounts refers to Antonia’s only employee – her sister, Dee, who provides secretarial services to Antonia on a part-time basis. According to various recruitment websites, Antonia could hire a secretary at a total cost of €19,800 (including Employer’s PRSI) to perform the same duties as Dee performs. However, Antonia is happy to pay Dee generously as she knows that Dee struggles financially. PAYE, PRSI and USC are all operated appropriately on Dee’s salary.

(3) Antonia paid €300 in interest on the late payment of PAYE/PRSI and €1,300 in interest on a working capital loan.

(4) The motor expenses figure was broken down as follows:

Motor tax, insurance and petrol €6,700
Finance lease interest €1,500
€8,200

Antonia uses her car entirely for business purposes, with no personal use at all. The retail price of the car was €22,000 in 2014 and the carbon emissions were 130 g/km. Antonia’s total payments under the finance lease on her car in 2014 were €9,400.

(5) Antonia’s professional indemnity policy premium was €8,600 for the year and she also paid a health insurance premium of €1,340.

(6) Antonia wrote off bad debts of €335 during the year and thinks that it is prudent to anticipate further write-offs. She therefore included a general bad debt provision in her accounts for the first time. She based this provision on three times the debts written off in 2014, which amounted to €1,005.

REQUIREMENTS

(i) State whether or not an adjustment is required to the deduction claimed for Dee’s salary in calculating Antonia’s assessable Case I income. Support your answer by reference to the most appropriate statutory reference and case law.

(4 marks)

(ii) Calculate Antonia’s assessable Case I income for the year 2014.

(7 marks)

(iii) Calculate Antonia’s income tax, PSRI and USC liabilities on her income for the year 2014. You are not required to calculate the Employer’s PRSI she must pay with respect to Dee.

(11 marks)

(iv) Outline briefly the possible effect that moving in with Colin will have on the personal tax credits to which Antonia is entitled, and state the relevant section and subsection of Taxes Consolidation Act 1997 under which this effect arises.

(3 marks)

Total 25 Marks

QUESTION 3

Outlined below are the personal circumstances and sources of income for a number of individuals.

REQUIREMENTS

In each case:

(i) State whether or not each individual is tax resident in Ireland for the year 2014 based on the information provided alone, giving reasons for your answer.

(ii) State whether or not each individual is ordinarily resident in Ireland for the year 2014, giving reasons for your answer.

(iii) Identify the basis on which income will be subject to Irish income tax for the tax year 2014 for each individual and identify the specific amount taxable in Ireland as well, giving reasons for your answer.

You are not required to consider the effects of any Double Taxation Agreements in your answers.

(a) Emma is Irish domiciled but left Ireland in the 1990s to live in the UK. She did not return to Ireland at all until 2011 when she spent 42 days in Ireland. In 2012, she spent 210 days in Ireland, in 2013 she spent 300 days in Ireland and in 2014 she spent 240 days in Ireland. Her only income in 2014 was rental income from the UK of €40,000 of which €15,000 was remitted to Ireland during the year.

(4 marks)

(b) Felipe is domiciled in Argentina but has travelled back and forth between Argentina and Ireland extensively over the last few years. He spent 290 days in Ireland in 2011, 300 days in Ireland in 2012, 200 days in Ireland in 2013 and 95 days in Ireland in 2014. His employer based in Argentina paid him a salary of €100,000 into his bank account in Argentina in 2014. €40,000 of this salary related to Felipe’s employment duties in Ireland. None of the €100,000 was remitted to Ireland in 2014. Felipe also earned €3,000 in interest income from money held on deposit in an Irish bank.

(5 marks)

(c) Gordon’s family background is somewhat mixed, and it is not clear where his domicile is. He did not leave Ireland at all in the years 2008 to 2013, but in 2014 he decided to quit his job in Ireland to emigrate to Australia. He left on 27 January 2014 and did not return at all during the year 2014. Gordon was paid a salary of €2,000 for January from his Irish employment and he was also paid a dividend of €4,100 from a family company on 26 January. He earned a salary of €60,000 from a new employment in Australia for the year 2014. All of the duties of his new employment were carried on in Australia. He also earned €4,000 in deposit interest from an Australian bank and sent €1,500 of this by electronic transfer back to his brother in Ireland in 2014.

