In the current challenging economic climate, cost containment – and indeed cost reduction – is a key element of many businesses’ strategy for development – and even survival.

Unnecessary costs are being identified and, where possible, eliminated. It is surprising, therefore, that many businesses pay more than they need to the Revenue Commissioners. Why, you will ask?

Our tax legislation is complex and with the introduction of an annual Finance Act, it changes every year. Businesses have tax filing and reporting obligations under a number of headings, including Income Tax, Corporation Tax, VAT, PAYE/PRSI, Relevant Contracts Tax, Professional Services Withholding Tax, and Excise/Customs Duties.

To keep up to date with the frequent changes to legislation and to ensure full compliance with all tax obligations is not always easy. Our experience is that many businesses are not fully tax compliant. This, of course, is rarely, if ever, intentional, and is often because the individuals responsible for completing PAYE/ PRSI, VAT returns, etc., are not tax specialists and often lack the support and training they need.

It is not surprising, given the current state of the public finances, that Revenue is intensifying its efforts to collect outstanding taxes. The number of Revenue audits has increased significantly, and the quality of audits has also increased due, in part, to the use of sophisticated new computer software, which aids Revenue in both selecting cases for audit and in carrying out the audit.

If an organisation is not fully tax compliant, the chances of being detected by Revenue are increasing all the time. There are two principal ways whereby an organisation may become aware of non-compliance with its tax obligations. One is having Revenue discover it during the course of a Revenue audit, and the second is by having a “health check” of tax compliance procedures. Where Revenue uncover failings in tax compliance procedures, the consequences can be both expensive and embarrassing. They include:

• Payment of interest and tax-geared penalties of possibly up to 100% of the tax underpaid;
• Publication by Revenue of the details of any settlement made;
• In very serious cases, the possibility of a criminal prosecution; and
• Diminished career prospects for those individuals responsible for the tax compliance function.

All of the above can be avoided by having a review or “health check” of tax compliance procedures. The health check identifies weaknesses in procedures and affords an opportunity to rectify them before Revenue come knocking on the door.

The benefits of a tax “health check” include:

• Cost savings
• Non-publication of tax settlements
• No risk of prosecution
• Peace of mind

Niall Doherty Tax Consultants has assisted numerous businesses in significantly reducing unanticipated tax liabilities by performing tax health checks. Let us help you.

CONTACT DETAILS

Office                                                              Contact Details

Tráighéanach                                                   Direct: +353 (0) 74 9121399

80 Hawthorn Heights                                     Mobile: +353 (0) 86 3062893

Letterkenny                                                     Website: www.nialldohertytaxconsultants.ie

Co. Donegal                                                    E-mail: nialldohertytaxconsultants@eircom.net

The views expressed in this article are the views of the author and do not necessarily reflect the views or policies of Niall Doherty & Co. Tax Consultants Limited, or its Board of Directors. Niall Doherty & Co. Tax Consultants Limited makes no representation concerning and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented herein. This article does not represent advice and no action should be taken on foot of any commentary made herein. Always consult a Registered Tax Consultant before implementing tax planning or tax structuring of any nature.

Domicile levy

Non-resident Irish nationals and domiciled individuals, whose worldwide income exceeds €1,000,000 and whose Irish located capital is greater than €5,000,000 will be required to pay an Irish domicile levy of €200,000 per annum regardless of where they are regarded as resident for tax purposes. The full impact of this levy will be detailed in the forthcoming Finance Bill.

Restriction of tax reliefs for high earners

Further restrictions on the use of tax reliefs and exemptions by high earners will be introduced for the tax year 2010. The restrictions will apply by increasing the effective rate of income tax on income sheltered by such reliefs to 30% (previously 20%). The entry level to which the restriction will apply is being reduced from €250,000 to €125,000. Tapering relief will apply on adjusted income between €125,000 and €400,000 with the full restriction applying thereafter.

It is also proposed that by 2011 “income tax will apply on a progressive basis to those with higher incomes reflecting their capacity to make a greater contribution”.

Pension lump sums on retirement

In accepting one of the recommendations from the Commission on Taxation Report, the Minister flagged that he will consider limiting tax free pension lump sums on retirement to €200,000. Furthermore, the tax treatment of sums above that level and the tax treatment of pensions, including plans for a consolidated 33% rate of tax relief, will require further consideration. More precise details on these pension related amendments are expected to be published shortly.

Universal social contribution

In what might be viewed as a positive development it is proposed to consolidate all current employee social insurance payments and levies into a universal social contribution by 2011. This contribution will replace the existing employee PRSI, health and income levy charges. The level at which the contribution will be applied remains to be seen. While the announcement does suggest that it will be applied at a low rate but on a wide base, it is difficult to see how the current tiered system would not be replicated to some extent.

Employee PRSI ceiling maintained

In a surprising development, the current €75,036 earnings ceiling on employee PRSI contributions remains unchanged. The expectation is that the ceiling will be abolished in the context of the universal social contribution.

Increased funding for the employer PRSI exemption scheme

As part of the jobs stimulus measures, additional funding for the employer PRSI exemption scheme has been announced. Although full details are not yet available, the press release issued by the Minister for Social and Family Affairs suggests that the scheme will allow for a one year exemption from employers’ PRSI for new employees recruited to take up new positions where the individual has been unemployed for a period of six months or more.

