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Time to take action on tax deadline
(Sunday Business Post Via Thomson Dialog NewsEdge) The 'pay and file' deadline for self-employed people to pay their taxes is October 31. Here is a step by step guide to getting it right.
Tax deadline: 31 October 2007 Pay and file Under the 'pay and file' system, October 31, 2007 is the date by which you must pay: (a) any balance of income tax owing for 2006 (b) any capital gains tax owing for 2006 (c) any capital gains tax arising on disposals during January 1, 2007 to September 30, 2007 (d) preliminary tax for the tax year 2007.
It is also the date by which you must file your tax return for 2007. If you are on the Revenue's records as self-employed, you should receive a pay and file slip from the tax office to enable you to pay the tax by the due date. If you do not receive a slip you should request one because, under self-assessment the obligation is on you, not the Revenue, to ensure your return is filed, and your tax is paid on time.
Payment of balance of income tax owing for 2006 You can still maximise your pension relief for 2006.With most forms of tax relief, you need to incur expenditure before the end of the tax year (December 31, 2006 for the tax year 2006)t o ensure you can claim the relief.
Pension contributions are an exception to this rule. As a self-employed individual, you can make pension contributions up to the following limits for 2006: (a) aged up to 30:15 per cent of net relevant earnings (b) aged 30-39: 20 per cent of net relevant earnings (c) aged 40-49: 25 per cent of net relevant earnings (d) aged 50-55:30 per cent of net relevant earnings (e) aged 55-60:35 per cent of net relevant earnings (f) aged 60 or over: 40 per cent of net relevant earnings.
The 30 per cent limit also applies to "professional" sportsmen and sportswomen.
Completing your 2006 tax return The following is a step-by-step guide based on the tax form A. Personal details This part of the tax return gathers basic information regarding your status.
1. Basic personal tax credit Your basic personal tax credit is the lower of: (a) E1,630 (single/widowed)o r E3,260 (married couple) and (b) the amount which reduces your income tax liability to nil.
2. Personal circumstances changed in 2006? If your status has changed from single to married, from married to separated or divorced, the Revenue needs to know as this will affect the amount of your basic personal tax credit.
3. Date of birth This is to ensure you get the higher exemption limit for persons aged 65 or over (E17,000 for single, E34,000 for married couple), or, if you are not exempt, to ensure you get the age tax credit (E205 for single, E410 for married couple).
4. Joint, single or separate treatment As a married couple, you can opt to be treated for tax purposes as follows: (a)S ingle assessment: Each of you is treated as a single person, and each gets the basic personal tax credit for a single person.
Single assessment is generally less advantageous than joint assessment, because the couple lose the unused part of the lower earning spouse's standard rate band and any unused allowances of the other spouse.
(b) Joint assessment: Your incomes are combined, and you get a married couple's basic personal tax credit, which is double the single person's basic personal tax credit.
As a married couple, the default treatment is that you are jointly assessed, with the main earner entitled to the married tax credit and responsible for filing the tax return. Either of you may elect at any time in the tax year to be treated as a single person.
Joint assessment means that, even if the lower earning spouse does not have income taxed at the higher rate, the unused part of the lower earner's standard rate band can be used by the higher earner.
The Revenue does not generally allow joint assessment if one of the spouses is non-resident, but may do if the non-resident spouse's income is fully chargeable to Irish tax.
(c) Separate assessment: Each of you is taxed on his own income, and each is responsible for filing his own tax return. The allowances are generally allocated on the basis of who incurred the expenditure.
Any unused part of the lower earning spouse's standard rate band is transferred to the higher earning spouse. In net terms, your tax liability as a couple is the same as under joint assessment.
5. Spouse's details The Revenue needs to know your spouse's tax number and date of birth.
6. Year of marriage review of married in 2006 If you were married in 2006,you and your spouse are treated automatically as single persons for tax purposes. If the tax you have both paid is greater than the tax you would have paid as a married couple, you can claim a refund of the excess.
7. Other tax credits? You may be entitled to one-parent family tax credit if you are a single parent, ie a person who has a qualifying child living with him or her and who is not cohabiting or remarried.
A qualifying child is a child which you have custody of, and maintain at your own expense for some part of the tax year. The child must be aged under 18 at the start of the tax year or, if aged 18 or over, is: (a)a t college or university (b) undergoing full-time training (for a training period of at least two years) in a trade or profession or (c) permanently incapacitated, ie permanently unable to maintain himself due to physical or mental incapacity.
The tax credit is the lower of: (a) E1,630 and (b) the amount which reduces your income tax liability to nil.
You may be entitled to incapacitated child tax credit if you are parent or guardian of a child that is permanently incapacitated, mentally or physically. In general, the child must be under 18, but the tax credit is also given in respect of a child, who, although aged 18 or over: (a) became incapacitated before reaching the age of 21 or (b) became incapacitated after reaching the age of 21while in full-time college or university or undergoing full-time training in a trade or profession for a training period of not less than two years' duration.
You must have the child living with you at some time during the tax year. A child is regarded as permanently incapacitated if there is a reasonable expectation that if the child were aged 18 or more, he would be incapacitated from maintaining himself.
This tax credit is given for the lower of: (a) E1,500 and (b) the amount which reduces your income tax liability to nil.
You may be entitled to the widowed parent tax credit as follows: (a) first year after bereavement: E3,100 (b) second year after bereavement: E2,600 (c) third year after bereavement: E2,100 (d) fourth year after bereavement: E1,600 (e) fifth year after bereavement: E1,100.
The credit is given for the lower of: (a) the amount mentioned in (a)-(e) above for the year in question or (b) the amount which reduces your income tax liability to nil.
You may be entitled to increased child exemption: as a married couple, your total income is exempt if is below E10,420 (E34,000 if either of you is aged 65 or more).The exemption limit is increased by E575 for the first child, E575 for the second child, and E830 for each subsequent child.