(I) Answer the questions above on the assumption that Gordon is Irish domiciled; and

(II) Answer the questions above on the assumption that Gordon is not Irish domiciled.

(8 marks)

(d) Horatio was born in England and as far back as his parents can remember, his ancestors have lived and worked in England and been British subjects with British passports. Horatio moved to Ireland for a few years to gain experience as a doctor. He spent 340 days in Ireland in 2011, 350 days in Ireland in 2012 and 360 days in Ireland in 2013. He returned to his home city of London on 2 January 2014 and did not return to Ireland during the year 2014. He earned a profit of €65,000 in 2014 from his new practice in London – this was earned entirely for work carried out in the UK. He remitted €18,000 of this to Ireland in 2014 to pay for various outstanding expenses and bills.

(4 marks)

(e) Ignatius is domiciled in Ireland but emigrated to the US in the 1980s and has only been back to Ireland for a couple of weeks a year at most since then. In 2014, he earns a salary from his US employment of €120,000 and remits €10,000 to his extended family in Ireland. He owns an investment property in Galway that earns him a profit of €7,500 in 2014.

(4 marks)

Total 25 Marks

QUESTION 4

(a) Jack is a personal fitness trainer who runs a small gym as a sole trader. His accounting year end is 31 July and he has been in business for several years. Jack owns a number of assets upon which he has claimed capital allowances.

REQUIREMENTS

(i) State the basis period for Jack’s capital allowance claims for the tax year 2014 based on the above.

(1 mark)

(ii) If Jack changed his accounting year end to 31 March from 2015 onwards:

(I) State what the basis period for Jack’s capital allowance claims would be for the tax year 2015; and

(II) State the basis period in which capital allowances would be first claimed on equipment purchased on 1 June 2014 and used immediately.

(You may assume that any change in Jack’s accounting year end in 2015 would not require the revision of any previous year’s profits)

(2 marks)

(iii) If Jack changed his accounting year end to 31 October from 2015 onwards:

(I) State what the basis period for Jack’s capital allowance claims would be for the tax year 2015; and

(II) State the basis period in which capital allowances would be first claimed on equipment purchased on 1 September 2014 and used immediately.

(You may assume that any change in Jack’s accounting year end in 2015 would not require the revision of any previous year’s profits)

(2 marks)

(b) The existing fitness equipment in Jack’s gym had a tax written down value of €22,200 on 1 January 2014. This equipment had originally cost him €59,200 in total a number of years ago.

REQUIREMENTS

Calculate Jack’s capital allowance claim with respect to the above and the tax written down value at the end of 2014 or briefly note the reason that no capital allowances are available.

(3 marks)

(c) Jack expanded the changing facilities in the gym during the year ended 31 July 2014. The cost was as follows:

Additional shower fittings and shower trays 12,000
Additional lockers for changing room 1,500
Tiling for walls of changing room 1,800
15,300

The tiling was finished and the lockers were installed and in use on 31 July 2014. However, due to a plumbing problem, the new showers could not be used until mid-August 2014.

REQUIREMENTS

Assuming Jack’s accounting year end remained 31 July for the year 2014, calculate Jack’s capital allowance claim with respect to the above and the tax written down value at the end of 2014 or briefly note the reason that no capital allowances are available.

(7 marks)

(d) Jack sometimes travels to schools, colleges and businesses to provide fitness classes and presentations to promote his business. He estimates that approximately 20% of his use of his car is for business purposes. He had a BMW that originally cost him €60,000 in December 2012 and had a CO2 emissions level of 160 g/km. He sold the car for €55,000 in February 2014 and immediately purchased an Audi with a CO2 emissions level of 130 g/km for €50,000.