Mortgage interest relief

In a welcome development, individuals who find themselves in negative equity and whose entitlement to mortgage interest relief would otherwise cease in the tax year 2010 or after, can continue to claim relief until the tax year 2017.

Provision will also be made so that mortgage interest relief can also be claimed for a period of seven years by individuals who purchase a house over the next three years, subject to satisfying certain conditions.

It has also been signalled that it is intended to abolish mortgage interest relief entirely by the end of the 2017 tax year.

Opportunities for employers

There were no amendments to tax reliefs available on share based pay. Given the personal tax increases over the last series of budgets, employers are now likely to pay particular attention to Revenue approved share plan structures. In addition, all share plans appear to have remained outside the PRSI net, thereby offering savings opportunities for both employers and their staff.

Environmental taxation

Carbon tax

The much publicised and widely anticipated carbon tax has now been introduced. The tax will apply to the following categories of fuel which are supplied in Ireland:

• transport fuels; petrol and auto-diesel,
• non-transport fuels; oil and gas and
• solid fuels; commercial peat and coal

Implementation dates will vary. The tax will apply to petrol and auto-diesel with immediate effect. From 1 May 2010 it will be extended to oil and gas. The application to coal and commercial peat is subject to a commencement order, due to various administration issues which need to be considered.

Carbon tax will apply at a price of €15 per tonne resulting in the following price increases (prices VAT inclusive):

• petrol (per litre) €0.042
• auto diesel (per litre) €0.049
• kerosene (per 1000 litres) €43.14
• marked gas oil (per 1000 litres) €46.87
• LPG (per 1000 litres) €27.97
• natural gas (per 13,750kwh) €47.86
• light fuel oil (per 1000 litres) €52.15
• peat briquettes (per bale) €0.39
• coal (per 40kg) €1.79

Participants of the EU emissions trading scheme (ETS) will be exempt from the tax. The Budget does not, however, provide any guidance to businesses who supply fuel to companies who operate a mixture of ETS approved installations and other operations. There has been mention of the carbon tax being charged in full with a refund mechanism for supplies to exempt installations.

From an administrative perspective, while excise duties on mineral oils are payable on a daily basis, payment of the carbon tax will be due by the 15th day of the month following the month of supply. The Budget states that this system will apply to supplies of transport fuels. It is unclear if a different regime will apply to other fuels in due course.

Interestingly, there is no mention of the much advocated visibility requirement which was recommended as a tool to induce behavioural change and encourage consumers to switch to renewable energy sources.

A vouched fuel allowance scheme is to be developed to offset the increases for low income families. It is intended that the yield from the carbon tax will be used to boost energy efficiency, to support rural transport and to alleviate fuel poverty. The carbon tax will also allow the Government to maintain or reduce payroll taxes.

It is hoped that the introduction of this tax will encourage innovation by incentivising companies to bring low carbon products and services to the market.

Biofuels and certain blended biofuels will be exempt from the carbon tax.

Energy efficient equipment

The scheme of accelerated capital allowances for energy efficient equipment is being enhanced to include additional categories of qualifying equipment, including:

• Refrigeration and cooling systems
• Electro-mechanical systems, and
• Catering and hospitality equipment

Water charges

Preparations are underway to introduce a system of water metering for homes. When introduced, water charges will be based on consumption, above a free allocation.

Business taxation

Corporation tax

The Minister has commented that the 12.5% corporation tax rate is an effective – and internationally recognised brand of Ireland Inc, and a powerful expression of Ireland Inc’s pro-business culture. In a clear signal, the Minister has again confirmed that the 12.5% rate will not change, and is here to stay.

Start-up companies

A welcome measure was introduced in Budget 2009 in respect of new start-up companies which commenced trading in 2009. Such companies are exempt from corporation tax and capital gains tax in each of the first three years to the extent that their tax liability for the year does not exceed €40,000. This measure is being extended to companies which commence trading in 2010.

R&D tax credits & Intellectual property regime

The Minister commented that he was looking forward to receiving the report of the Innovation Taskforce and considering its recommendations in the context of the 2010 Finance Bill.

International financial services

The Minister noted the significant opportunities which exist in the international financial services sector for centralising high value added activities in Ireland.

The Minister referred to important changes to be introduced in the Finance Bill which will strengthen Ireland’s competitive advantage in this area. We believe that the Minister may be referring to positive legislative changes that would enhance Ireland’s attractiveness as a holding company location.

In addition, the Finance Bill will contain specific measures aimed at improving Ireland’s attractiveness as a European hub for the international funds industry.

This is a very welcome development in light of the adoption of the UCITS (Undertakings for Collective Investments in Transferable Securities) IV Directive on 22 June 2009 and the expected adoption of the AIFM (Alternative Investment Fund Managers) Directive in 2011. These measures in the Finance Bill are likely to facilitate Ireland positioning itself as the jurisdiction of choice within the EU for the location of investment management companies and investment funds.

VAT

The Minister has reduced the standard rate of VAT from 21.5% to 21% with effect from 1 January 2010. Businesses will need to ensure that invoices and credit notes issued post 1 January 2010 show the VAT rate appropriate to the supply.

Cash grants for business under pressure

Employment Subsidy Scheme (open from now until 23 December 2009).