8. Farmer The Revenue needs to know this as farmers can claim income averaging over three years.
9. Proprietary director If you are a proprietary director, you do not get the employee PAYE credit of E1,490.
10. Permanently incapacitated If you are totally physically or mentally incapacitated, you may claim an allowance for a carer (ie housekeeper) employed to care for you or your incapacitated spouse (see 605 below).
11. Medical card holder Medical card holders are not liable to the 2 per cent health levy.
12. Exempt from PRSI This might apply to you if you are under 16 or over 65 or if you are subject to social security tax in another state.
13.Exempt from health contribution The health levy applies, at 2 per cent, to reckonable earnings, reckonable emoluments and reckonable income. It does not apply if your aggregate income is below E440 per week.
14. Irish citizen not ordinarily resident in the state Such citizens may be entitled to the remittance basis of taxation for certain foreign income.
15. Domiciled outside the state If you are non-Irish-domiciled (for example, a Chinese person living and working in Ireland),you are only liable to Irish tax on income earned outside Ireland and Britain to the extent to which it is remitted into Ireland/Britain.
16-18. Non-resident If you are non-resident, you are entitled to partial personal tax credits, based on the percentage which your Irish income represents in relation to your worldwide income. If you are a citizen of another EU state, you can get full personal tax credits provided your Irish income exceeds 75 per cent of your total income.
19. Married persons If you or your spouse are non-Irish resident for tax purposes, you are taxed as single persons unless both of your incomes are fully chargeable to Irish tax.
20. Non-resident landlord If you are a non-resident landlord, your tenant is obliged to deduct standard rate income tax from the rent he or she pays to you and to remit such tax to the Revenue. In calculating your tax liability, you may claim a credit for the tax withheld by your tenant, provided the tenant gives you a formR185.
B. Income from trades, professions or vocations 102. Trade, profession or vocation Here you describe the trade, for example 'newsagent' (not 'shopkeeper')o r profession, for example 'barrister' (not 'professional').
103. Accounting period You need to state when it begins and ends.
104. Cessation date This must be stated if the business has ceased. If it has ceased, you may be entitled to terminal loss relief in respect of losses incurred in the final three years of trading.
105. Tax-adjusted net profit The paper tax return allows you to complete details for three separate self-employed income sources. For example, you could have income from a profession (solicitor) and also from a trade (publican) and from a second trade (farming).
This should allow for most circumstances but, if you have more activities, you can complete the electronic return or copy the appropriate pages on the paper return with an explanatory note for the fourth (etc) activity.
106. Assessable profit This figure should include reverse premiums, if appropriate.
107. Balancing charges These are amounts owing for over-claim on capital allowances in previous years. There are two types of capital allowance: machinery and plant, and industrial building (this includes farm buildings and commercial premises).
109. Property-based incentives You must include in Part L of the tax return details of property tax incentives you claim.
110. Machinery and plant This is given at 12.5 per cent per annum for the cost of the equipment in question. In general, a car is given also given 12.5 per cent per annum, but the maximum figure to which the 12.5 per cent may be applied is E23,000.
111. Industrial buildings The annual allowances and writing down lives for the various categories of industrial buildings are: (a) 4 per cent (factories, hotels from December 4, 2002) (b) 15 per cent (nursing homes, convalescent facilities, private hospitals).
These may be accelerated to 50 per cent, for year one, in respect of certain owner-occupied premises in renewal incentive areas.
112. Other capital allowances For example, relating to expenditure on patents.
113. Capital allowances election A capital allowance may be used to increase or create an existing trading loss for the year.
114. Carried forward losses A carried forward trading loss may be used to reduce current year trading profits.
115. Current year loss election The amount of a trading loss incurred in 2006 may be set against all income in that year. Such a loss may be created (see 112).
115. Partnership income The Revenue needs to know the partnership's tax reference so they can reconcile the figures.
116. Motor vehicle write-down election This relates to the rate at which motor vehicles are written down.
117. Development land A special 20 per cent rate applies to profits from sales of residential land for development, subject to certain conditions. You can opt to have such profits taxed at the full rate (up to 42 per cent, with deductions).
118. UITF 40 The implementation of this accounting instruction gives rise to an uplift in value of work in progress of professional firms. Rather than account for the uplift in one single year, you are allowed to account for it over five years. You must confirm that you have included the first 'fifth' of the uplift in this return.
119. Review of income tax year 2005 If you change your accounting date, the Revenue has the right to re-assess the profit figure for the preceding tax year.
120. Credit for professional services withholding tax If you are a professional person (accountant, doctor, architect, etc), payments made to you by a government department or state-funded bodies would have been subject to professional services withholding tax (PSWT).
You may set PSWT against your income tax liability for the tax year in the basis period of which the income arises. You must have a Form F45 to support your claim for PSWT credit.
121-151. Extracts from accounts This is a Revenue information-gathering exercise. Figures for income, gross profit, salaries, motor expenses, drawings etc are fed into the Revenue computer system. Significant deviations from the norm could lead to a Revenue audit.
152-156. Adjustments The tax return requires the tax-adjusted net profit for the accounting period. This is the profit shown in the accounts increased by the following 'add-backs': (a) depreciation (b) entertainment expenses (c) capital expenditure (d) excess motor expenses (only a fraction of motor expenses is allowed; the fraction is arrived at by dividing the price of the car when new by E23,000) (e) non-business expenses (f) personal expenses.
C. Exempt Income 157. Artist's exemption If you are an artist (ie a creative painter, creative writer, sculptor or musical composer), your income is exempt from Irish income tax if the work has been approved as being original and creative and having cultural and artistic merit. See www.revenue.ie\publications\lists\art- list1.htm for the types of works that qualify.
158. Stallion fees If you own a stallion, your income from stallion nominations is exempt. The stallion must be ordinarily kept on land in the state. If you acquire a share in a foreign stallion so that mares owned by you may be serviced by that stallion, your profit from the sale of the nomination attaching to his share is also exempt.
