Download Badges of Trade - Introduction to Taxation - Exam and more Exams Business Taxation and Tax Management in PDF only on Docsity!
Semester 1 Examinations 2009/ 2010
Exam Code(s) 3BC1,4BC2,4BC3,4BC4,4BC5,2BCA1,1EM1,1OA Exam(s) 3 rd^ BComm,4th^ BComm International, 2nd^ BComm Accounting, Erasmus, Visiting
Module Code(s) AY Module(s) Taxation I
Paper No. 1 of 1 Repeat Paper Yes
External Examiner(s) Dr. Lynn Oats Internal Examiner(s) Dr. Breda Sweeney, Mr. F. Conaty, Ms S. McDonald
Instructions:
Answer Question 1 in Section A and TWO questions from Section B
Duration 2 ½ Hours No. of Pages 11 Department(s) Accountancy and Finance Course Co-ordinator(s) Frank Conaty
Requirements : MCQ Handout Statistical/ Log Tables Cambridge Tables Graph Paper Log Graph Paper Other Materials Table of rates of taxation included
SECTION A
COMPULSORY
Question 1
Part (a)
(i) Outline what is meant by the ‘badges of trade’ and suggest, using examples, how these are used to determine if a trade exists. (9 Marks)
(ii) Brigitte Depardieu is living in Ireland since 1 June 2007. She is of French domicile. She is in receipt of the following income for the tax year 2009:
Deposit Interest on an Irish AIB ordinary account opened in June
- The net interest income (after DIRT deducted) is €1, Rental income (net of expenses) from apartment in France amounting to €10,000 of which Brigitte remitted €5,000 to her Irish AIB ordinary account in October 2009. Interest income from American bank account amounting to €4,000 of which Brigitte lodged €1,000 to her French bank account and left the balance in the American bank account.
Required:
Calculate Brigitte’s Irish assessable income for 2009 and clearly label the income under Schedule D and the appropriate cases. (6 Marks)
Part (b)
(i) In his seminal work ‘The Wealth of Nations’ in 1776, Adam Smith proposed four canons of taxation. Set out, with examples, your understanding of the four canons as proposed by Smith. (8 Marks)
(ii) Companies not incorporated in Ireland are deemed to be resident for tax purposes in Ireland if their centre of management and control is in Ireland. Set out and explain the criteria used in determining the ‘centre of management and control’. (7 Marks) Total: 30 Marks
SECTION B OVER THE PAGE
………..Question 2 continued from previous page
Note 2: Legal costs € Collection of bad debts 1, Fees for sub letting of rental property 1, Fees for public liability claim by customer 1, Fees for sale of private home 2, 7,
Note 3: Advertising Promotion of new product 5, Advertising in respect of rental property 2, Advertising re sale of private home 2, Advertising for shop in newspapers/media 8, 17,
Note 4: Entertainment Staff entertainment 2, Entertainment of suppliers 4, Christmas gifts to suppliers 2, 8,
Note 5: Bad & Doubtful Debts Bad Debts written off 1, Reduction in specific bad debt provision (6,000) Bad debts recovered (2,000) Increase in general bad debt provision 9, 2,
Note 6: Telephone Included in telephone costs are Tom’s mobile phone bills, which amounted to €1,300. Tom estimates that 75% of his mobile calls are for business purposes.
Note 7: Subscriptions Subscriptions to trade magazines 250 Golf club subscription for Tom 1, Donations to local hospital 500 1,
Note 8: Motor expenses Staff motor expenses 800 Motor leasing costs - Tom’s car 4, Motor running costs -Tom’ car 4, 9,
The Inspector of Taxes has agreed 40% business usage on Tom’s car. Tom’s car has a list price of €35,000 and has a Category D Co emissions level. Question 2 continued over the page………..
………..Question 2 continued from previous page
Note 9: Fixed Assets The business had the following plant and machinery in use at 1 October 2008:
Year of acquisition Cost TWDV at 1 October 2008 2005 €275,000 €137, 2006 €135,000 €84,
Required:
(i) Compute Tom’s taxable income for 2009, clearly labelling the various sources of income under the income tax schedules. (30 Marks) (ii) After the year end Tom bought a new cash register on 1 October 2009 which cost €2,000. Advise Tom on the following:
(a) What conditions must be met in order for equipment to qualify for capital allowances?