REQUIREMENTS

Calculate Jack’s capital allowance claim and/or balancing adjustments with respect to the above in 2014 and the tax written down value at the end of 2014. You should assume that Jack wants to defer as much as possible the effect of any balancing charge arising.

(10 marks)

Total 25 Marks

QUESTION 5

Karl and Linda are a jointly-assessed married couple with the following details for the year 2014:

Karl works full-time as the marketing director of MF Ltd, a manufacturing company in which he holds 18% of the shares. Karl’s salary for the year 2014 was €125,000 from which he had PAYE deducted of €40,822 and USC deducted of €8,069. His PRSI deductions from his salary were paid under Class A.

Karl is heavily involved in welcoming and entertaining foreign delegations of potential clients to Ireland. MF Ltd paid Karl a sum of €9,000 in 2014 as a reasonable estimate of the expenses he incurred in entertaining clients.

Karl has a sum of money on deposit in an Irish bank and earned €2,050 in deposit interest in 2014 before the deduction of DIRT.

Karl pays a premium of €200 per month for a Permanent Health Insurance policy.

Linda’s 95-year old widowed mother, Margaret, lives with Karl and Linda. Karl pays a net amount of €3,000 per annum to Margaret under a deed of covenant. In addition to this income, Margaret receives a State pension of €11,976 per annum.

Linda owns 5% of Never Say Never Ltd, a company in which she is also a director. Linda’s salary for the year 2014 was €21,000 from which she had PAYE deducted of €900 and USC deducted of €800. Her PRSI deductions from her salary were paid under Class A. Linda also gives Speech and Drama classes at weekends on a self-employed basis. Her profit from this business in 2014 was €5,700.

Karl and Linda spent €25,000 in 2014 on a new type of IVF fertility treatment which is available only in the UK. They spent an additional €2,500 on flights and accommodation for themselves on their trips to London for the various procedures involved, and €400 on flights and accommodation for Linda’s sister Naoise, who accompanied them both on one trip for moral support.

REQUIREMENTS

(i) Calculate the net joint income tax liability of Karl and Linda for the year 2014, giving reasons for any exemptions that may apply.

(12 marks)

(ii) Calculate the net individual PRSI and USC liabilities for both Karl and Linda for the year 2014.

(6 marks)

(iii) Calculate the income tax, PRSI and USC liabilities for Margaret for the year 2014, giving reasons for any exemptions that may apply.

(5 marks)

(iv) Karl is very protective of his reputation due to his marketing role and wants to know about Revenue’s power to publish the names of tax defaulters. State the section and the subsection of the Taxes Consolidation Act 1997 that allows Revenue to publish such names.

(2 marks)

Total 25 Marks

SOLUTION 1

(a) April PAYE

€2,500 × 20% = €500
Less credit (€138)
€363
April USC
€2,500 × 7% = €175
May PAYE
€2,500 × 20% = €500
Less credit ( - )
€500
May USC
€2,500 × 7% = €175

Note changes to the USC rates and bands introduced by Finance Act 2017.

(b) Statutory redundancy payments are exempt from income tax under Section 203 TCA 1997.

(c) Tax relief is restricted to the first €1,000 for adults and the first €500 per child. The tax relief is therefore granted as follows:

Ellen: €1,000 × 20% = €200
Fiona: €500 × 20% = €100
Gerard: €400 × 20% = €80

Finance Act 2015 amended the tax relief available for medical insurance premiums for young adults from 1 May 2015.

(d) An election for assessment as single persons must be made before 31 December 2014 (S.1018(4) TCA 1997)

An election for separate assessment must be made before 1 April 2014 (S.1023(3) TCA 1997)

(e) Current salary:

PRSIee = Nil as weekly pay below €352
PRSIer = €340 × 8.5% = €28.90 per week
Proposed salary:
PRSIee = €380 × 4% = €15.20 per week
PRSIer = €380 × 10.75% = €40.85 per week

Finance Act 2015 introduced a tapered PRSI credit for weekly earnings between €352.01 and €424.