Excise duties

Alcohol

With effect from 10 December 2009, the following changes have been made to excise duty on alcohol:

• the excise duty on beer and cider will decrease by 12 cent per pint (including VAT);
• the excise duty on spirits will decrease by 14 cent per half glass (including VAT);
• the excise duty on wine will decrease by 60 cent per 75cl bottle (including VAT).

Tobacco

There will be no increase in excise duties on tobacco.

Vehicle registration tax (VRT)

The Budget introduces a car scrappage scheme which will run from 1 January 2010 to 31 December 2010 and provides for VRT relief of up to €1,500. Certain cars of ten years or older may be scrapped under the scheme where a new car (or other category A vehicle) is purchased with CO2 emissions of 140g/km or less.

The VRT exemption for electric vehicles and the VRT relief for hybrid electric vehicles are being extended for two years to 31 December 2012.

Other measures:

• A property tax is expected to be introduced in the future
• The introduction of a National Solidarity Bond has been announced
• For new entrants to the public sector the Minister announced the introduction of a new pensions regime, with final pensions being based on career average earnings and not final salary. The minimum retirement date will move to 66 years. For all public servants the rate of increase of pensions in payment will no longer be necessarily based on public sector wage increases but may be linked to CPI movements going forward.

Personal tax credits – non-refundable

1. Basic Personal Tax Credits

• Single Person’s Tax Credit €1,830
• Married Person’s Tax Credit €3,660
• Widowed Person’s Tax Credit €2,430

2. One-Parent Family Credit

• €3,660

3. Widowed Parent Tax Credit

• Year one following bereavement €4,000
• Year two following bereavement €3,500
• Year three following bereavement €3,000
• Year four following bereavement €2,500
• Year five following bereavement €2,000

4. Home Carer’s Tax Credit

• €900

5. Incapacitated Child Tax Credit

• €3,660

6. Age Tax Credit (65 or over)

• €325 for a single person and €650 for a married couple

7. Blind Person’s Tax Credit

• €1,830

8. Employee Tax Credit

• €1,830

9. Dependent Relative Tax Credit

• €80

10. Rent Credit (at standard rate of tax)

• Under 55 years of age: €2,000 for a single person and €4,000 for a married/widowed person
• Over 55 years of age: €4,000 for a single person and €8,000 for a married/widowed person

11. Relief for fees paid for third level education

• €5,000 (maximum) at standard rate of tax

12. Tax Credit for service charges

• €400 (maximum) at the standard rate of tax

13. Relief for trade union subscriptions

• €350 (maximum) at the standard rate of tax

14. Medical and Dental Insurance

Tax Relief for medical insurance is granted at source (TRS). With a standard rate of income tax of 20% for the 2009 tax year, the policy holder pays a reduced premium (80% of the gross amount) to the medical insurer. Revenue will give a credit for the remaining 20% to the medical insurer.

15. Relief for premiums under qualifying long-term policies

Tax relief is available in respect of premiums on qualifying insurance policies designed to provide cover, in whole or in part, for future care needs of individuals who are unable to perform at least two activities of daily living or are suffering from severe cognitive impairment. The relief is similar to that available for medical insurance premiums. The relief is at the standard rate and is given under a relief-at-source system, i.e. the subscriber can deduct the relief from the gross premium due. The amount deducted is refunded by Revenue to the insurer.

Tax Credits – Refundable

Refundable tax credits arise in respect of specific tax payments. They represent tax actually paid and are therefore refundable where they exceed the net tax liability after the deduction of non-refundable credits. They include the following:

• PAYE – Pay As You Earn Taxes
• DWT – Dividend Withholding Tax
• PSWT – Professional Services Withholding Tax
• RCT – Relevant Contracts Tax
• Tax on Annual Payments, for example a Deed of Covenant
• DIRT – Deposit Interest Retention Tax

Allowances and reliefs deductible at Marginal Rate

16. Employed person taking care of an incapacitated individual

• €50,000

17. Medical Expenses

Up until 2008, all medical expenses were granted at the individual’s marginal rate of tax. However, from the tax year 2009 medical expenses with the exception of nursing home expenses are granted at the standard rate of tax.

18. Permanent Health Benefit Schemes

• Limited to 10% of the individual’s “total income”

19. Donations to Eligible Charities and Other Approved Bodies

• Minimum €250 (no maximum)

20. Relief for gifts of money to the State

• No minimum and no maximum

21. Donation to certain sports bodies

• Minimum €250 (no maximum)

22. Relief for the long term unemployed

• Personal Tax deduction of €3,810 year one, €2,540 year two and €1,270 year three
• Child Tax deduction of €1,270 year one, €850 year two and €425 year three

23. Relief for Investment in Corporate Trades (BES)

• Minimum €250 (maximum €150,000)

24. Seed Capital Investment (SCS)

• Maximum €100,000

25. Investment in films

• Maximum €25,400

26. Share subscription schemes

• Maximum €6,350

27. Retirement Relief for Sportspersons

• Upon retirement, 40% of gross earnings are ignored for the last 10 years of assessment

Low income exemption

28. Low Income – Age Exemption

There is total exemption from income tax for an individual over 65 years if gross income does not exceed the following limits:

• €20,000 – single person/widow(er)
• €40,000 – married couple (jointly assessed)

Increased by €575 for each of the first two dependent children and by €830 for each dependent child in excess of two

29. Relief for Pension Contributions

Maximum amount of pension contributions for which the individual may receive tax relief varies with age and ranges from 15% to 40% subject to an overall €150,000 limit for 2009.

