1. EDUCATING SUPPORTING REPRESENTING www.charteredaccountants.ie Income Tax CHARTERED TAX CONSULTANT APPLIED TAX MODULE 3 Ken O’Brien 19 th January 2013

2. Introduction Learning Objectives –Understand key sections of TCA 1997 –EU Case law and policy –Calculation of Income Tax liabilities and reliefs –Preparation of Income Tax Returns –Managing compliance deadlines for clients

3. Income Tax - Outline Main concepts of law and practice Understanding the sources of income Computational Rules Residence and Domicile status Taxes Consolidation Act 1997

4. Territorial Provisions Charging section of tax legislation Tax arises under a tax head Scope of tax charge –Residency; Ordinary Residence; Domicile –Location of Assets –Residency rules apply across number of tax heads –CGT – Module 4 –CAT Module 8

5. Residence Sec 819 TCA 1997 Present for 183 days, or 280 aggregate days Ignore ≤ 30 days or

6. Residence What is a day? Presence at any time during the day Cinderella rule gone from 1 st January 2009 Revenue e Brief N0 3/2009 – in transit and unavoidable circumstances

7. Residence - Example Andrew Cameron commutes from the UK to work in Ireland He arrives in Ireland on Monday mornings and leaves on Friday mornings During 2012 he works here for 38 weeks Is he resident in Ireland in 2012?

8. Residence Example Andrew is resident for 2012 5 days a week x 38 = 190 days If he left on Thursday evenings? –152 days* = not resident * Aggregation rule if repeated over 2 or more years = resident

9. Election to be Resident Section 819(3) TCA 1997 – Elect? ElectionNo Election Personal Credits and ReliefsAvoid or delay becoming ordinarily resident Worldwide Income and Gains taxable Taxable on Irish source income only Split Year, Remittance Basis and DTA access Not taxable on gains and non employment income pre arrival

10. Spilt Year Treatment Section 822 TCA 1997 Applies to employment income only An election to be resident may be needed to avail of SYT Applies to year of arrival and departure

11. Split Year Treatment Is election for residence needed? If election needed, check benefit of SYR Will foreign income or gains be taxable? Employment Income? Resident in year of arrival? SYT applies Not Resident? Consider electing to be resident Foreign non emp income? Foreign gains? No SYT

12. Ordinary Residence Section 820 TCA 1997 Acquired if resident for 3 consecutive years Worldwide Income Charge Continues until non resident for 3 years

13. Ordinary Residence Example Irish resident leaves Ireland 1 January 2012 Employment in USA for 2 years Returns to Ireland 2014 Remains ordinarily resident for 2012, 2013 and 2014

14. Ordinary Residence Example Individual left Ireland on 1 January 2012 Does not return before 2016 2012Ord Res 2013Ord Res 2014Ord Res 2015Not Ord Res

15. Domicile Country of birth and parents’ domicile? Has a domicile of choice been acquired? Long term intentions? Case law and legal advice?

16. Domicile Case Law Intention to return to country of origin Form and content of will Domicile of origin must be abandoned Family, social and property ties

17. Effect of Residence and Domicile ResOrd Res DomIncome LiableLegislation Yes WorldwideS 18 TCA 1997 Yes NoIrish income + Irish Emp Income Foreign Remittances Sec 71(3) and Sec 18(2)(f) TCA 1997 YesNoYesWorldwideSec 18 TCA 1997 NoYes Worldwide-exceptionsSec 821 TCA 1997 No IrishSec 18 TCA 1997

18. Resident Ord Res and Domiciled Which sources of Mr Smith’s income are liable to Irish income tax? Salary US and UK Dividends French Rents All above sources – worldwide income

19. Resident, Ord Res, Not Dom Orla Kenny’s income has the following income in 2012 Irish Salary all duties performed in Ireland US and UK Dividends remitted to Ireland French Rents held in French bank account

20. Resident, Ord Res, Not Dom Are any of Orla Kenny’s income sources not liable to Irish income tax? Irish Salary all duties performed in Ireland US and UK Dividends remitted to Ireland French Rents held in French account French rents not liable as not remitted

21. Not Resident, Ord Res, Dom Irish income taxed in full Foreign income is taxable – except for –Trade or Profession carried on abroad –Office or Employment no duties in Ireland* –Other Foreign income <= €3,810 –*incidental duties allowed up to 30 days

22. Not Resident, Ord Res, Dom Who is likely to be within this category? John Shields, Irish resident moves to USA US Salary €100,000* and US dividends €4,500 John is liable to Irish tax on €4,500 *No duties in Ireland