159. Woodlands The woodlands exemption goes to the occupier of the woodlands, ie the person who has the use of the woodland. This may be a lessee or a timber merchant who has bought the right to fell and extract timber on the land even though he does not own the land.
160. Greyhound stud fees If you own a stallion, your income from greyhound nominations is exempt.
161. Exempt patent income Your income from patent royalties may be exempt from tax if the research was carried out in Ireland.
162. Rent-a-room relief You may be exempt in respect of rent you receive from letting rooms in your home (qualifying residence), ie from taking in lodgers. The rent includes sums receivable in respect of meals, cleaning, laundry and other similar goods and services. The annual exemption limit is E7,620.
Example You decide to let out two rooms in your house to students from September to May. For January to December 2006,the letting income was E5,000.This is exempt as it is below E7,620.
163. Childcare services If your gross annual income from providing childcare to not more than three children in your home (not the child's home) does not exceed E10,000, the income is exempt from tax.
D. Income from fees, rents, covenants, distributions etc.
201. Fees, commissions etc not included elsewhere Included under this heading are miscellaneous fees and commissions which do not amount to a trade.
202-208. Rental income from land and property in the state As a landlord, you are liable to income tax on the aggregate of your surpluses and deficiencies from all of your properties.
Rental income e Property address Gross rent for the calendar year: Deductions Rent payable by landlord Rates Gas ESB Property insurance Mortgage protection insurance Cable TV for tenants Interest on money borrowed to acquire, improve or repair building Management expenses (up to 10 per cent of income) Advertising and letting Non-capital maintenance and repairs Accountancy fees Other: Section 23 deduction (cost of constructing, converting or refurbishing a rented residential property in a tax incentive area) Total surplus/deficiency for property Aggregate of surplus/deficiencies for all properties less capital allowances: furniture and fittings (12.5 per cent per annum) Net rental income 209-210. Rental property capital allowances The maximum amount of current year allowances that you may offset against non-rental income is E31,750.
211. Carried forward rental losses You may use these to reduce current year rental income.
212. Untaxed income arising in the State Interest which has been received without deduction of tax is liable to income tax as pure income profit and you are not entitled to any deductions in calculating the income.
213. Irish deposit interest Interest which has been subjected to deposit interest retention tax (Dirt) is included here. You are given a DIRT credit which cancels your standard rate liability on the income in question. The income may be liable to PRSI and/or levies. Income from special savings accounts should be entered if you are entitled to a refund of deposit interest retention tax, ie if you are aged 65 or over.
214. Distributions from Irish-resident companies The term distribution describes the following methods by which a company makes payment from its assets to its shareholders: (a) A dividend, including a capital dividend.
(b) A distribution from company assets that is 'bonus', ie has not been fully paid for.
(c) A payment from company assets to redeem bonus shares.
(d) Excessive interest on securities of the company. This is to prevent withdrawal of company profits in the guise of 'interest'. Such interest is not deductible in the profits computation of the company paying the interest.
(e) Any value received from the company. In effect, any device to extract value from a company other than by way of salary or commercial rent can be caught as a distribution. The company must apply DWT to the extraction, and you, the recipient, are liable to income tax on the extraction.
215. Settlement, covenant income If you pay a covenant (for example E10,000 per year) you must deduct standard rate income tax (E2,000 in the case of our E10,000 example) from the amount paid to the covenantee and you must pay the tax deducted to the Revenue. The covenantee must declare the full amount received on his tax return so that he can be given credit for the tax withheld.
216. Income from non-exempt qualifying patents Income derived from patent royalties is only exempt if the research, planning, experimenting, testing, designing etc relating to the patent was carried out in the State.
217. Other income from which standard rate tax was deducted, e.g., annuities If you pay an annuity (for example E10,000 per year) must deduct standard rate income tax (E2,000 in the case of our example) from the amount paid to the annuitant and you must pay the tax deducted to the Revenue. The annuitant must declare the full amount receivable on his tax return so that he can be given credit for the tax withheld.
E. Income from employments, offices, pensions, directorships, etc 301. Irish employments You must include your income here if you are an employee or office-holders (for example, a company director). As an employee, you are taxed on your emoluments, ie, all monetary benefits you obtain from the company: (a) Salary, wages, bonuses, commission, compensation awarded by the Employment Appeals Tribunal to a reinstated employee for lost earnings while absent.
(b) Cash-convertible benefits, ie, perquisites.
302. Foreign employments subject to PAYE You are subject to PAYE on income from a foreign employment to the extent that the duties of the employment are performed in the Republic of Ireland.
303. Commencement and cessation payments For example, payments received for commencement/cessation of an employment, or in consideration of change in conditions or employment, or restrictive covenants. In the past, you could avoid tax by taking a payment from a prospective employer before your employment commenced or after your employment ceased. These schemes no longer work, and you must declare such payments on your tax return.
304. Gross income from certain public sector employments You need to complete this section if you are a member of the Judiciary, the Oireachtas or the European Parliament.
305. Income from Irish employment not subject to PAYE This would include, for example, income from an employment with a foreign company which has no presence in Ireland.
306. Allowable deductions incurred in employment Expenses As an employee, you may only claim expenses incurred wholly, necessarily and exclusively in the performance of your employment duties. This is a very difficult test to satisfy.
Travelling As an employee you may be paid a tax-free mileage allowance in accordance with the Approved Civil Service Mileage and Subsistence Allowances. You do not need to declare such payments on your tax return.
Relocation expenses By concession, a payment you receive in relation to relocation expenses is not taxed where: (a) You obtain prior approval from the tax office before the payment is made.
(b) Your employer directly bears your actual expenses.
(c) The expenses are reasonable.
(d) The payment is properly controlled. Employee-funded pension contributions (AVCs) Don't forget to claim these on your tax return. They may have been taken from net pay on your payslip, with no tax deduction having been allowed.