30. WHAT WOULD YOU LIKE NIALL TO DISCUSS IN HIS NEXT ARTICLE?

Please feel free to write to Niall at the e-mail address provided below. Niall welcomes suggestive topics/questions that you would like him to address in subsequent articles. Alternatively, you can make an appointment with a Chartered Accountant and a Registered Tax Consultant by contacting the office directly.

31. CONTACT DETAILS

Office                                                                     Contact Details

Tráighéanach                                                     Direct: +353 (0) 74 9121399

80 Hawthorn Heights                                     Mobile: +353 (0) 86 3062893

Letterkenny                                                       Website: www.nialldohertytaxconsultants.ie

Co. Donegal                                                         E-mail: nialldohertytaxconsultants@eircom.net

The views expressed in this article are the views of the author and do not necessarily reflect the views or policies of Niall Doherty & Co. Tax Consultants Limited, or its Board of Directors. Niall Doherty & Co. Tax Consultants Limited makes no representation concerning and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented herein. This article does not represent advice and no action should be taken on foot of any commentary made herein. Always consult a Registered Tax Consultant before implementing tax planning or tax structuring of any nature.

1. What is the Non Principal Private Residence (NPPR) charge?

The Local Government (Charges) Act 2009 introduced an annual €200 charge on non principal private residences, payable by the owner of the NPPR to the Local Authority in whose area the property concerned is located. This charge was announced by Minister Lenihan in Budget 2009.

2. What types of properties are liable for the NPPR charge?

Subject to certain exclusions (see below) the NPPR charge applies to every residential property owned by a person which is not the principal or main residence of the owner.

This includes any house, maisonette, flat, apartment or bedsit.

3. What types of properties are exempted from the NPPR charge?

The Local Government (Charges) Act 2009 applies the charge to the owners of all residential property but goes on to exclude certain property or buildings from the definition of “residential property” and it also provides certain exemptions from the concept of ownership.

The main exemption from the charge is for a property which is the sole or main residence of the person who owns it, commonly referred to as a principal private residence (PPR).

While the exemption for a PPR covers one property only, a further limited exemption may apply where a person is moving house and temporarily owns two properties. This exemption covers a second residential property acquired within one year of the liability date where the first property is sold no less than six months after the liability date. For an explanation of “liability date”, see heading entitled “When is the charge payable?” (Point 6).

Additional exemptions include:

• A mobile home, caravan or vehicle.
• A newly constructed residential building that is unsold and has not yet been used as a dwelling, provided it forms part of the trading stock of a business.
• A residential property owned by an approved charity.
• A residential property occupied under a shared ownership arrangement with a housing authority or a building let by a housing authority, voluntary housing body or the HSE.
• A residential property held in a discretionary trust.
• A residential property occupied rent free by a relative of the owner of the property provided the said residential property is located no more than 2 km from the PPR of the owner. This would include a Granny flat and other similar residences.
• A residential premises owned by a person who lives elsewhere by reason of physical or mental incapacity.
• A building liable to commercial rates.
• Where a decree of divorce or judicial separation has been granted and a spouse owns the PPR of the other spouse, then he/she will not be liable to the charge in respect of that property.

4. How much is the charge?

The charge is currently set at an annual rate of €200 in 2009 per chargeable residence. The Act provides that the Minister may increase this charge from time to time, having regard to changes in the consumer price index.

It is important to note however that penalties apply for late payment of the charge (see below).

5. How do I pay the charge?

You can pay the charge electronically at the website www.nppr.ie.

To pay your NPPR charge online you will need your PPS number, the address of your NPPR property or properties and your debit card or credit card details.

Local Authorities (City or County Councils) will accept completed NPPR registration forms. The payment types accepted with a registration form are credit card, debit card, bank draft, postal order and cheque.

6. When is the charge payable?

Liability to pay the charge is determined on the basis of ownership of the property in question on a single day each year. This date is called the “liability date”. For 2009, the liability date is 31st July and an owner of a qualifying residential property must pay the charge by 30 September 2009. For the year 2010 and subsequent years the liability date has been set as 31 March and the NPPR charge must be paid by 31 May each year.

7. What late payment penalties apply?

The Act provides for a grace period of one month for late payment. Therefore, if a charge is not paid within a month after the last date for payment, a late payment fee will apply for every month or part of a month that the €200 charge remains unpaid. For 2009, this means that the late payment fee will apply to all payments made after 31 October 2009. For 2010 and subsequent years, the late payment fee will apply to all payments made after 30 June. The late payment fee for each property amounts to €20 per month or part of a month.

A person who does not pay the charge will be guilty of an offence and leaves themselves open to prosecution by the Local Authority to whom the payment is due.

8. Interesting Point – Selling the property

An unpaid charge and unpaid late payment penalties will be a charge on the residential property in question. This is likely to lead to difficulties in selling the residential property as the person buying it would become liable for any charges and fees outstanding in respect of the property concerned. In the event of a sale, the prospective purchaser will require a receipt or certificate from the local authority as proof that the charge has been paid.

9. What documentation and information must I provide?

The owner of a qualifying property must make a declaration to the relevant local authority that the property is liable to the charge. This declaration must be accompanied with payment of the charge. The declaration can be made through the web-site or in writing on the approved form (which may be downloaded from www.nppr.ie).