23. Remittance Basis Section 71(3) TCA 1997 Non domiciled individuals Income v Capital Anti avoidance Sec 72 – loans

24. Pre Arrival Earnings Income earned prior to becoming resident Must be clearly identified Avoid a “mixed” account- Scottish Prov Case Can be remitted tax free

25. Remittances Example What advice would you give Ana? She has savings from her job of €10,000 She moves to Ireland in February 2012 She wants to bring €3,000 into Ireland

26. Remittances Solution Keep savings in a separate account Do not lodge any income into that a/c Earnings saved pre 2012 can be remitted No Irish income tax if no mixed a/c Note - €3,000 could be remitted in 2011 i.e. year of non residence

27. Remittance Basis & Employment Foreign Contract – duties in Ireland: Sec 18(2)(f) / 985C,D,E,F, TCA 1997 Duties in Ireland = Irish source income Remittance basis does not apply PAYE obligations for employer/Irish entity

28. Remittance Basis Special Assignment Relief Programme (SARP): New SARP Regime FA 2012 Limited remittance basis for employments Non domiciled individuals Section 825C TCA 1997 Where conditions met – claim refund

29. 2008 SARP 2008 – Sec 825B TCA 1997 Continues to apply to 2015 for employee entitled to claim More favourable to higher earners First Year of ClaimYear of Claim 20092012, 2013 20102013, 2013,2014 20112012, 2013, 2014, 2015

30. 2012 SARP Tax deduction = Specified Amount (A-B) x 30% A = Lower of: Employment Income* or €500,000 B= €75,000 * Less deductible pension contributions and earnings on which DTA relief granted

31. SARP John Gilmore resident in US Seconded to Ireland to work US salary 2012 is €300,000 (subjected to Irish PAYE of €120,000)

32. SARP? Salary > €75,000 SARP applies A = €300,000 B= €75,000 (€300,000-€75,000) x 30% = €67,500 Relief: €67,500 x 41% = €27,675 Revised Tax: €120,000 - €27,675 = €92,325

33. SARP Employee claiming SARP is a chargeable person for self assessment Relief through payroll allowed Employer reporting to Revenue €5,000 tax free school fees and trip home

34. Domicile Levy Section 531AB TCA 1997 Annual Domicile levy of €200,000 Applies to certain Irish domiciled individuals

35. Domicile Levy Irish Domiciled? Irish Citizen? (2010 and 2011 only) Irish property mv > €5m? Worldwide income > €1m? Irish income tax < €200,000? Yes

36. Categories of Income Income sources are divided into categories Trade/Profession; Rental; Employment; Investment income Each category comes under a Schedule Basis of Assessment for each category

37. Schedule D Sec 18 TCA 1997 Cases I and II Case III Case IV Case V Trades and professions Investments/foreign source income Broad category, DIRT interest, taxed income, other Rental

38. Income Schedules Schedule E Sec 19 TCA 1997 Schedule F Sec 20 TCA 1997 Irish offices and employments Directors’ Fees Salaries, Wages, BIKs, Pensions Distributions from Irish companies

39. Income and Expenses Accounts Basis of Assessment Commencement and Cessation Expenditure Expenditure prohibited? Earnings Basis AP ending in tax year Special Rules Wholly and Exclusively Ex: Entertainment and Depreciation

40. Schedules D Cases I and II Case I Trade Case II Profession Self Employed - Income Tax

41. Schedules D Cases I and II What is a trade? Sec 3(1) TCA 1997 – very broad Case Law The Six Badges of Trade

42. 6 Badges of Trade Subject Matter Length owned Frequency of transactions Supplementary Work Circumstances Motive Manufactured items, Commodities, Property Held for a short time? Similar and frequent? Advertising, office? Any special ones? Never irrelevant

43. Trading? Jay Sugar is a self employed painter. He invests some money in shares He buys and sells shares Is he carrying on a trade or liable to cgt?

44. Jay Sugar Apply Badges of trade to his activities Regular buying and selling? Is only one Badge met? Revenue Guidance – “whole picture”

45. Exemptions Part 17 TCA 1997 Exemptions are subject to “High Earner Restrictions” Effective Rate of at least 30%

46. Artists Exemption Sec 195 TCA 1997 FA 2011 limit of €40,000 from 1 st January 2011 Writers, composers, sculptors, artists Original and Creative Work Exemption must be claimed Guidelines – Arts Council and Minister Resident or ord res in Ireland and not elsewhere

47. Other Exemptions Section 216 TCA 216 – Lottery Wins Sec 43(1) Government Securities owned by individuals not ordinarily resident Sec 141/234 TCA 1997 Patent Exemptions abolished Exemption does not apply to dividends paid or income from a qualifying patent on or after 24 th November 2010