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Advanced Taxation Republic of Ireland
Sample Paper 1
Questions & Suggested Solutions
Page 2 of 32
Sample Paper 1
NOTES TO USERS ABOUT SAMPLE PAPERS
Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance
to students and their teachers regarding the style and type of question, and their suggested solutions, in
our examinations. They are not intended to provide an exhaustive list of all possible questions that may
be asked and both students and teachers alike are reminded to consult our published syllabus (see
www.AccountingTechniciansIreland.ie) for a comprehensive list of examinable topics.
There are often many possible approaches to the solution of questions in professional examinations. It
should not be assumed that the approach adopted in these solutions is the only correct approach,
particularly with discursive answers. Alternative answers will be marked on their own merits.
This publication is copyright 2016 and may not be reproduced without permission of Accounting
Technicians Ireland.
© Accounting Technicians Ireland, 2061.
Page 3 of 32
Sample Paper 1
INSTRUCTIONS TO CANDIDATES
PLEASE READ CAREFULLY
SECTION A
Answer Question 1, 2, 3 in this section. ALL QUESTIONS ARE
COMPULSORY
SECTION B
Answer any TWO of the four questions in this section
Page 4 of 32
Sample Paper 1
SECTION A
Answer Question 1, 2, 3 in this section. All questions are compulsory.
QUESTION 1 Compulsory
David and Susan Brady have been married for ten years. They have opted for joint assessment and David
is the assessable person.
David runs his own legal practice; he set this up many years ago. His tax adjusted profits before capital
allowances for the last two years were as follows:-
Year ended 30th
June 2016 € 90,000.
Year ended 30th
June 2017 €100,000.
His capital allowances are:-
2015 ........................ €6,000
2016 ........................ €8,000
David is 44 years of age and has decided to set up a retirement annuity in 2016. He paid his first premium
of €10,000 in May 2016.
He inherited a warehouse from his father in September 2016. He let it out on a ten year on lease on 1st
November 2016 at a yearly rental income of €24,000 and a premium of €40,000.
His only other income was deposit interest from the Allied Irish Bank. He opened the account in May
2016. He received interest of €2,360 net of D.I.R.T.
Susan stays at home to look after their three children. She has a part time job and earns €5,000 in 2016.
P.A.Y.E deducted was €950. She also received a dividend of €2,560 from an Irish company in November
2016. David and Susan have the following outgoings in 2016.
1. College fees for Susan for an approved part time course €2,200.
2. David paid permanent health insurance of €850.
Page 5 of 32
Sample Paper 1
QUESTION 1 (Cont’d)
Requirement
(i) Calculate David and Susan’s Income tax liability for 2016.
15 Marks (ii) Calculate David’s PRSI, and Universal Social Charge for 2016. 3 Marks
(iii) What is the payment date for David’s preliminary tax for 2016? 1 Mark
(iv) What is the filing date for David’s Form II for 2016? 1 Mark
Total 20 Marks
Page 6 of 32
Sample Paper 1
QUESTION 2 Compulsory
Blayney Limited is an Irish resident company. It is not a close company. Its year end is the 30th
September each year. The profit and loss account for the year ended 30th
September 2016 is set out
below:-
Notes € €
Sales .................................................................. 1,200,000
Cost of Sales ...................................................... 680,550
Gross Profit........................................................ 519,450
Other Income ..................................................... 1 120,000
Less: Expenses
Wages & Salaries .............................................. 280,480
Directors remuneration ..................................... 80,000
Depreciation ..................................................... 10,510
Legal Fees.......................................................... 2 6,500
Bad Debts .......................................................... 3 3,800
Entertainment .................................................... 4 5,000
Motor Expenses and Lease Rental ..................... 5 17,400
Audit Fee ........................................................... 3,625
Insurance ........................................................... 4,150
Interest on Late Payment of Corporation Tax1,510
Telephone, Light, Heat ...................................... 6,500 419,475
Net Profit .......................................................... 219,975
NOTES
(1) Other Income €
Bank interest received gross ................ 10,000
Gain on sale of warehouse ....... 90,500
Irish dividends received 19,500
............................................................. 120,000
The company sold the warehouse in May 2016 for €350,000. Legal fees on disposal were €3,800. The
company purchased this warehouse in March 1998 for €255,700.