In summary, you must provide the following information:

• Name of the owner of the property.
• Address of the property.
• Address for correspondence of the owner of the property.
• Personal Public Service Number of the owner of the property in the case of a private ownership.
• Tax reference of the owner where the owner is a company.

10. Is the NPPR Charge tax deductible against my rental income?

A person in receipt of rental income is assessed to income tax on the net amount of the rents received, i.e. the gross rents less allowable expenses incurred in earning those rents. Only those expenses that are specified in the Tax Acts are allowable. The main deductible expenses are:

• Any rent payable by the landlord in the case of a sub-lease.
• The cost to the landlord of any goods provided or services rendered to a tenant.
• The cost of maintenance, repairs, insurance and management of the property.
• Interest on borrowed money used to purchase, improve or repair the property.
• Payment of local authority rates.

Revenue and the Department of Finance have indicated that the payment of the NPPR charge for residential properties is not an allowable expense in computing taxable rental income as it is not included on the list of allowable items.

13. WHAT WOULD YOU LIKE NIALL TO DISCUSS IN HIS NEXT ARTICLE?

Please feel free to write to Niall at the e-mail address provided below. Niall welcomes suggestive topics/questions that you would like him to address in subsequent articles. Alternatively, you can make an appointment with a Chartered Accountant and a Registered Tax Consultant by contacting the office directly.

14. CONTACT DETAILS

Office                                                                   Contact Details

Tráighéanach                                                   Direct: +353 (0) 74 9121399

80 Hawthorn Heights                                   Mobile: +353 (0) 86 3062893

Letterkenny                                                      Website: www.nialldohertytaxconsultants.ie

Co. Donegal                                                    E-mail: nialldohertytaxconsultants@eircom.net

The views expressed in this article are the views of the author and do not necessarily reflect the views or policies of Niall Doherty & Co. Tax Consultants Limited, or its Board of Directors. Niall Doherty & Co. Tax Consultants Limited makes no representation concerning and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented herein. This article does not represent advice and no action should be taken on foot of any commentary made herein. Always consult a Registered Tax Consultant before implementing tax planning or tax structuring of any nature.

1. THE CHARGE TO INCOME TAX

Section (S) 75(1) Taxes Consolidation Act (TCA) 1997 charges to tax under Schedule D Case V the profits or gains arising from any rent in respect of any premises. The income chargeable is the “profit” or “gains” that arise from the rent (i.e. the Net Rent Receipts), and not the actual Gross Rent Receipts.

2. THE LEGISLATIVE EXEMPTION

Section 32 Finance Act 2001 inserted a new section, Section 216A (TCA) 1997, which exempts from income tax, the “relevant sum” (€10,000 for 2008 and subsequent years of assessment), derived from the renting out of a room in a “qualifying residence”.

3. RELEVANT SUM

Under S216A(1) TCA 1997, a “relevant sum” is one which arises in respect of the use (as residential accommodation) of a room (or rooms) of a qualifying residence; it includes any payments in respect of meals, cleaning, laundry and similar goods or services which are incidental to the letting.

4. QUALIFYING RESIDENCE

Under S216A(1) TCA 1997, a “qualifying residence” is a residential premises (defined in turn as a building or part thereof used as a dwelling) located in the State and used by the individual claiming the relief as his sole or main residence during the tax year concerned.

If the word “during” is construed (and we have to date, received no assurance that this is the case) as meaning “at some time in” as opposed to “throughout” (which gives an entirely different meaning), then receipts from letting all the rooms in a residence during a period of temporary absence could qualify as relevant sums.

The Revenue Commissioners take the view that the relevant sums must be received while the individual concerned is occupying the residence as his sole or main residence. Moreover, they also take the view that the relief only applies to the letting of rooms as such and cannot cover the letting of an entire residence; they accept however, that receipts from letting a self-contained unit within a residential premises may qualify for relief (as per the Revenue issued Tax Briefing 44).

5. RENT PAYABLE BY THE CHILD OF THE INDIVIDUAL

With effect from 1 January 2007, S216A(3A) inserted by S14 Finance Act 2007, provides that the exemption will not apply to rent payable by a child of the individual.

6. QUANTIFYING THE RELIEF

Under S216A(2) TCA 1997 the relief extends to relevant sums chargeable under Schedule D Case V and also Schedule D Case IV (possibly relevant if services are charged for on a separate basis). Under S216A(5) TCA 1997, the relief applies to relevant sums (before deducting any related expenses) up to a limit of €10,000 (€7,620 per annum prior to 2008). Somewhat anomalously, under S216A(2) TCA 1997 no relief at all is due if the relevant sums exceed the limit for the particular tax year.

7. LOSSES AND CAPITAL ALLOWANCES

Additionally, under S216(2) TCA 1997 the relief is only given in relation to the net profit arising from such relevant sums and no relief is available in respect of losses arising in relation thereto. Where the relief is claimed, any potential claim for capital allowances under S284 TCA 1997 shall be deemed to have been made (even if such a claim is not in fact made), thus leading to an enforced “waste of allowances”.