(f) Kathleen’s State pension is exempt from USC as payments from DSP are exempt from USC.

Kathleen’s private pension is exempt from USC as her total income within the scope of USC is below the minimum threshold of €10,036.

Note changes to USC rates and bands introduced by Finance Act 2017.

(g) Self-employed income: Class S

Employment income: Class A

(h) Bruno Ltd may pay the dividend without deducting any DWT if they are provided with the appropriate declaration from Andreas regarding his non-residence.

(i) Part 41A

(j) A perquisite is a benefit in the form of money or which is capable of converting into money. The amount subject to income tax in an employee’s hands with respect to the perquisite is the market value of the asset or service provided.

A benefit-in-kind is a benefit provided by an employer or where the employee has the free use of something belonging to the employer, e.g. a company car. The taxable benefit of a benefit-in-kind is the cost to the employer of providing the benefit.

SOLUTION 2

(i)

Antonia may only claim a deduction from her Case I profits for expenses incurred wholly and exclusively incurred for the purposes of her profession. This is in accordance with main rule for such deductions set out in S.81(2)(a) TCA 1997.

The case of Copeman v William Flood & Sons Limited [1940] 24 TC 53 established that only the proportion (if any) of the remuneration paid to family members that was genuinely wholly and exclusively for the purposes of the trade are allowable deductions.

Part (ii)

Antonia
Case II income computation
Year ended 31 December 2014
Profit Per Accounts 121,345
Addback:
Excess wages paid to Dee 35,575
Interest on late payment of tax 300
Finance lease interest 1,500
Health insurance 1,340
General bad debt provision increase  1,005 39,720
Deduct:
Finance lease repayments* 10,255
Proceeds from sale of laptop    500 (10,755)
Case II Income for y/e 31 December 2014 150,310

*Allowable finance lease repayments = €24,000/€22,000 × €9,400

= €10,255

(iii)

Antonia

Income tax computation

Tax year 2014

Antonia:
Schedule D Case II income 150,310
150,310
Taxed as follows:
€36,800 @ 20% = 7,360
€113,510 @ 41% = 46,539
53,899
Less credits:
Single person credit (1,650)
Single person child carer credit (1,650)
College fees credit ((€3,500 − €500 − €2,750) × 20%) (50)
Medical expenses credit ((€2,300 − €800 − €900) × 20%) (120) (3,470)
Net tax 50,429
PRSI: €150,310 × 4% = €6,012
USC:
€10,036 @ 2% = 201
€5,980 @ 4% = 239
€134,294 @ 7% = 9,401
€50,310 @ 3% = 1,509 11,350

Note changes USC rates and bands introduced by Finance Act 2017. Finance Act 2017 also increased the Standard Rate Cut-Off Point to €34,550.

Finance Act 2015 introduced the Earned Income Tax credit which was increased in Finance Act 2017 to €1,150.

(iv)

Antonia may lose the ability to claim the Single Person Child Carer credit if she moves in with Colin, on the basis of the terms of S.462B(1) TCA 1997.

SOLUTION 3

(a) (i)

Emma is resident in Ireland in the year 2014 as she spent more than 183 days in Ireland in 2014.

(ii)

In the year 2011, Emma was not resident in Ireland. In the years 2012 and 2013, Emma was resident in Ireland. Emma is therefore not ordinarily resident in Ireland in 2014 as she has not yet been resident in Ireland for three full tax years preceding the year 2014.

(iii)

Emma is liable to Irish income tax on her worldwide income on an arising basis in 2014 and therefore the full €40k of UK rental income is liable to Irish income tax.

(b) (i)

Felipe is resident in Ireland in the year 2014 as he spent more than 280 days in Ireland between the years 2013 and 2014.

(ii)

In the years 2011, 2012 and 2013 Felipe was Irish resident and therefore he will be Irish ordinary resident in the year 2014.