Expense allowance for employees Employees in certain occupations are given a flat rate allowance to compensate them for the cost of maintaining their uniform or work clothes. The full list of allowances can be viewed inwww.revenue.ie\publications\txbrefng\tb06supl.pdf Capital allowances Theoretically, as an employee you can claim a capital allowance for machinery or plant used in your employment. In practice, this is a very difficult test to satisfy.
307. Taxable benefits Company car. Since 1 January 2004, you are taxed on "notional pay" based on the cash equivalent of the benefit of use of a company car. This is calculated as a percentage of the car's original market value (OMV), inclusive of any duty and VAT, depending on the employee's annual business mileage: Annual business Cash equivalent mileage Percentage of OMV 15,000 or less 30 per cent 15,001 to 20,000 24 per cent 20,001 to 25,000 18 per cent 25,001 to 30,000 12 per cent 30,001 and over 6 per cent The figure arrived at can be further reduced by the amount required to be made good, and actually made good, by you directly to your employer in respect of the car's running costs.
Example You are provided with a company car with an OMV of E50,000.Your annual business mileage is 31,000.You pay E2,000 for insurance, repairs and car tax. The BIK is: (E50,000 x 6 per cent) E2,000 = E1,000.
Preferential loan This applies where your employer (for example, a bank) provides you with a loan at a preferential rate of interest, i.e., less than the specified rate: 4.5 per cent in the case of a home loan, and 11 per cent in the case of any other loan. You are taxed on the difference between the interest payable and the specified rate, less any amount made good to your employer.
Example You receive a home purchase loan of E100,000 at an interest rate of 3 per cent. Interest payable at 3 per cent E3,000 Interest payable at 4.5 per cent E4,500 Taxable benefit in kind E1,500 Less made good to employer E500 Taxable benefit-in-kind E1,000 Where the gross interest payable (before TRS) is E5,000 and you make good the sum of E500 to the employer, the notional pay is E1,500 less E500 = E1,000.
You are entitled to a standard rate tax credit in respect of the gross interest, ie E5,000 at 20 per cent, in your Certificate of Tax Credits and Standard Rate Cut Off Point.
Free accommodation If you are provided with accommodation by your employer, you are taxed on the open market rent of the house (generally taken as 8 per cent of its current market value, unless a more accurate figure can be obtained), plus the annual value of furniture and fittings in the house, plus maintenance expenses borne by your employer, less any rent paid for such use.
Executives who have use of company-owned time-share property in a holiday resort can be caught out by this provision. The tax liability, together with interest and penalties over several years can be severe.
Expense account If you use a credit card which is in the company name for private purposes (for example, private fuel) the company must report the matter on its annual BIK return, and you must pay tax (but not PRSI) on the benefit. If you use the company credit card for business purposes (for example, business fuel), no BIK charge arises.
Free or subsidised travel This is a non-cash benefit. You can be taxed if you do not make good the cost to your employer.
Use of company assets If you have use of a business asset owned by your employer (for example a motorcycle, computer, mobile phone for personal use), you are taxed on the annual value of the use of the asset (generally taken as 12.5 per cent of its cost),plus running costs borne by your employer, less any rent paid for such use. If the asset is transferred completely to you, you are taxed on the asset's tax-written down value.
Subsidised gym This is a non-cash benefit. You can be taxed if you do not make good the cost to your employer.
Subsidised creche This is exempt from benefit in kind provided the creche is funded and managed by your employer and complies with child care legislation. The exemption does not apply if your employer simply pays or subsidises the cost to you of an independent creche.
Subsidised bus/train ticket The cost of a monthly or annual bus or train pass issued by CIE, or any of its subsidiaries, is exempt from benefit in kind.
Training courses Work-related training courses are not liable to benefit in kind. Employer pays health insurance This is taxed as a benefit in kind, but you can get a deduction, at the standard rate, in respect of the health insurance premium paid in the previous tax year. Employer contributions to pension scheme Contributions by your employer to your pension scheme are not liable to benefit in kind.
308. Disability, occupational injury, unemployment benefit These are subject to tax - however if they are your only income, your personal tax credit may cancel out any liability.
309. Carer's allowance Carer's Allowance is a means-tested social welfare payment for people who provide full-time care and attention to: (a) Persons who are over age 16 and who require full-time care and attention, and (b) Persons who are under age 16 who require full-time care and attention and in respect of whom a domiciliary care allowance is being paid by a health board.
310. Other social welfare payments Should be detailed here 311. Early farm retirement pension (subject to PAYE) 312. Irish employment pension (subject to PAYE) Although as a pension holder you are strictly speaking an ex-employee, your pension income is treated for tax purposes in the same manner as employment income.
313. Irish employment pension (not subject to PAYE) 314. Annuity pension payable under a retirement annuity contract (RAC) or a personal retirement savings account (PRSA) Income received under such pensions is subject to PAYE.
315. PAYE tax deducted/refunded The figure should on the P60 or P45 will be credited against your ultimate tax liability.
316. Directorships You must enter the tax number and percentage shareholding of each company of which you are a proprietary director (beneficial owner).
317. Share options exercised, released or assigned in 2006 A share option is an option to buy shares in a company in the future at a price (known as the exercise price) below the prevailing market price at that time.
If you receive an option under the terms of a Revenue approved share option scheme, a gain realised on the exercise of the option is liable to capital gains tax (20 per cent) instead of income tax (42 per cent).
Example As part of your employment package, you are granted an option to acquires share 10,000 shares in your employer company at E1 each. At the time, the shares in question are already worth E2 each. The scheme has been approved by Revenue. Three years later, when the shares are worth E5 each, you exercise the option, and buy the shares at the option price of E10,000.You then immediately sell the shares for E50,000.
The gain realised (E40,000) is liable to CGT at 20 per cent, giving rise to a capital gains tax liability of E8,000. In other cases, ie for non-approved schemes, you are chargeable to income tax in the tax year in which you exercise the option (ie the year you take up the option by acquiring the shares). In many cases this will be the same time as you sell the shares, as you will exercise the option in order to sell the shares.