8. SPLITTING THE ALLOWANCES

Under S217A(7) TCA 1997, where more than one individual is entitled to relevant sums from the same qualifying residence, the above limits are apportioned equally between the individuals concerned (i.e. the €10k threshold is split between those entitled (and willing) to share it). The relief will apply also for the purposes of PRSI and the Health Contribution Levy (as confirmed in the Revenue issued Tax Briefing 44).

9. NO ELECTION NECESSARY

The relief will apply unless the individual specifically elects otherwise (prior to the tax return filing date for that year) for the tax year concerned. Ordinarily, one would only gain benefit from such an election in cases where losses arise. In such a circumstance, it would be beneficial (particularly in the circumstance of a higher rate tax payer) to elect for the relief not to apply.

10. EFFECT OF “RENTAL INCOME” ON MORTGAGE INTEREST RELIEF AND PRINCIPAL PRIVATE RESIDENCE RELIEF

S216A(8) TCA 1997 states that where the relief applies, the receipt of relevant sums will affect neither an entitlement to Qualifying Mortgage Interest Relief under S244 TCA 1997, nor an entitlement to Principal Private Residence Relief under S604 TCA 1997.

11. INTERESTING POINT – SPECIAL TREATMENT FOR GAELTACHT AREAS

Section 12 Finance Act 2004 introduced a form of “Rent-A-Room” relief designed specifically for households in Gaeltacht areas. Encapsulated in S216B TCA 1997, the scheme known as “Scéim na bhFoghlaimeoirí Gaeilge” exempts such income from tax – this scheme has no income limit, and therefore represents a very important relief to home owners in these areas.

12. ILLUSTRATIVE EXAMPLE – HOW IT WORKS

Background: Martina from Dunfanaghy has lived alone for many years. Due to diminishing returns on her investments, she finds that her income is not sufficient to meet her day-to-day living needs. Her only recourse is to let part of her own home. She is not happy with the idea of a stranger using her cooking and washing facilities, hence she decides to offer accommodation on a full-board basis, which includes providing meals and laundry facilities. She registers with a local college and a young student contacts her in relation to securing the accommodation.

Details of Income from this source: Martina agrees to charge the young student as follows:

Bed and Breakfast                                €85

Lunch and Evening Meal                  €40

Laundry                                                     €6

Total                                                        €131

2009 Tax Treatment: in 2009, Martina receives €131 for 30 weeks from the young student, being a total of €3,930. For the purposes of determining whether the income is exempt, the related costs (of say €950) are ignored. The test is applied to the Gross Amount received. Since the Gross Amount received is below the exempt threshold of €10,000, Martina is not liable to tax under Schedule D Case V – i.e. the entire income from this source is exempt.

What if: If Martina had received a Gross Amount of €10,700, even though the allowable expenses (of €950) would have reduced the profit figure below the permitted €10,000, she would still be liable to Schedule D Case V on the entire Net Rental Profit. This profit would be taxed at Martina’s marginal rate of income tax.

13. WHAT WOULD YOU LIKE NIALL TO DISCUSS IN HIS NEXT ARTICLE?

Please feel free to write to Niall at the e-mail address provided. Niall welcomes suggestive topics/questions that you would like him to address in subsequent articles. Alternatively, you can make an appointment with a Chartered Accountant and a Registered Tax Consultant by contacting the office directly.

14. CONTACT DETAILS

Office                                                              Phone/e-mail

Tráighéanach                                              Direct: +353 (0) 74 9121399

80 Hawthorn Heights                              Mobile: +353 (0) 86 3062893

Letterkenny                                                 nialldohertytaxconsultants@eircom.net

Co. Donegal

The company’s website is currently under construction, but details of same will be provided shortly.

The views expressed in this article are the views of the author and do not necessarily reflect the views or policies of Niall Doherty & Co. Tax Consultants Limited, or its Board of Directors. Niall Doherty & Co. Tax Consultants Limited makes no representation concerning and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented herein. This article does not represent advice and no action should be taken on foot of any commentary made herein. Always consult a Registered Tax Consultant before implementing tax planning or tax structuring of any nature.

I am selling my home. I bought it for €95,000 in 2003 but it’s now worth €235,000. This will mean that I have made €140,000 “profit”. I’ve heard that the Revenue will not seek to tax this – is this correct?

Response from Niall:

Thank you for your query.

1. THE CHARGE TO CAPITAL GAINS TAX

Provided you are not a “dealer” or a “trader” in property (i.e. that you are not in the trade of habitually buying and selling properties), and that this residence is genuinely your home, you have made what is referred to as a capital gain on the disposal of same.

Property (land and buildings) are Specified Assets under Section 29(3)(A) Taxes Consolidation Act (TCA) 1997. Therefore, regardless of your residency status, a disposal of such property is liable to CGT unless the legislation provides a specific exemption or relief.

2. CAPITAL GAINS TAX (CGT) RATE

Capital Gains are ordinarily subject to Capital Gains Tax (CGT) at the current rate of 25%, however, a CGT exemption exists in relation to a gain arising on the disposal of a “principal private residence” (PPR).

Therefore, generally speaking, a sale of the family home is exempt from CGT. However, depending on individual circumstances, some complications can arise. These are discussed below.

3. MEANING OF A PPR

S604(2) TCA 1997 defines “principal private residence” as a house which is or has been occupied by the individual as his or her only or main residence, and land which the individual has for his or her own occupation and enjoyment with that residence as its garden or grounds up to an area (exclusive of the site of the house) not exceeding one acre.