(iii)

Felipe is subject to tax on Irish sourced income and foreign income to the extent is remitted to Ireland in 2014. He is liable to Irish tax on the €40k of his foreign employment income referable to his Irish duties, and on his €3k in Irish interest income.

(c) (i)

Gordon is not resident in Ireland in 2014 as he did not spend at least 30 days in Ireland.

(ii)

Gordon is ordinary resident in Ireland in the year 2014 as it is clear that he was resident in Ireland for the years 2011, 2012 and 2013.

(iii) (I)

If he is Irish domiciled, Gordon is liable to Irish income tax on his worldwide income in 2014 with the exception of income from a trade, profession, employment or office entirely outside Ireland or foreign investment income provided it does not exceed €3,810. He will therefore be liable to Irish tax on his Irish salary of €2,000, his Irish dividend of €4,100 and his Australian deposit interest of €4,000

(II)

If he is not Irish domiciled, Gordon is liable to Irish income tax on his Irish sourced income and foreign income to the extent it is remitted to Ireland. He will therefore be liable to Irish tax on his Irish salary of €2,000,his Irish dividend of €4,100 and the €1,500 of Australian deposit interest remitted to Ireland.

(d) (i)

Horatio is not resident in Ireland for the year 2014 as he did not spend at least 30 days in Ireland in the year.

(ii)

Horatio is ordinary resident in Ireland for the year 2014 as he was resident in Ireland for the years 2011, 2012 and 2013.

(iii)

Based on the details provided, Horatio is not domiciled in Ireland.

Horatio is therefore subject to Irish income tax on the remittance basis in 2014, with the exception of income from a trade, profession, employment or office entirely outside Ireland or foreign investment income provided it does not exceed €3,810

He will therefore not be liable to Irish tax on his UK professional income in 2014 as this was earned entirely outside Ireland, regardless of the fact that some was remitted to Ireland in 2014.

(e) (i)

Based on the information provided, Ignatius is not resident in Ireland for the year 2014 as he has neither spent 183 days in Ireland in the year 2014 nor has he spent 280 days in Ireland in aggregate between the years 2013 and 2014.

(ii)

Based on the information provided, Ignatius is not ordinary resident in Ireland for the year 2014 as he was not resident in Ireland for the years 2011, 2012 and 2013.

(iii)

Ignatius is liable to Irish income tax on his Irish-sourced income only in the year 2014. He will therefore be liable to Irish tax only on his Irish rental income of €7,500.

SOLUTION 4

(a) (i)

Jack’s basis period for capital allowances for the tax year 2014 is the same as the basis period for calculating his assessable Case I profits, i.e. the year ended 31 July 2014.

(ii) (I)

If Jack changed his accounting year end to 31 March for the year 2015, then his assessable profits for the tax year 2015 would be based on the year ended 31 March 2015. The basis period for capital allowances would therefore be the year ended 31 March 2015.

(ii) (II)

1 June 2014 falls within the overlap of the basis periods for the years 2014 and 2015, and therefore the allowances are allocated to the earlier basis period, i.e. the year ended 31 July 2014.

(iii) (I)

If Jack changed his accounting year end to 31 October for the year 2015, then his assessable profits for the tax year 2015 would be based on the year ended 31 October 2015. The basis period for capital allowances would therefore be the year ended 31 October 2015.

(iii) (II)

1 September 2014 falls within the gap between the basis periods for the years 2014 and 2015, and therefore the allowances are allocated to the later basis period, i.e. the year ended 31 October 2015.

(b) Original Cost: €59,200
TWDV 1/1/14: €22,200
W & T 2014 @ 12.5%: (€7,400)
TWDV 31/12/14: €14,800

(c) No capital allowances are available with respect to the shower fittings for the year 2014 as the asset was not in use for the purposes of the trade at the end of the basis period.

No capital allowances are available with respect to the tiling as this work does not qualify as “plant”, being part of the setting in which the trade is carried on rather than apparatus that performs a function.