If you are genuinely prevented from selling the shares once the option has been exercised, Revenue allows the gain to be abated as follows: Number of years' restriction Abatement One year 10% Two years 20% Three years 30% Four years 40% Five years 50% Over five years 55% Revenue does not accept that the prohibition on the sale of shares affects the market value of the shares. For capital gains tax purposes, the base cost of the shares is the total of: (a) the price you pay for the option if any (b) the price you pay for the shares onthe exercise of the option, and (c) any other amount chargeable to income tax.
Example You are given a free option to acquire 10,000 shares in your employer company at E1 each.
The scheme has not been approved by Revenue. Three years later, when the shares are worth E5 each, you exercise the option, and buy the shares for E10,000. You cannot sell the shares for three years.
Deemed proceeds 10,000 shares at E5 each 50,000 Cost: option price of E1 each 10,000 Gain 40,000 30 per cent abatement 7,000 Taxable benefit in kind 33,000 The E33,000 is treated as your income.
The CGT base cost of your shares is nil + E10,000 + E33,000 = E43,000. This may be indexed from the date the expenditure is incurred.
318-319. Seven-year deferral under section 128A Between April 6, 2000 and March 28, 2003 you could elect to defer the taxation of the gain until the earlier of: (a) November 1 in the tax year following the tax year in which the shares were sold, or (b) November 1 in the tax year following the tax year that begins seven years after the tax year in which the gain was realised.
Example Gain realised: June 1, 2003 (calendar tax year 2003).This could be deferred until the earlier of: (a) November 1, 2004 (in 2004), or (b) November 1, 2011 (in 2011,which is the tax year following 2010,which is seven years after 2003 in which the gain was realised).
An employee share option that cannot be exercised for at least seven years may be taxed as a non-cash benefit in the year in which it is granted. This allows Revenue to assess a director whose pay consists solely of long-term share options.
Where a share option is exercised on or after June 30, 2003, the gain is chargeable at the higher rate of income tax (currently 42 per cent) applicable for the year in which the option is exercised. Although the seven-year deferral was abolished from March 28, 2003, special relief is given if the current market value of the share is below the tax payable on the exercise of the option.
In such a case, you can elect to pay tax equivalent to the market value of the shares or disposal proceeds. The due date depends on whether you made (or were entitled to make) a seven-year deferral.
F. Foreign income (dividends, employments, pensions, rents etc) 401. UK dividends UK dividends are included under this heading. Where 15 per cent UK tax was deducted, the net amount received is liable to Irish tax.
402. Foreign pensions (including pensions) You should enter the gross amount received from each pension during the year and the amount of tax deducted.
403. EU Savings Directive If you are resident in an EU member state, and you receive interest income, you must pay tax on such income in the EU state in which you are resident for tax purposes. Most EU member states deduct withholding tax from such interest. You may claim credit for such interest when calculating your tax liability.
404. Foreign employment You should enter the gross amount received from each foreign employment during the year and the amount of tax deducted. This might apply, for example, where a person worked as an employee for an Australian company and all the duties were carried on outside Ireland.
405. Transborder relief This relief allows workers in PAYE type employment, for example in the North, to claim the PAYE tax credit.
406. US dividends You must enter the gross amount received and any Irish tax deducted on encashment of the dividend.
407. Canadian dividends subject to Irish tax on encashment You must enter the gross amount received and any Irish tax deducted on encashment of the dividend.
408. Canadian dividends not subject to Irish tax on encashment You must enter the gross amount received.
409-410. Foreign trade or profession You must enter income from a trade or profession entirely carried on abroad. You must enter any foreign tax withheld in line 410. An example of a foreign trade would be a British branch of an Irish trader.
411. Foreign rents You must enter any foreign rental income receivable, the related expenses, the net profit and the amount of any foreign tax deducted.
412-414. Foreign interest, royalties, annuities, rents, dividends etc (no foreign tax deducted) You must enter the gross income receivable, and the amount of any foreign tax deducted.
415. Foreign life policies Gains on disposal of such policies may be taxable at 42 per cent or 20/23 per cent depending on the circumstances.
416. Offshore funds Include under this heading details of any interests acquired in such funds located in the EU/EEA or an OECD tax treaty country during the year.
EU: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Netherlands, Britain. Note: Malta is the only EU member state with which Ireland does not have a tax treaty.
EEA: Iceland, Liechtenstein, Norway. These EFTA states, together with the EU States, comprise the European Economic Area (EEA).
OECD tax treaty countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Britain, US. Note: Turkey is the only OECD member state with which Ireland does not have a tax treaty.
417-419. Other offshore products This section requires details of offshore products acquired outside the EU, EEA, or OECD tax treaty countries, eg in Jersey or the Isle of Man.
G. Income from sources not shown elsewhere 418. Income from sources not shown elsewhere This is a 'catch all' heading to ensure that you declare all of your sources of income.
420. Foreign bank accounts You must inform Revenue of any foreign bank accounts you opened during the year, and the intermediary (if any) who opened it on your behalf.
H. Annual payments, charges & interest paid 501. Rents etc payable to non-residents You must withhold tax at 20 per cent from such rents.
502. Claw back of employers' tax relief at source (TRS) As an employer, you must report details of medical insurance paid on behalf of your employees.
503. Maintenance payments from which tax was deducted Maintenance payable to your ex-spouse in respect of children is not subject to withholding tax.
You must deduct standard rate income tax from other maintenance payments to your ex-spouse and remit such tax to the Revenue. The income is then treated as income of your ex-spouse and not as your income. This can be tax advantageous if your ex-spouse is on a lower rate band than you, as is frequently the case.
504. Covenants A covenant is a promise made by one person (the covenantor) to pay income to another person (the covenantee) without receiving anything in return. To be legally effective, the covenant must be signed, sealed and delivered by the covenantor to the covenantee.
The covenanted income is regarded as the income of the covenantee and not that of the covenantor.
