TX4204 Capital Taxation Assignment Example UL Ireland
The module is designed to provide students with an understanding of the theoretical and legal framework for capital taxation. It aims not only to give them a thorough understanding of how individuals are taxed in this country when disposing of assets but also to equip them with all relevant knowledge about inheritance tax and capital acquisitions tax. The module examines the taxation of individuals in this country when disposing of assets such as property and shares, withdrawal from non-resident approved pension funds, disposal of business premises to a trade competitor, and the withholding regime for Capital Gains Tax (CGT) on life assurance policies and foreign bonds.
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In this course, there are many types of assignments given to students like individual assignments, group-based assignments, reports, case studies, final year projects, skills demonstrations, learner records, and other solutions given by us.
On successful completion of this module, students should be able to:
Assignment Task 1: Apply basic theoretical concepts to compute the Capital Gains liability arising in a particular scenario
The capital gains tax is the tax imposed on the net increase in the value of a taxpayer’s investments during a given year. The capital gains tax (CGT) is an indirect tax and it raises revenue for the government. The CGT is a tax on the profits generated from the sale of an asset. The taxable gain is the difference between the sales proceeds and the original cost of the asset.
The capital gains tax is levied on the net increase in value of an asset over a period (usually one year) and the rate at which tax is calculated varies depending on whether or not the asset has been held for more than twelve months. For assets owned for more than twelve months, the CGT rate will be lower than that applicable to assets held for a shorter period.
Capital gains tax is charged on the profits generated from the sale of an asset. The taxable gain is the difference between the sales proceeds and the original cost of the asset. The capital gains tax (CGT) is an indirect tax and it raises revenue for the government. The CGT is a tax on the profits generated from the sale of an asset. The taxable gain is the difference between the sales proceeds and the original cost of the asset.
Assignment Task 2: Apply basic theoretical concepts to compute the Capital Acquisitions Tax liability arising in a particular scenario
Capital acquisitions tax (CAT) is a tax on certain gifts or inheritances received from specified people. It applies to gifts or inheritances where the total value, taking into account any CAT paid in the past, exceeds €3,000. A charge does not arise for a gift between spouses/civil partners of which the value does not exceed €3,000.
The taxable value of a gift or inheritance is the market value on the day it is received. For example, if an asset was purchased for €100,000 but is now worth €200,000 when inherited/received by you, the taxable value is €200,000. Under CAT rules no reliefs are normally available for gifts or inheritances received. Relief may be available where the beneficiary is a child (under 23 years of age) of the disponer.
Capital acquisitions tax (CAT) is charged on certain assets that are gifted or inherited by virtue of your relationship to the donor/devisee under current law. The tax arises when you receive an asset (gift or inheritance) over a certain value, and it is based on the market value of the asset on the day you receive it. The tax can be paid by the person receiving the gift/inheritance (the beneficiary), or it can be paid by the person who gave/left the gift/inheritance to the beneficiary (the disponer).
A gift or inheritance is taxable if its value exceeds €3,000. This means the ‘effective’ tax-free amount of any gift or inheritance you receive is limited to €3,000. If you receive multiple gifts/inheritances over a 12-month period their total value must exceed €3,000 in order for one or more of them to be taxable.
Assignment Task 3: Explain the issues of domicile, residence, and ordinary residence
Domicile is where a person has his permanent home. Where you have your domicile of origin, this will normally be the country in which you were born or legally adopted. Where you acquired another domicile of choice (for example by marriage), this will normally be the country in which you intend to make your permanent home and to which you intend to return when you leave your domicile of origin.
According to the Irish Revenue Commissioners, domicile is the most important factor in determining a person’s liability to Irish capital gains tax (CGT). This is because a person’s domicile of origin will normally be the country in which he was born or legally adopted. So, even if you are resident in Ireland but have not established a permanent home here (your domicile of residence), you may still be liable to Irish CGT on any capital gains arising from the disposal of Irish assets.
A person may have a number of residences but only one domicile. The residence is the place where you have your home and it must be in a country different from your domicile of origin to avoid double taxation. In general, the residence is the country where you normally live if this does not coincide with your domicile.
Ordinary residence is a term used by the Irish Revenue Commissioners to describe the situation of someone who is not resident in Ireland but who has come to Ireland for a particular purpose and has not established a permanent home here.