Original cost of lockers: €1,500
W & T 2014 @ 12.5%: (€188)
TWDV 31/12/14: €1,313
(d) Calculation of TWDV of BMW:
Original cost BMW basis period for 2013: €60,000
Restricted to: €12,000
W & T 2013 @ 12.5%: (€1,500)
TWDV 31/12/13: €10,500
Restriction of sales proceeds:
= €55,000 × €12,000/€60,000
= €11,000
Balancing adjustment:
TWDV 31/12/13: €10,500
Less sales proceeds: (€11,000)
Balancing charge: €500
Calculation of allowances on Audi:
Original cost: €50,000
Restricted to: €24,000
Deduct balancing charge above: (€500)
€23,500
W & T 2014 @ 12.5%: (€2,938)
TWDV 31/12/14: €20,563

SOLUTION 5

(i)

Karl & Linda

Income tax computation

Tax year 2014

Karl – Schedule E (salary) 125,000
Karl – Schedule D Case IV 2,050
Karl – Schedule E (expenses) 9,000
136,050
Linda – Schedule E 21,000
Linda – Schedule D Case II 5,700
26,700
162,750
Less PHI payment: (2,400)
Less covenant payment: (3,750)
156,600
Taxed as follows:
€41,800 @ 20% = 8,360
€23,800 @ 20% = 4,760
€91,000 @ 41% = 37,310
50,430
Tax payable on covenant:
€3,750 @ 20% = 750
Less credits:
Married person credit (3,300)
PAYE credit × 1 (1,650)
Home Carer Credit ( - )
Medical expenses credit ((€25,000 + €2,500) × 20%) (5,500)
PAYE paid – Karl (40,822)
PAYE paid – Linda (900)
DIRT credit (841) (53,013)
Net tax repayable (1,833)

Note changes to USC and tax rates and bands introduced by Finance Act 2017.

The earned income tax credit was introduced by Finance Act 2015 and increased to €950 by Finance Act 2016 and to €1,150 in Finance Act 2017.

The Home Carer Credit was increased to €1,100 in Finance Act 2016 and to €1,200 in Finance Act 2017.

Note increase in Standard Rate Cut-Off Point to €34,550 in Finance Act 2017.

(ii)

PRSI - Karl: €125,000 × 4% = €5,000
€9,000 × 4% = €360
€2,050 × 4% = €82
€5,442
PRSI – Linda: €21,000 × 4% = €840
Minimum self-emp = €500*
€1,340

* Linda’s reckonable income of €5,700 × 4% = €228 which is less than the minimum payable of €500

USC - Karl:
€10,036 @ 2% = 201
€5,980 @ 4% = 239
€117,984 @ 7% = 8,259 8,699
Less USC paid: (8,069)
Net USC due: 629
USC - Linda:
€10,036 @ 2% = 201
€5,980 @ 4% = 239
€10,684 @ 7% = 748 1,188
Less USC paid: (800)
Net USC due: 388

Note changes to USC rates and bands introduced by Finance Act 2017.

(iii)

Income tax – Margaret:
Pension €11,976
Covenant income €3,750
€15,726

Margaret is exempt from income tax as she is below the low income exemption threshold. Margaret is therefore entitled to a tax refund of €750 paid on the covenant

PRSI – Margaret:

Exempt as over 66 years old

USC – Margaret:

DSP pension is exempt, and covenant payment is below low income threshold for USC – she is therefore exempt from USC

(iv)

Section 1086(2) TCA 1997 allows Revenueww to publish the names of tax defaulters.

Examiner’s Report

Overall Results

The overall pass rate and average mark was slightly lower than some recent years, but the majority of students showed that remarks in previous examiner’s reports had been taken on board, with improvements in many areas specifically highlighted in those reports.

Specific comments are set out below in respect of each question.

Question 1

This was a multi-part question covering a variety of areas.