You may claim tax relief for money that he has covenanted for the use of, or to the benefit of, an individual who is: (a) aged 65 or over, or (b) permanently mentally or physically incapacitated.
The covenant must be payable for a period that exceeds, or may exceed, six years.
There is no percentage limit on the amount of income that may be covenanted. In these boxes, Revenue wants the tax that should have been deducted at source.
505. Charges/annuities from which tax was deducted Revenue want the tax that should have been deducted.
506. Retirement annuity contracts As a self-employed person, you may claim relief for contributions made by you to a fund which will provide you with an annuity when you retire- this is known as retirement annuity relief. The fund must be approved by Revenue before relief can be claimed. When you retire and begin to receive your pension, it is subject to income tax.
The maximum deduction that may be claimed in a tax year is calculated as a percentage of your net relevant earnings. This means trading and professional income together with income from non-pensionable employments, as reduced by: (a) capital allowances and losses relating to the trade or profession, and (b) deductions made when computing total income.
For 2006, the maximum deductible percentages are: (a) aged up to 30:15 per cent of net relevant earnings, (b) aged 30-39: 20 per cent of net relevant earnings, (c) aged 40-49: 25 per cent of net relevant earnings, (d) aged 50-55:30 per cent of net relevant earnings, (e) aged 55-60:35 per cent of net relevant earnings, (f) aged 60 or over: 40 per cent of net relevant earnings.
The 30 per cent limit also applies to 'professional' sportsmen and sportswomen. The overall deduction limit for net relevant earnings is E254,000.
507. Personal Retirement savings Accounts (PRSA) A PRSA is a 'portable' employee pension. When you leave an employment you can continue to contribute to the pension in your next employment. The PRSA is subject to the same percentage limits and overall limit as self-employed contributions (see above).
508. Overseas pensions plans - migrant member relief If you have come to Ireland from another EU state, you may continue to contribute to a pre-existing qualifying overseas pension plan, and subject to meeting the various conditions, your contributions will be tax-deductible for income tax purposes at your marginal tax rate.
509. Interest on a loan to purchase, improve, or repair your main residence Home loan interest is now generally allowed at source. Revenue requires details of the financial institution to ensure the amount has not been overclaimed. Subject to the overall limits, you can also claim relief on home improvement loans.
510. Interest on loans applied in acquiring interest in unquoted trading companies etc.
You are entitled to claim relief for interest on money borrowed to invest in: (a) a trading company (b) a property letting company*, or (c) a holding company which holds shares in a trading company or property letting company.
You may invest the money by buying ordinary shares in the company, lending on the money to the company or paying off an existing loan that was used to buy shares in or loan money to the company.
To qualify for the relief, you must meet the following conditions: (a) You must own or control more than 5 per cent of the company's ordinary share capital.
(b) You must spend the greater part of your time in the management of the company from the date of the investment until the loan has been paid back.
(c) You must not recover capital from the company or a connected company until the interest on the loan has been paid, ie while the loan is outstanding.
(d) The borrowed money must be invested in the company without delay. Relief is denied if the loan is used for some other purpose before being invested in the company.
(e) The investment must be for bona fide commercial reasons and not as part of a tax avoidance scheme.
However, if you do not meet the 5 per cent holding or greater part of his time conditions, you may still claim relief if: (a) you are a full-time director (or employee) or part-time director (or employee) during the loan period of the private trading or rental company in which the investment was made, or (b) you are a full-time director (or employee) during the loan period of the private holding company in which the investment is made.
The interest is allowed as a deduction in computing your total income for the tax year in which the interest was paid.
* From7December 2005, interest relief on loans to acquire shares in, or lend money to, a property rental company is disallowed.
I. Claim for tax credits, allowances, reliefs and health expenses 601. Home carer tax credit This tax credit is given to a qualifying claimant if you, or your spouse (the carer spouse), care for a dependent person who resides with you during the tax year.
A dependent person means: (a) a child in respect of whom you or your spouse is entitled to child benefit (b) an individual who was aged 65 or more during the tax year (c) an individual who is permanently incapacitated (physically or mentally).
Child benefit is payable in respect of all children under 16 years of age, and children under 19 years of age in full-time education.
A dependent person who is your relative (this includes a relation by marriage and a person for whom the claimant is legal guardian) is treated as residing with you if: (a) you live in close proximity to each other, ie next door, on the same property, or within 2kmof each other, and (b) there is a direct communication link between the dependant's home and your home.
The relief is given to the spouse who cares for the relative.
The credit is given for the lower of: (a) E770, and (b) the amount which reduces your income tax liability to nil.
602. PAYE tax credit You are entitled to this tax credit if you are an employee who pays tax through the PAYE system.
You get a credit against your tax liability for the lower of: (a) E1,490, and (b) the amount of your employment earnings for the year multiplied by the standard rate of tax.
603. Blind person's tax credit A claim for this tax credit should be accompanied by a certificate from an ophthalmologist.
You are given a credit against your tax liability for the lower of: (a) in the case of a single individual, E1,500, (b) in the case of a married couple assessed jointly, where both spouses were blind for all or part of the year, E3,000, and (c) the amount which reduces your income tax liability to nil.
604. Dependent relative tax credit You may claim this tax credit if you, or your spouse have a dependent relative, ie : (a) an incapacitated relative who, due to old age or infirmity, cannot maintain himself (b) a widowed mother or widowed father (c) a son or daughter who resides with you and upon whom you depend.
This tax credit is given for the lower of: (a) E80, and (b) the amount which reduces your income tax liability to nil.
If the dependent relative's own income exceeds the maximum individual contributory old age pension for the tax year, the tax credit is restricted by the amount of the excess.
Tips If your dependent relative resides in an approved nursing home, you may be entitled to claim health expenses relief in respect of fees you have paid on behalf of your relative. 60e of the dependent relative's pension is treated as being set off against the nursing home fees.