(b) What is the first tax year in which capital allowances may be claimed? Explain your answer.
(c) How much wear and tear allowance may be claimed by Tom in respect of the cash register in the first tax year of assessment? (5 Marks) Total :35 Marks
Cont/---
………..Question 3 continued from previous page
Part (b) Mary McDermott has worked for an architects’ office for 8½ years when she took voluntary redundancy on 30 September 2009. Her severance package was as follows: € Statutory redundancy 8, Ex gratia lump sum 17, Computer equipment valued at 1, Tax-free lump sum from pension scheme 4,
Mary, who is 52 years of age, had previously received a tax free lump sum payment from an employment in 2001 amounting to €2,000; Mary did not claim any tax exemptions other than the basic exemption in relation to this payment.
Her average emoluments (inclusive of benefit in kind) for the three years to the date of termination of her employment were €36,000. Her average tax rate for the previous three years was 18%.
Required
(i) Determine the maximum tax free termination payment that Mary can receive and the taxable amount, if any, of the severance package she received. (10 Marks) (ii) Explain what is meant by “Top Slicing Relief” and how it might apply to Mary. A calculation of the relief is not required. (5 Marks) Total Marks 35
Cont/-
Question 4
(i) Explain by reference to case law the main considerations that arise in deciding whether an expense of a trade is of a revenue or capital nature. (7 Marks)
(ii) Answer each of the following:
a) Define a ‘charge’ for income tax purposes. Provide three examples in your answer. b) Describe the rules governing the availability of tax relief on payments which are classified as charges. c) Explain the different tax treatment for both the payer carrying on a trade and the payee (recipient) in respect of the following: Copyright royalties Patent royalties which have been approved by Revenue as being ‘qualifying’ exempt royalties. (10 Marks)
(iii) Mary Moloney is a self employed public relations consultant. Her health has declined in recent years and she has decided to cease trading with effect from 30 November 2009. Her taxable profits for recent years were as follows; Year ending 30 June 2007 €94, Year ending 30 June 2008 €88, Year ending 30 June 2009 €98, Period ending 30 November 2009 €30,000. Required: Calculate her assessable profits for the last three years of trading, indicating original and final assessments for each year. (7 Marks)
(iv) Jim Gilboy bought an apartment for letting in January 2009 which he financed in full by way of a loan. Due to the decline in the property market he was not able to let the apartment until 1 July 2009.
His gross rental income from the apartment for the year 2009 was €6,000. He incurred the following expenses in connection with the apartment in 2009; € Advertising and leasing costs 1, Furniture & equipment 5, Interest on loan from 1/1/2009 to 31/12/2009 12, Insurance from 1/1/2009 to 31/12/2009 750 Mortgage protection policy for the full year 325 Repairs to washing machine in October 2009 175 Tenancy Board registration fees 140
Question 4 continued over the page………..
Table of Tax Rates etc
Income Tax Rates Standard rate 20% Marginal rate 41%
Corporation Tax Rates Trading Income 12.5% Investment Income 25%
Capital Gains Tax Rate Standard rate 08/04/2009 > 25% Standard rate 15/10/2008 to 07/04/2009 22% Standard rate 23/04/1998 to 14/10/2008 20%
Motor Vehicles Restricted Values 01/01/01 to 31/12/01 inclusive €21, 01/01/02 to 31/12/05 €22, 01/01/06 to 31/12/06 €23, 01/01/07 to 30/06/08 €24, 01/07/08 onwards based on category of car in accordance with carbon emissions level as follows:
Categories A, B & C €24, Categories D & E 50% of lower of cost and €24, Categories F & G No allowances
Rates of Wear & Tear Plant and Machinery 01/01/01 to 03.12.02 20% straight line 04/12/02 onwards 12.5% straight line
Motor Cars 01/01/01 to 03/12/02 20% straight line 04/12/02 onwards 12.5% straight line
Continued/-
Company Cars-Business Mileage Relief
Cash Equivalent (%OMV) Annual Business Kilometre Thresholds
All Co Categories
24,000 or less 30% 24,001 to 32,000 24% 32,001 to 40,000 18% 40,001 to 48,000 12% 48,001 and over 6%
Motor Vehicle Emissions Category
Vehicle Category Co2 Emissions (g/km)
A 0 to 120
B >120 to 140
C >140 to 155
D >155 to 170
E >170 to 190
F >190 to 225
G >
