Dwelling House Exemption – Capital Acquisitions Tax

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A recent High Court decision has a significant bearing on the application of dwelling house exemption to beneficiaries who inherit a mixed asset estate, comprising of a number of residential properties.

The dwelling house exemption allows someone to inherit a property tax-free provided that they have lived in it for three years before the homeowner’s death and that it was the main home of the person who has died. Critically, if a person owns even a share in another property “at the date of inheritance”, they lose their entitlement to the relief. Revenue has always been of the view that if someone who would otherwise qualify for dwelling house relief inherits not just the main home of the disponer but another property, or a share in another property, they no longer meet the eligibility criteria.

A Court ruling on 25th September 2018 has changed the rules on dwelling house exemption. The High Court ruled in the case of a successor, who inherited both the family home where the successor had lived with the disponer and an interest in four other properties, was entitled to the dwelling house exemption. The judge held that the successor did not have a beneficial interest in either of the dwelling houses at the date of the inheritance, as a successor cannot become beneficially entitled to a house which forms part of the residue of an estate until the assets available for distribution have been ascertained.

The impact of the Court case is that you will no longer be disbarred from dwelling house relief if you inherit property other than the family home in the same will. Revenue has now adopted a revised approach in distinguishing between dwelling houses inherited as a specific legacy and those inherited in the residue of an estate.

Accordingly, a dwelling house forming part of the residue of an estate is not to be taken into account in determining whether a successor has an interest in another dwelling house at the date of an inheritance. Ownership of property received as part of the residue of a will would occur at a later date than “at the date of inheritance”.

Anyone receiving a specific legacy of an interest in a property as well as receiving the family home will continue to be excluded. This is because, as a specific legacy, beneficial ownership of the “other” property would transfer at the same time as the family home.

Revenue acknowledged that if any taxpayers find themselves in a similar set of facts as this case then they may be entitled to a refund of the tax paid, bearing in the mind the four year limit that applies to refunds of tax.

Should you require any further details on the dwelling house exemption, please contact us.

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Taxation of Couriers

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Revenue has recently clarified the taxation of couriers, specifically the tax treatment of motor cycle and bicycle couriers. The following treatment applies from 1 January 2019. Previous agreements will come to an end on this date.

Motor cycle and bicycle couriers are generally engaged under a contract for service i.e. they are self-employed individuals. Whilst the facts of each case may differ, this is the general view adopted by Revenue.

From 1 January 2019 motor cycle and bicycle couriers engaged under a contract for service i.e. self-employed individuals, will need to file a tax return self-assessment.

Expenses

Self-employed couriers can make a claim for any expenditure incurred wholly and exclusively for the purpose of their courier activity, for example, motor expenses & telephone/internet bills.

Revenue’s previous agreement of flat rate deductions for expenses (20%,40% or 45%) will no longer apply with effect from 1 January 2019.

Voluntary PAYE

Voluntary PAYE systems of tax have been implemented by several courier firms to assist couriers in ensuring that they are tax compliant. Revenue has no issue with these arrangements continuing, however Revenue has reiterated that income tax, USC & PRSI should be applied on gross income.

Van Owner-Driver Couriers

Similar to motor cycle and bicycle couriers, Revenue are of the view that van owner-driver couriers are engaged under a contract for service and thus they are self-employed individuals.

Pay and File System for Income Tax Self-Assessment

Under self-assessment there is a common date for the payment of tax and filing of tax returns. You must file your tax return on or before 31 October in the year after the year to which the return relates.

This system, which is known as Pay and File, requires you to:

  • file your return for the previous year
  • make a self-assessment for that year
  • pay the balance of tax for that year
  • pay preliminary tax for the current year.

For example, by 31 October 2019 you must:

  • pay your preliminary tax for 2019
  • file your 2018 self-assessment tax return
  • pay any Income Tax (IT) balance for 2018.

When you pay and file through the Revenue Online Service (ROS), the 31 October deadline is extended to mid-November.

For more information on the taxation of couriers, please contact us.