605.Carer for an incapacitated individual If you are totally physically or mentally incapacitated you may claim an allowance for a carer (ie housekeeper) employed to care for you or your incapacitated spouse. The allowance is given for the lower of: (a) the amount incurred in employing the carer, and (b) E50,000.
606. Permanent health insurance Permanent health protection contributions are premiums paid for income protection in the event of serious illness.
Most of the large insurance companies provide such insurance. Many individuals take out such insurance to ensure they have some income if they become seriously ill and lose their job. You usually need have been ill for a delay period (three to six months) before the income starts to become payable. The maximum allowance is 10 per cent of your total income for the tax year.
607. BES relief The business expansion scheme (BES) allows you to obtain tax relief on a subscription for eligible shares, ie new ordinary shares that have no present or future preferential rights to share in the company's profits (or assets in the event of the company being wound up) in an unquoted company which carries on a qualifying trade.
You may also obtain relief by buying units in a designated fund, which in turn invests in BES qualifying companies. Designated funds are rare, and most BES investments are made by direct investment in the company concerned.
You may deduct the amount subscribed for eligible shares from your total income for the tax year in which the shares were issued. The maximum BES relief you may claim in the tax year is E31,750 (E63,000 in the case of a married couple assessed jointly, where each has subscribed the maximum amount).
If your BES subscription cannot be relieved in a tax year because you have insufficient total income, or because the amount subscribed exceeds E31,750, the unrelieved amount may be carried forward for relief to the next tax year, and later tax years if necessary.
608. Film relief You may be entitled to film investment relief if you make a relevant investment in a film production company to enable it to produce a film that has been certified by the Minister for Arts, Sports and Tourism.
To complicate things slightly, you don't get relief for the amount invested. Instead, you get it for an amount referred to as the relevant deduction, which is 80 per cent of the investment.
You obtain relief for your investment by making the relevant deduction from your total income for the tax year in which you make the investment.
The maximum film relief you can claim in a full tax year is E25,400, ie E31,750 x 80 per cent. In the case of a married couple assessed jointly, both of whom have made the maximum subscription, the limit is E50,800, ie E63,000 x 80 per cent.
609. Qualifying tuition fees There are five types of fees for which you can claim tax relief: (a) Fees paid in respect of a full-time third-level course at a private college, for example, Griffith College Dublin or the Institute of Public Administration.
(b) Fees paid in respect of a full-time third-level course at a publicly funded European college.
(c) Fees paid in respect of a part-time third-level course, for example, the evening BA at University College Dublin.
(d) Fees paid for a postgraduate course which is only open to holders of a degree or equivalent qualification, for example, a one-year full-time MBA. A course that is shorter than one academic year does not qualify.
(e) Fees for Fa/s-approved training courses, for example, in French. To obtain this relief, the certificate of competence obtained by the student must be submitted with the claim.
You may claim relief for fees paid in respect of a course being taken by you, your spouse or child. If you are a married couple assessed jointly, fees paid by the non-claimant spouse are deemed to have been paid by the claimant.
As the tax credit is standard-rated, you are given a credit against your tax liability for the lower of: (a) the amount of the fees (but not more than E3,174 in cases a-d, and E1,270 in case e) multiplied by the standard rate of income tax, and (b) the amount which reduces your income tax liability to nil.
Any part of the fee payment which has been subsidised (for example, by a grant or scholarship) and therefore not funded by you is not tax-deductible.
610-611. Donations made to approved bodies and approved sport bodies The general rule is that donations should be at arm's length. Nominal or incidental type benefits, such as the right to receive a newsletter on the approved body's activities, would not act to render the donation ineffective for tax relief benefit.
However, benefits such as preferential rights of entry to prestigious events, particularly where entry may normally be subject to a cover charge, would constitute a benefit in consequence of having made the donation.
To qualify for tax relief, your donation must meet the following requirements: (a) It must not be "temporary", ie , it must not be made under a condition that it be repaid at some future time.
(b) You the donor, and any person connected with you, must not receive a benefit as a result of making the donation.
(c) Your donation must not depend on, or be part of an arrangement involving, the acquisition of property (except as a gift) by the approved body from you, or a person connected with you.
612. Service charges You can claim relief in respect of service charges you have paid (in full, and on time) to a local authority for domestic water supply or domestic rubbish collection.
You may also claim in relation to charges paid to private rubbish collectors. A payment by a member of a group water scheme for domestic water supply is treated as a payment for local authority service charges.
613. Retirement relief for certain sportspersons If you are a sportsperson, you may be entitled to backdate pension contributions for up to ten years against all income.
614. Employer-paid medical insurance premiums This is a benefit in kind but is allowed for tax purposes.
615. Trade union subscriptions If you are a member of a trade union you can claim a tax credit of not more than E26 (E130 x 20 per cent) for the tax year.
616. Employee share purchase scheme If you participate in a Revenue-approved employee share purchase scheme you may receive a tax deduction of up to E6,350 (for all tax years).
617. Owner-occupier relief If you buy a qualifying premises in a renewal incentive area, and it is first used as your sole or main residence, you may, in calculating your income for the tax year in which the expenditure is incurred and each of the nine succeeding years, deduct: (a) 5 per cent of the construction cost in the case of a newly-built dwelling, or (b) 10 per cent of the refurbishment cost in the case of a refurbished dwelling.
618. Job assist allowance If you were long-term unemployed before taking up your employment you may claim an additional deduction for the first three years of employment as follows: Year Allowance Increase for each qualifying child First year E3,810 E1,270 Second year E2,540 E850 Third year E1,270 E425 A qualifying child is a child who is aged under 18,in full-time third-level education or training, or permanently incapacitated.
The employment must be for at least 30 hours per week, and must be capable of lasting at least one year. It does not include: (a) employment in place of a person who was unfairly dismissed (b) employment with an employer who made any of his employees redundant in the previous six months (c) employment for which more than 75 per cent of the pay is commission.