If the land used as a garden or grounds is to be exempted, it must be sold not later than the date of disposal of the residence.

4. LOCATION

There is no explicit requirement in S604 TCA 1997 that in order for principal private residence relief to apply, a dwelling should be located in the State.

5. INTERESTING POINT

Interestingly, a PPR must not necessarily consist of “bricks and mortar”. In the UK case of Makins V Elson [1977] STC 46, it was decided that a caravan, which was jacked up on bricks, and complete with all the normal services, including water, electricity, telephone etc. (together with the appropriate land not exceeding one acre), was a principal private residence for the purposes of the relief. Key to the overall ruling was that the individual in question had lived continuously in this caravan (i.e. that the caravan was not a “holiday home”) and that the wheels had been removed (which exhibits a higher degree of permanency).

6. MORE THAN ONE RESIDENCE

Under S604(8) TCA 1997 the only house which can qualify for relief is one occupied by the owner as a residence at some time after 5 April 1974. Under S604(9) TCA 1997 neither an individual nor a married couple living together can have more than one “principal private residence” qualifying for relief at any one time.

7. DEPENDENT RELATIVE

However, in addition to the relief available to an individual on the disposal of his own residence, further relief may be available in respect of a gain arising on the disposal of a house which was used by a dependent relative, as that relative’s sole residence. The house in question must have been provided by the individual to that dependent relative free of rent or any other consideration (i.e. it must have been provided gratuitously). Hence, although on the face of it, a couple may have only one PPR, it is possible that circumstances could extend themselves to a couple having three PPRs (one being their own home and the other two being houses they each provided for respective dependent relatives).

8. BUSINESS RUN FROM HOME

Section 604(6) TCA 1997 deals with the situation where a house is used partly for the purpose of a trade. Here the apportionment and non-chargeable part relates only to a gain from the disposal of the house, and does not relate to a gain from the disposal of the grounds.

The question has arisen on many occasions, as to whether a separate building can be regarded as part of the main residence for the purposes of this relief. In general terms, the Revenue will accept that outbuildings which are “attached” to the house in the general sense should be regarded as part of the dwelling house, but a building or part of a building which is a separate dwelling house should be excluded from the exemption. Personally, I do not agree entirely with this, suggesting rather that the treatment will be decided based on the circumstances of each case.

9. PERIODS OF ABSENCE (NON-OCCUPATION)

Where an individual has not occupied the property as his principal private residence during his entire period of ownership, part of the gain may be chargeable. In such a case, the exempt part of the gain is the proportion which the period of such occupation bears to the period of ownership.

10. CONCESSIONAL TREATMENT

In arriving at the period throughout which the property is occupied as a principal private residence, a small number of instances of non-occupation will be deemed to be qualifying occupation periods. Generally, any period of absence (being a period of non-occupation) throughout which the individual worked in an employment or office all of the duties of which were performed outside the State, may be deemed to be a period of occupation for principal private residence relief purposes.

S605(5) TCA 1997 states that it is however quite important that the taxpayer in question returns to this residence after such an absence. There is uncertainty surrounding the required period of occupation on such a return. The Revenue have suggested that a period of a few weeks would not be sufficient. However, the legislation does not indicate a period, and the Revenue’s view on this is merely their opinion. Personally, I would tend to suggest that a return, even of a relatively short period, satisfies the conditions of the legislation. However, this matter has not yet been tested before the Courts, and we are not sure what a Court would decide.

S604(5)(ii) TCA 1997 states that any period of absence not exceeding four years, throughout which the individual was prevented from residing in his house because of any condition imposed on him by his employer requiring him to reside elsewhere, may be deemed to be a period of occupation of the property as a principal private residence, provided the condition was reasonably imposed to secure the effective performance of his duties.

11. THE LAST TWELVE MONTHS OF OWNERSHIP

The last twelve months of ownership is deemed to be a period of residential occupation for the purpose of calculating the relief, provided the house was (at some time) the principal private residence. Therefore, where a person disposes of a house after he ceased to occupy it as a principal private residence but within the last twelve-months following that cessation, he receives the exemption in full notwithstanding that at the date of disposal the house was no longer his principal private residence, and notwithstanding that it had not been his principal private residence throughout the entire period of ownership.

12. ABSENCES (NON-OCCUPATION) DUE TO ILLNESS/SICKNESS

The Revenue also accept that an absence by the taxpayer (who would normally live alone) who was in hospital, etc. while the residence remained unoccupied, is to be regarded as a period of occupation. Occupation rent-free of the residence during such a period in hospital etc., by a relative of the claimant, for the purposes of security etc., would not invalidate the concessional treatment.

Where part of the house is used exclusively for the purposes of a trade or profession, it is necessary to apportion the gain to the respective parts of the house, and the exemption applies only to the non-business part. It should be noted that apportionment of the gain is required only where part of the house is being used exclusively for trade or professional purposes. If part of the house has been used for trade or professional purposes, but not exclusively so, apportionment of the gain on the disposal of the house, in order to restrict the principal private residence exemption, is not required.

13. PROFIT MOTIVE

Under S604(14) TCA 1997, principal private residence relief is not given in the case of a house purchased wholly or mainly for the purpose of making a gain on the disposal. In addition, relief is not given for the part of the gain attributable to enhancement expenditure incurred wholly or mainly for the purpose of realising a gain on the disposal of the house e.g. the adding on of a conservatory immediately prior to sale.