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Corporate Exit Tax

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Exit tax regimes seek to impose a tax on unrealised capital gains where companies migrate their tax residency or transfer assets offshore.

Prior to Budget 2019, Ireland had a limited exit tax regime that was subject to several exceptions. While it was expected that new exit tax rules would be introduced before 1 January 2020 to comply with the EU’s Anti-Tax Avoidance Directive (ATAD), the implementation of new rules from 10 October 2018 was earlier than anticipated.

Old exit tax regime

Under the old exit tax regime, where a company changed its tax residence so that it was no longer within the scope of Irish tax, it was treated as disposing and reacquiring its assets at market value. This triggered a charge to tax at the rate of 33%, the standard capital gains tax rate.

The exit tax did not apply where the assets continued to be used in the State by a branch or agency of the migrating company or where the company was ultimately controlled by residents of a tax treaty country. The exit tax could also be avoided if the company transferring its residency was a 75% subsidiary of an Irish resident company and certain conditions were met for 10 years after the migration.

New exit tax regime

The new rules tax the unrealised gains of corporate entities where the following events occur:

  • A company transfers assets from its permanent establishment (PE) in Ireland to its head office or to a PE in another territory;
  • A company transfers the business (including the assets of the business) carried on by its PE in Ireland to another territory; or
  • An Irish resident company transfers its residence to another country.

The rate of tax applicable will generally be 12.5%. However, there is an anti-avoidance measure that applies a rate of 33% where the event triggering the tax forms part of a transaction to avail of the 12.5% rate rather than the standard capital gains tax of 33%.

Key points on the operation of the exit tax:

  • The exit tax will not apply to the transfer of assets that will revert to the PE or company within 12 months of the transfer, where the assets are:
    • Related to the financing of securities;
    • Given as security for a debt; or
    • Where the asset transfer takes place to meet prudential capital requirements or for liquidity management.
  • The tax may be paid in 6 annual instalments where the company migrates to an EU or EEA state.
  • Where a company ceases to be resident and an exit tax charge is imposed, the tax may be recovered from an Irish tax resident company within the group or from an Irish tax resident controlling director.

While the exit tax rate has been reduced, the new rules have significantly broader application than the old regime and transactions that previously would not have been subject to an exit tax may now trigger a tax charge.

For more information please contact Eddie Murphy, Partner and Head of Tax Services.

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Our Analysis of Budget 2019

Budget 2019 was delivered by Minister Donohoe, the country’s first balanced Budget in over 10 years. With the Irish economy and the national tax-take set to continue to grow impressively, and with a general election expected in the near-term, it was left to prudence and Brexit to influence the Minister’s Budget restraining measures. With Budget surpluses expected for the next few years, it was confirmed that these would be used to pay down that eye-watering national debt that we don’t really like to talk about.

The Minister kicked-off our rainy day fund with €500m from Corporation Tax we unexpectedly received as a one-off from a small number of multinational companies.  So who gained from this Budget? Everyone, of course!

Continuing the theme of the past few years, Budget 2019 gave a little to employees, social welfare recipients, home carers, back to school-ers, self-employers, educators, farmers, small business owners, social house seekers, rent takers, baby makers…….BUT….would it be better if instead of trying to appease all, the strategy was to target in an even more meaningful way, the homeless/housing issues that are affecting such a large number of people?

The giveaways were funded, in the main from re-instating the 13.5% VAT rate to the Tourism related businesses, small increases in VRT, betting tax and of course from the vast swathe of employees who have their payroll taxes withheld automatically.

Ireland’s annual family finances are in good order, stable and broader-based than in our recent past. Let’s see if the government (whichever one!) can manage to provide the basic services to all of its people and in a timely manner.

 

Edward Murphy
Partner and Head of Tax Services
edward.murphy@crowleysdk.ie

 

 

 

If you would like further information, please contact our Tax Team.

View the key highlights from Budget 2019

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Revenue Warns Airbnb Hosts over their Tax Compliance

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Revenue have recently written to over 12,000 taxpayers who are in receipt of income from the letting of short-term accommodation through Airbnb. Airbnb have provided Revenue with details of payments made to customers in the years 2014, 2015 and 2016 in respect of the provision of short-term accommodation.