619. Seafarer allowance If you are employed on a sea-going ship which travels to a foreign port (this can include an offshore platform) you may claim a deduction of E6,350 against your income from the employment. You must be absent from the state for at least 169 days of the full tax year because you are at sea.
You are treated as absent from the state if you are absent at the end of the day, ie midnight. The deduction only applies to private sector employments, ie , it does not apply to naval staff.
620. Rent tax credit You can claim relief in respect of rent paid for you residence, but not rent paid to a local authority or housing authority. You are given a credit against your tax liability equal to the lower of: (a) the actual rent paid multiplied by the standard rate of tax (b) the specified limit multiplied by the standard rate of tax (c) the amount which reduces your income tax liability to nil.
The specified limit means: (a) If you are a married couple assessed jointly (one of you being aged 55 or more) or widowed (aged 55 or more), E6,600.For a married couple or widowed individual aged under 55,the limit is E3,300.
(b) If you are single and aged 55 or more, it is E3,300. If aged under 55, it is E1,650.
621. Significant buildings and gardens Subject to restriction in the case of passive investors, if you incur expenditure on repairing, maintaining or restoring an approved heritage building or garden you can set the expenditure against your income from all sources.
You can obtain a similar set off, but limited to E6,350 per year, for expenditure on: (a) repairing or maintaining an approved object (picture, sculpture, print, book, manuscript, piece of jewellery or furniture) owned by the owner or occupier of the heritage property (b) installing or replacing a security alarm for the property (c) providing public liability insurance for the property.
It is a condition of the relief that the public has reasonable access to the property. The property must be open to the public for not less than 60 days per year, 40 days of which must be during May to September inclusive in the year, and ten of those 40 days must be weekend days (Saturday or Sunday).
The access price must be reasonable, and must provide access to a substantial part of the property (not just one or two rooms).Reasonable access may also take the form of using the property as a hotel or guest house, if is open for such use for at least six months of the year.
The property's opening times must also be provided to Bord Failte for tourism promotion purposes.
You are a passive investor if you claim the relief as owner but you have taken an interest in the premises from the original owner, in such circumstances that the original owner can: (a) influence how the expenditure on the building is to be incurred (b) participate in the tax benefit (c) reacquire the interest.
622. Services of a medical practitioner This includes the cost of engaging a qualified nurse in the case of serious illness. It does not include the cost of faith healers or homeopathic healers.
623. Prescribed drugs/medicines Drugs and medicines prescribed by a qualified practitioner, and supplied by a pharmacist for amounts up to E78 per calendar month 624. Diagnostic procedures Fees of radiographers and analytical chemists.
625. Orthoptic or similar treatment This relates to the correction of vision through exercising the eye muscles.
626. Physiotherapy or similar treatment 627. Prescribed medical, dental or nursing appliance A prescribed medical appliance includes: a colostomy pad, a computer for communication purposes, crutches, exercise bicycle, false eye, glucometer machine for a diabetic, guide dog for a blind person who is a registered owner with the Irish Guide Dog Association, a hearing aid, an orthopaedic bed or chair, a truss, a wheelchair or chairlift.
628. Qualifying dental expenses Health expenses does not include routine dental treatment, ie extractions, cleaning and filling of teeth, and the provision and repair of artificial teeth and dentures.
Non-routine treatment includes crowns, tip replacing, gold posts, root canal treatment, treatment of gum disease, chrome cobalt splints, orthodontics (braces and similar treatment), extraction of impacted wisdom teeth, bridgework, dental implants (these are not regarded as artificial teeth).
629. Education psychological assessment carried out by an educational psychologist The psychologist must be registered with the Department of Education.
630. Speech and language therapy provided by a speech and language therapist for a dependant child The provider must be approved by the Department of Education.
631. Maintenance/treatment in a hospital This includes a mental hospital, sanatorium, convalescent home, nursing home, maternity home, clinic and health centre. A list of approved hospitals can be see on the Revenue websitewww.revenue.ie. Many of these are in Britain.
If you are a hospital kidney patient, you are allowed travelling expenses for trips to and from hospital for dialysis. If you are a home dialysis patient, you are allowed expenses for electricity, laundry, telephone and travelling (maximum 25 trips per annum). If you are a kidney patient and you do not need home dialysis, you are allowed electricity, telephone and travelling costs (maximum 25 trips per annum).
If you have a child suffering from cancer or diseases of the blood or bone, you are allowed travelling costs to and from the hospital, and accommodation costs necessary in connection with the child's treatment. The cost of minding your other children is not allowed.
If you are a coeliac patient, you are allowed the cost of gluten-free food. The claim should be supported with receipts from chemists or supermarkets.
632. Maintenance/treatment in an approved nursing home A list of approved nursing homes can be see on the Revenue website, www.revenue.ie.
633. Other qualifying expenses If you are infertile, you can claim the costs of infertility treatment.
634-641. Deductions Health expenses reimbursed by illness insurance, for example through VHI or Bupa, do not qualify for relief. You can make two types of health expenses claim: (a) Claim by you. In this case the first E125 of expenses in a full tax year is not allowed.
(b) Claim for your family, ie you and your dependants (relatives, and a person who is aged 65 or more, or who is permanently incapacitated). In this case, the first E250 of expenses in a full tax year is disallowed.
J. Statement of income tax liability 701. Computed tax liability This is your figure for what you owe.
702. Preliminary tax paid for 2006 This is credited against the tax owed.
703. Balance now payable or repayable This is the figure arrived at in 701 minus the figure in 702.
K. Capital gains for the year January 1, 2006 to December 31, 2006 This was covered in a recent article.
L. Property-based incentives on which relief was claimed in 2006 This information is used by Revenue to compile statistics on the amounts claimed under each heading.
Alan Moore (www.alanmoore.ie) specialises in tax and wealth planning for business owners, investors and other high net worth individuals. He is author of Tax Magic 2007 which is published in association with The Sunday Business Post. He can be contacted at 018728881.
Copyright 2007 Post Publications Ltd, Source: The Financial Times Limited
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