14. DEVELOPMENT VALUE

Under S604(12) TCA 1997 the relief given to an individual on the sale of his residence does not apply to the part of the gain reflecting “development value”, e.g. where a garden or part of a garden (which has planning permission for an additional house) is sold to say, a property developer.

Any relief given is calculated only by reference to the gain which would have arisen if the property was both bought and sold for its value solely as a residence.

15. MORE COMPLICATED SCENARIOS

For more complicated cases, there is a fairly wide bank of relevant case law precedent from which to seek guidance. Please feel free to contact me directly should you wish to explore some of these more complicated scenarios.

16. WHAT WOULD YOU LIKE NIALL TO DISCUSS IN HIS NEXT ARTICLE?

Please feel free to write to Niall at the e-mail address provided. Niall welcomes suggestive topics/questions that you would like him to address in subsequent articles. Alternatively, you can make an appointment with a Chartered Accountant and a Registered Tax Consultant by phoning the office directly on 074-9121399.

The views expressed in this article are the views of the author and do not necessarily reflect the views or policies of Niall Doherty & Co. Tax Consultants Limited, or its Board of Directors. Niall Doherty & Co. Tax Consultants Limited makes no representation concerning and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented herein. This article does not represent advice and no action should be taken on foot of any commentary made herein. Always consult a Registered Tax Consultant before implementing tax planning or tax structuring of any nature.

With a strong accounting and taxation background, and at a relatively young 27 years old, Niall is a Chartered Accountant, being a Member of the Institute of Chartered Accountants of Ireland and a Registered Tax Consultant, being an Associate of the Irish Taxation Institute. Having obtained a Bachelors of Arts Degree in Accounting & Finance and a Masters Degree in Accountancy (sponsored by Deloitte & Touche), both from Dublin City University (DCU), Niall won the PricewaterhouseCoopers sponsored Martin Hannan Memorial Prize for Academic Achievement. Niall has tutored and lectured in DCU, The Institute of Technology Tallaght and with the Irish Taxation Institute.

After having spent almost 5 years working with Deloitte & Touche in Dublin, initially as an Auditor and more recently as a Senior Tax Consultant, Niall returns to Donegal with a wealth of specialist tax expertise in the following areas: Corporation Tax, Income Tax, Relevant Contracts Tax, Capital Gains Tax, Capital Acquisitions Tax, Dividend Withholding Tax, Vehicle Registrations Tax, PAYE, Stamp Duty and VAT. Niall also has strong exposure to Revenue Audit cases and has conducted detailed research in this area.

Niall notes that “from small/medium owner-managed entities, to multi-national  organisations, businesses are now more exposed than ever to changing trends in tax regulation. Niall Doherty & Co. Tax Consultants Limited helps address the needs and objectives of our clients, enabling them to balance compliance with value creation. Our knowledge of tax governance, our broad skills and our deep industry knowledge help our clients to be both competitive and compliant. We think beyond the present and beyond borders to deliver long-lasting value.”

Asked where he sees his company differing from existing accountancy practices, Niall acknowledged “that there are a number of high quality general accounting firms in the North-West who are in a position to provide excellent general accounting services. We commend them in their approach, professionalism and service. However, notwithstanding this, Niall Doherty & Co. Tax Consultants Limited are committed to establishing themselves as a specialist tax consultancy firm, and as a commitment to the specialist service we provide, we only undertake tax work and do not provide services of a general accounting nature. We do nothing only tax. By doing this, we aim to stay abreast of the dynamic and transient nature of the current Irish Taxation System, particularly in present times, when economic conditions dictate that we are forced to work with ever changing tax legislation – a complication that incorporates additional risk into each and every transaction. At Niall Doherty & Co. Tax Consultants Limited, we feel that a dedicated tax firm is the only solution to directly combat this risk.”

Niall Doherty & Co. Tax Consultants Limited, capitalising on Niall’s contacts made whilst employed by Deloitte & Touche, have already engaged with a significant number of Donegal and Dublin based clients. In particular, local accountancy firms and solicitors have requested specialist tax input from Niall Doherty & Co. Tax Consultants Limited, and the service has also extended to clients in Northern Ireland and England, Scotland and Wales. The company has recently circulated a brochure to all North-West based accountants and solicitors, outlining the tax services it provides. Many firms have responded positively to same, in an effort to maximise the tax planning opportunities available to their clients. Copies of this brochure can be received directly from Niall Doherty & Co. Tax Consultants Limited on request.

Going forward, starting today, Niall will present a bi-monthly tax column in the Donegal Democrat – the first column tackles the benefit available through the use of Principal Private Residence (PPR) Relief which allows the family home to be sold without an exposure to Capital Gains Tax. Additional and subsequent topics will include those encountered frequently by Niall Doherty & Co. Tax Consultants Limited. Likewise, Niall welcomes tax queries and will endeavour to respond to as many of these as possible. Niall’s contact details are provided directly below.

Noting that “it’s a good time for tax”, a mobile rings signalling that the next appointment has arrived. Niall stands, excuses himself, pumps my hand and bounces back up the street. In times when businesses are closing, redundancy lists are lengthening and social welfare queues are swelling, Niall seems refreshingly optimistic and positive in his approach. Something tells me, this just might work.