The letters issued by Revenue are reminders to taxpayers to include this income in their tax returns. Revenue have confirmed that they will be carrying out a range of follow up compliance checks to ensure that tax returns are filed on time and completed correctly.

Income received from the letting of short-term accommodation is treated differently for tax purposes to income received from renting a property under a landlord and tenant arrangement. In addition, income from a trade of short-term letting is subject to different tax treatment to income from the provision of accommodation on an occasional basis.

When preparing your income tax return, please be aware of the following points when calculating profits from the occasional letting of short-term accommodation:

  1. A deduction against profits may only be made in respect of incidental costs directly associated with the service provided to guests. Examples of incidental costs include commission paid to online accommodation booking sites, cleaning fees, the cost of providing breakfast to guests as well as a reasonable apportionment of electricity, gas and heating utilised by guests;
  2. A deduction against profits is not allowable for annual costs associated with a property such as insurance, TV licence and general maintenance costs;
  3. Capital allowances on the cost of furniture and fittings for the property are not available against the profits;
  4. No deduction is allowable against profits in respect of expenditure incurred in advance of a property/room being made available for guest accommodation.

For income earned in 2017, the required date to submit your income tax return on Revenue’s Online Service (ROS) is 14 November 2018.

If you have any queries or concerns relating to the letter issued by Revenue, please contact our Tax Department.

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Crowleys DFK wins DFK UK & Ireland’s Firm of the Year 2018

Crowleys DFK was awarded the DFK UK & Ireland Firm of the Year 2018 at the recent DFK UK & Ireland Annual Conference in Glasgow.

DFK International is a major international association of independent firms and business advisors that has been meeting the needs of clients with interests in more than one country for over 50 years.  The association has over 400 offices in over 90 countries. The firm has been a committed member of the association since 1992.

Crowleys DFK was recognised for its positive contribution to DFK UK & Ireland over the past year.

Managing Partner James O’Connor commented, “We are delighted that Crowleys DFK have been recognised by our colleagues for our commitment to servicing our clients’ needs internationally.”

Crowleys DFK is a seven partner firm with offices in Cork and Dublin and has grown significantly in recent years.

James stated, “Our international affiliation is a distinctive feature of the firm and provides our clients with an integrated and robust global delivery mechanism across the world.”

 

 

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Credit Union Director Duties

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Credit unions have come under increasing scrutiny in recent years with more attention than ever focused on the duties of directors and the board. At a time of rapid change both within the credit union sector, and in the wider economy, keeping up to date is critical, explains Fiona O’Sullivan, Director, Audit & Assurance.

A Central Bank report published earlier this year shows that governance and risk management continue to challenge credit unions. The board of each credit union is responsible for its control, direction and management and must ensure that directors have the skills and expertise to adequately oversee operations — this includes being aware of the rules and regulations governing who can serve on the board, in what capacity, and for how long. Individual directors must be able to devote sufficient time to their roles and responsibilities and must keep up to date with their legal and regulatory obligations.

Improving standards

While governance standards are generally improving, the Central Bank report shows that 60 percent of risks identified in credit unions relate to governance and operational issues. Typically, these include failure to challenge internal audit, failure to adequately monitor the quality of risk management and compliance, and failure to adequately review the performance of individual directors, management and key staff. These problems occur in credit unions of all sizes, not just in smaller entities.

The report provides a useful summary of supervisory expectations:

  • An effective and comprehensive governance framework should be evident in the credit union, including clear accountabilities and an appropriate performance management framework for relevant officers and staff.
  • Effective engagement with internal audit, risk management and compliance functions should be evident. Boards should have an awareness, challenge and undertake action in relation to findings and issues identified by these functions.
  • Clear separation between the roles of the board (non-executive) and management (executive). This separation should be underpinned by clear roles, responsibilities, reporting lines and accountabilities.
  • A strategic, forward-looking focus at board level, with quality discussion and challenge of strategic plans and associated targets evident at board meetings. The ongoing monitoring and tracking of metrics to assess the implementation and effectiveness of the strategic plan is key to effective governance and driving the future direction of the credit union.
  • Appropriate and timely reporting to the board in order to support decision-making on key strategic issues. Such reports should be well understood at board level and there should be evidence of discussion, challenge and follow-up from the board in relation to such reports.