You are ordinarily resident in Ireland if you reside here for at least 183 days in a tax year, or 280 days spread over two years. If you are resident in Ireland for the requisite number of days, then you will be liable to Irish income tax and CGT on all your income from any source, including capital gains arising from the disposal of both Irish and foreign assets.
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Assignment Task 4: Illustrate the various territoriality issues applying to Irish CGT and CAT
The territoriality principle applies to Irish CGT and CAT. This means that the tax applies only to gains or disposals of assets situated in Ireland. So, you will not be liable to Irish CGT or CAT on any gains or disposals of assets situated outside Ireland.
However, there are some exceptions to the territoriality principle. The most important exception is that Irish CGT will also apply to gains or disposals of assets situated in the State by non-residents.
So, if you are not resident in Ireland but you acquire an asset situated here (eg land, chattels, or shares in a company), then you may be liable for Irish CGT on the disposal of that asset. Similarly, if you are not resident in Ireland but you dispose of an asset situated here (eg land, chattels, or shares in a company) then you may be entitled to relief for any Irish CGT paid on the disposal of that asset against your other Irish tax liabilities (ie income tax, universal social charge, and corporation tax).
Ireland has a withholding system of taxation for foreign citizens on certain investments, business, and employment income from Irish sources. This means that a person not domiciled in Ireland may have to pay Irish CGT even though their gains arise outside the State.
Once a non-resident becomes resident in Ireland, they are taxable by Ireland on their worldwide income and capital gains. This is known as ‘deemed domicile’. When a non-resident becomes deemed domiciled, they are taxable on all of their investment and employment income from Irish sources (no matter where the activity generating the income takes place) and on any of their foreign source investment and employment income that has not already been taxed in the country of origin.
Gains or disposals of assets by Irish residents which are not taxable in Ireland because they fall within certain exempt categories (eg the sale of your principal private residence) will also be exempt from Irish CGT provided that the person disposing of the asset is a resident and ordinarily resident in Ireland at the time of the disposal.
Assignment Task 5: Work out the various Irish Capital Taxation implications that arise with the use of Trusts
A trust is a legal relationship whereby one or more persons (the trustees) hold the property for the benefit of one or more other persons (the beneficiaries). The trustees must act in the best interests of the beneficiaries and must not make any profit from their position as trustees.
The use of trusts can have important implications for Irish capital taxation. In general, a trust is only subject to CGT where the trustees are residents in Ireland. In practice, this means that assets left by an Irish person into a non-resident discretionary trust will not be liable to Irish CGT – even though they would have been taxable if they had been left under a will – provided that the beneficiaries of the trust are non-residents. This also applies to assets left by an Irish resident into a non-resident trust if the settlor is not deemed domiciled in Ireland at the time of the gift or will. The use of trusts can also be relevant for the purposes of applying the foreign investment funds (FIFs) rules.
The trustee of a trust does not bear the economic cost or burden of ownership and does not assume any of the risks. The beneficiary bears this cost and risk. This means that it is usually unnecessary for you as a trustee to exercise any powers under the trust deed (such as the power to sell assets). This is because the trustee’s only role is to hold and administer the trust property for the benefit of the beneficiaries. You should, however, be aware of your tax liabilities as a trustee. In particular, you may be liable for Irish CGT where you dispose of trust assets and you are resident in Ireland.
Assignment Task 6: Apply basic theoretical concepts to compute the Stamp Duty liability arising in a particular transaction
Stamp Duty is a tax payable on the transfer of property, other than shares, from one person to another. It is also payable on the issue of securities (eg debentures and bonds), including bills of exchange and promissory notes. The rate of stamp duty depends on the value of the consideration given for the transfer or issue of the security.
If the parties are not dealing at arm’s length, stamp duty is payable at a higher rate of 5%.
Stamp Duty is chargeable on all instruments that give rights to land. For example, if you’re given an option to buy land in the future this will be subject to Stamp Duty even if the option has no value now.
In computing the stamp duty payable, you first take into account the consideration given for the transfer or issue of the security. This is usually the value of the property or security being transferred or issued. The rate of stamp duty then applies to this amount.
So, for example, if you’re transferring a property worth €200,000, the basic rate of stamp duty will be €5,000. If the parties are not dealing at arm’s length, Stamp Duty is payable at 5% on all transfers or issues for which consideration is given by a person who is not related to you.
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