Session 4

Question 1

What kind of income is taxed in Case 1

Answer 1

Trade Income

Question 2

What kind of income is taxed in Case 2

Answer 2

Professional Income

Question 3

What are the Badges of Trade an explain them

Answer 3

1. The subject matter of the realisation - property that is commonly traded
2. Length of period of ownership - short is trade
3. Frequency of transaction - dealing is trading
4. Supplementary work on property sold - points to trading
5. Circumstances responsible for sale -unsolicited offer may refute trading
6. Motive – focus on intention

Question 4

What figure do we use to calculate the adjusted tax liability

Answer 4

Net profit before tax

Question 5

What items are Disallowable

Answer 5

Depreciation
Loss on sale of fixed assets
Royalties (deductible on a paid basis)
Income Tax
Client Entertainment
Drawings
Political Donations
Non Trade Subscriptions
Fines and penalties 
Keyman premiums
Private Element

Question 6

Is capital Expenditure allowed as a deduction

Answer 6

Capital Expenditure not deductible in calculating adjusted taxable profits

Question 7

Are Bad debt provisions allowed as a deduction?

Answer 7

Specific Bad debt provisions where you know Barry is not going to pay €5k. This is allowed

However General Bad debt provisions are not allowed

Question 8

Formula for calculating the allowable Premium amount

Answer 8

Premium x (51 - Duration of lease/50)

Question 9

Are Legal fees allowable as an expense?

Answer 9

Certain Legal fees are allowed for example the fees incurred in Debt recovery or liability claims.

However any fees incurred in acquiring an asset is not allowable as a deduction

Question 10

Are repairs allowed as an expense

Answer 10

Expenditure to restore to original condition – allowable

Improvements – not allowable

Renewal of asset in its entirety – disallowable

Renewal of component part – allowable
e.g. replacement of a roof – renewal of component part - allowable

Question 11

Are Lease charges allowed as a deduction?

Answer 11

If its used for private use then no. If there is any private element at all it is disallowed.

Otherwise you can calculate using the formula:

Lease charges X (List Price - Relevant limit/List Price)

where the relevant limit is based on your car category but the full amount is 24k.

Relevant Limit restricted based on CO2 emissions
Category A – C Relevant Limit

Category D – E 50% of lower of (relevant limit and retail price)

Category F – G No allowance

Question 12

What are some allowable deductions for tax liabilities?

Answer 12

Statutory Redundancy

Ex-gratia redundancy where trade continuing

Patent fees, registration of trade marks

Capital payments for know-how except where acquired as part of a business or from a connected party

Expenditure on scientific research

Normal accountancy fees

Double deduction for payments to long term unemployed

Question 13

Are Pension Contributions allowed?

Answer 13

Ordinary contributions – deductible on PAID basis

• Addback P&L amount
• Deduct PAID amount

Special Contributions

• If not greater than ordinary contribution, allowable in full
• If greater than normal ordinary contribution, SPREAD
• No. of years = Special/Normal
• If the factor is between 1 and 2, spread over 2 years
• Otherwise, round to nearest whole number
• If ordinary annual contribution < €6,350, assume it’s €6,350

Question 14

What is the Artist exemption

Answer 14

First €40,000 per annum of profits or gains earned is exempt from tax

“Artist” - writers, composers, visual artists and sculptors

Must be resident or ordinarily resident and domiciled in Ireland and not resident elsewhere

Submit claim to Revenue together with samples of work i.e. copies of book, manuscript, CD

No exemption from USC

May be subject to PRSI, VAT and High Earners Restriction