Areas where students tended to lose marks were as follows:

Part (a): Students were asked to calculate the PAYE and USC deductible from a person’s salary under Emergency Tax conditions. Some students lost marks as they allowed Carla the lower USC bands rather than charging USC at the higher rate of 7% only.
Part (b): Students were asked to calculate the tax payable on a statutory redundancy payment and provide the relevant legislative reference for this treatment. Some students incorrectly quoted the statutory reference for ex-gratia termination payments rather than statutory redundancy payments.
Part (c): Students were asked to calculate the tax relief to be granted at source on the payment of medical insurance premiums given some specific circumstances. Some students did not impose the relevant ceilings on the relief, and many incorrectly denied Gerard any relief at all.
Part (d): Students were asked to outline the appropriate deadlines and statutory references for a married couple electing for separate or single assessment to income tax. This was generally answered well, although some students struggled with the specific statutory references.
Part (e): Students were asked to calculate the employer’s and employee’s PRSI for an individual based on two levels of salary. This was answered very well.
Part (f): Students were asked to calculate the USC liability for a individual given her circumstances. Although most students realised that the State pension would be exempt, some students lost marks for incorrectly charging USC on Kathleen’s private pension, despite it being below the exemption limits.
Part (g): Students were asked to state the PRSI classes attributable to different types of income. This was generally answered very well.
Part (h): Students were asked to calculate the DWT applicable to a dividend paid to a non-resident and outline the correct procedures for applying this rate. A large number of students did not identify the possible exemption from DWT for a non-resident, although most of those who did identify the exemption also identified the need for a declaration from Andreas.
Part (i): Students were asked to identify the Part of the TCA 1997 dealing with the new self-assessment rules from 2013 onwards. A large number of students provided the reference for the old self-assessment rules rather than the new rules.
Part (j): Students were asked to explain the difference between a BIK and a perquisite and how each is valued. Generally speaking, students could define a perquisite better than a BIK and could explain the definitions better than the valuation methods. Many students lost marks because they did not identify that BIKs are valued based on the cost to the employer.

Question 2

This question examined the calculation of the tax-adjusted profits of a sole practitioner and the calculation of a single parent’s income tax, PRSI and USC liabilities.

This type of question forms part of the core of the assessment of income tax fundamentals and therefore it was positive to note the improvement in the proportion of students attempting this question and the average mark achieved. Areas where students tended to lose marks in this question were as follows:

The first part of the question required students to state whether an adjustment was required for a salary paid to Antonia’s sister in excess of the market rate. Most students correctly stated that an adjustment was required, but fewer identified the correct section and subsection applicable, with fewer still correctly identifying the most appropriate case law.

The second part of the question required students to calculate Antonia’s tax-adjusted profits for the year. Once again, the format and approach to the tax-adjusted profit computation was an improvement on recent years. Although the add backs and deductions were generally identified very well by students, very few students dealt with the finance lease interest and repayments correctly.

The third part of the question required students to calculate Antonia’s income tax, PRSI and USC liabilities for the year. The areas where students lost marks in this part were as follows:

Some students deducted the relief for college fees and medical expenses from the taxable income rather than allowing as a tax credit.

Many students did not provide for the increased Standard Rate Cut-off Point for single parents.

Although most students correctly identified that the 3% surcharge/10% rate of USC should apply, a number of students struggled with the precise application of this.

The final part of the question required students to outline the effects on her tax credits of Antonia changing her personal circumstances and to identify the correct section and subsection of the TCA 1997 governing such a change. The areas where students lost marks in this part were as follows:

Some students gave the legislative reference for the now-obsolete single parent tax credit, rather than the new single child carer credit.

A number of students incorrectly thought that unmarried co-habiting couples could claim the same income tax benefits as married couples.

Question 3

This question examined the students’ practical understanding of the various tax residence rules by providing the circumstances and sources of income of a variety of individuals, and asking students to identify the residence and ordinary residence status of each individual and the income subject to Irish tax in each case.