Risk governance

The report highlights the importance of internal audit, risk management and compliance, stating:

“Those credit unions demonstrating stronger governance have typically moved beyond a mere ‘tick-box’ compliance attitude to exhibiting a more integrated risk governance culture, with a strong awareness and understanding of the impact of unmanaged risk. Such credit unions are more likely to leverage appropriately the important supports to the board provided for in the 2012 enhanced governance framework of internal audit, risk management and compliance in order to provide them with an improved understanding of the risk profile of their credit unions so that they can drive the necessary changes and improvements.”

Directors should keep in mind that, as in other sectors, the risks that credit unions face continue to evolve as circumstances change.  Risk registers and policies must be regularly reviewed and updated to take account of regulatory, sectoral, economic and technology-related developments. Recent regulatory developments include the changes to the investment and liquidity framework being implemented in 2018. Emerging economic risks include Brexit while cyber risks include vulnerabilities in areas such as fintech, cloud computing, mobile technologies, the Internet of Things and ‘big data’. Directors are responsible for ensuring that these, and other existing and emerging risks are identified and documented and that appropriate plans are devised and implemented to mitigate them.

How we can help

Understandably, with the regulatory and compliance burden increasing and new and complex challenges emerging, credit unions and their directors need help to keep pace with developments. Crowleys DFK has more than 25 years’ experience advising clients in this sector and offers a broad range of specialist services, including governance support, to assist boards and directors to meet their legal and regulatory obligations.

For more information and to find out how we can help, please get in touch.

Talk to us

 

Fiona O’Sullivan
Director, Audit & Assurance Services
fiona.osullivan@crowleysdfk.ie

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Crowleys DFK Partner meets Minister Bruton

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Crowleys DFK Partner and Chairman of the Ireland Malaysia Business Association, Vincent Teo, had the pleasure of meeting Minister Richard Bruton, Minister for Education and Skills, and Ambassador Eamon Hickey, Irish Ambassador to Malaysia, at Enterprise Ireland’s business breakfast in Kuala Lumpur on Thursday, 20th September.

Minister Bruton addressed the local network of business and education leaders for Enterprise Ireland’s business breakfast as part of his five day education and trade mission to Malaysia and Indonesia.

“I am delighted to have the opportunity to greet an Irish Minister in my home country,” Vincent commented, “Congratulations to Ambassador Hickey and Enterprise Ireland on hosting a successful business breakfast.”

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Crowleys DFK Partner meets the Irish Ambassador to Malaysia

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Crowleys DFK Partner and Chairman of the Ireland Malaysia Business Association, Vincent Teo, met with Ambassador Eamon Hickey, Irish Ambassador to Malaysia at the Embassy of Ireland in Kuala Lampur last week.

Vincent commented, “I am very grateful to have had the opportunity to meet Ambassador Eamon Hickey in the Embassy and for his continued support to our efforts in promoting bilateral trade relations between Ireland and Malaysia.”

“We plan to reach out to the relevant Ministries in Malaysia in the hope of hosting a ministerial visit to Ireland in the near future,” stated Vincent.

The objective of the Irish Malaysia Association is to support bilateral business links between Ireland and Malaysia. Crowleys DFK is a patron member of the IMA and is dedicated to supporting its development.

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Crowleys DFK Accounting Technician Trainee Showcased in Cork’s Evening Echo

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Jacky Lorimer, Accounting Technician Trainee in the firm’s Outsourcing Department, is showcased in the August 14th edition of Cork’s Evening Echo.

Working 4 days a week in Crowleys DFK and studying 1 day a week in Cork College of Commerce, Jacky has been able to get started on her dream career as a result of Accounting Technicians Ireland’s “Earn as you Learn” scheme.

Read or download a pdf version of the article here.

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