As with other questions examining residence in recent years, the high pass rate and average mark above indicates that the majority of students are comfortable with the fundamental concepts related to residence and domicile and their application in practice. Areas where students tended to lose marks in this question were as follows:

Although there was an improvement on recent years, some students used shorthand references to important concepts without explaining what they mean. It is not enough to simply state the “183-day rule” or the “280-day rule” or “remittance basis” without any reference to precisely what these terms mean.

Some students incorrectly seemed to think that the €3,810 investment income limit applicable to Gordon if domiciled referred to the limit on what income could be remitted to Ireland, rather than the income arising in the first place.

Many students incorrectly stated that Horatio would be liable to Irish income tax on the income remitted to Ireland, regardless of the fact that the source of the income was a trade carried on entirely abroad.

Some students incorrectly stated that Ignatius would be liable to Irish income tax on the income remitted to Ireland.

Question 4

This question examined various aspects of the calculation of capital allowances arising on plant and machinery in a practical context.

The first part of the question required students to identify the basis period for Jack’s capital allowance claims based on a variety of different circumstances. This part was answered poorly by many students who either identified the incorrect accounting period end or otherwise failed to identify the correct length for the basis period in question.

In the second part, students were asked to perform a simple wear and tear calculation on plant and machinery given some straightforward circumstances. This was generally answered very well.

In the third part, students were asked to state whether or not capital allowances would be available with respect to certain expenditure based on the type of expenditure and when the assets in question were first used. The majority of students correctly identified that no allowances would be available for the shower fittings due to the timing of the first use and most students also identified the tiling expense as part of the setting for the trade rather than a functional apparatus.

In the final part, students were asked to calculate the capital allowances and any balancing adjustments arising on the change of Jack’s car based on the given circumstances. Most students picked up some marks here, but the areas where students lost marks were as follows:

Incorrect restriction of the cost of Jack’s BMW

Incorrectly applying the personal use restriction in calculating the TWDV

Incorrect restriction of the sales proceeds on the BMW

Not deducting the balancing charge from the adjusted cost of the Audi

Question 5

This question required students to calculate the income tax, PRSI and USC liabilities of a married couple and an elderly relative, and to identify and explain certain exemptions and administrative issues.

The first part of this question required students to calculate the joint income tax liability of Karl and Linda, a married couple.

The areas where students lost marks in the first part of the question were as follows:

Some students unnecessarily grossed up the deposit interest figure provided.

Many students deducted the expenses figure of €9,000 from Karl’s taxable income rather than including it as additional taxable income on top of his salary.

Many students failed to claim a deduction for the covenant payments, and almost no students included the tax arising on the covenant in the tax computation.

Many students limited the increase in the SRCOP to Linda’s PAYE income only rather than the full maximum €23,800.

Some students incorrectly included a PAYE credit for Karl despite the fact he was a proprietary director.

The second part required students to calculate the PRSI and USC payable for Karl and Linda. Most students correctly applied the 4% rate to Karl’s income and Linda’s employment income, and applied the correct USC bands and rates to each. However, very few students correctly identified that Linda should also be liable to the minimum self-employed PRSI contribution of €500.

The third part required students to calculate the income tax, PRSI and USC liability of Linda’s mother, Margaret. Some students incorrectly charged Margaret income tax even though her income was below the low income exemption limit. Most students correctly identified the exemption from PRSI and the correct reason for same. Most students also identified the exemption from USC for Margaret’s State pension, and the reason for this, although some students either incorrectly charged USC on the covenant income or did not adequately explain why it should be exempt – students should note that where the question specifically asks for reasons to be provided for any exemptions that may apply, then marks will be lost if they do not clearly provide such reasons in their answers.

The final part of the question required students to state the section and subsection of the TCA 1997 dealing with the publication of the names of tax defaulters. This was generally answered very well.

  Q1 Q2 Q3 Q4 Q5
Highest 23 22.5 25 24 12.5
Lowest 1.5 1 3 1 1.5
Average 14 14 17 15 14