(2) Legal Fees €
Parking fines ........................................ 450
Defending title to stock........................ 1,200
Disposal of warehouse ......................... 3,800
Recovery of Bad Debts ........................ 1,050
............................................................. 6,500
Page 7 of 32
Sample Paper 1
QUESTION 2 (Cont’d)
(3) The bad debts account is as follows:-
€
Increase in general provision 800
Increase in specific provision 1,100
Bad debts written off 2,550
Bad debts recovered (650)
3,800
(4) The entertainment expenses include €1,580 for the staff Christmas party. The balance was
incurred entertaining customers and potential customers.
(5) Motor Expenses and Lease rental
Vehicle Cost/List Price
Emissions
Running
Expenses €
Lease Rental
€
Van €26,000 130g/km 3,800 -
Car for Managing
Director €32,000 175g/km 4,100 5,100
Car for Sales
Director €27,500 135g/km 4,400 -
12,300 5,100
All vehicles were acquired in August 2015.
(6) Trading Loss
The company has an allowable trading loss of €10,000 brought forward from 30th
September 2015.
(7) Fixed Assets
Machinery Car Van
€ € €
TWDV – 1/10/2015 12,750 21,000 22,750
The machine was purchased in August 2014 for €18,000. A grant of €1,000 was received.
Page 8 of 32
Sample Paper 1
QUESTION 2 (Cont’d)
Requirement:
In respect of the accounting period ended 30th
September 2016 for Blayney Limited:-
(i) Prepare the adjusted Case I trading profits before capital allowances.
10 Marks
(ii) Prepare the capital allowances computation. Show the tax written down value at 30th
September
2016.
4 Marks
(iii) Prepare the corporation tax liability computation. Show clearly the appropriate schedule each
category of income is assessed under and show the amount for ‘Total Income’ and ‘Total
Profits’ as calculated for corporation tax purposes.
6 Marks
Total 20 Marks
Page 9 of 32
Sample Paper 1
QUESTION 3 Compulsory
Note this question has two parts. Both parts must be answered
Part A
(a) State the factors which a trader should take into account in deciding whether to register for V.A.T.
5 Marks
(b) Explain the two-thirds rule.
3 Marks
(c) Explain briefly the V.A.T. treatment of suppliers making exempt supplies. 2 Marks
Part B
Aíne Taylor has been carrying on in business for many years. She accounts for V.A.T. on the sales basis.
Details of her sales, receipt and payments for the two month period March/April 2016 were as follows:-
€
Sales exclusive of V.A.T at 23% 300,000
Cash receipts exclusive of V.A.T. at 23% 295,000
Expenses inclusive of V.A.T. at 23%
Goods for re-sale 184,500
Entertaining customers 615
Petrol 968
Diesel 1,107
Telephone 492
Expenses inclusive of V.A.T at 13.5%
Electricity 681
Requirement:
(i) Compute Aíne’s V.A.T. liability for the two-month period March/April 2016.
8 Marks
(ii) State the date by which the V.A.T. liability should have been paid.
2 Marks
Total 20 Marks
Page 10 of 32
Sample Paper 1
SECTION B
Answer any TWO of the four questions in this section
QUESTION 4
Gary and his wife Sandra are resident and domiciled in Ireland. During 2016 they had the following
disposals:-
(i) In June 2016, Gary sold 10,000 shares in Delta Limited for €35,000. Details of Gary’s
acquisitions are as follows:-
Date of Purchase Number of Shares Cost
€
1st March 1999 5,000 8,400
15th
September 2002 12,000 25,500
(ii) In August 2016, Sandra sold a painting her husband had given to her in October 2000 for
€10,000. The market value of the painting in October 2000 was €4,000. Gary had originally
purchased the painting in May 1980 for €800 at a car boot sale.
(iii) Gary inherited 50 acres of farm land from his father in January 1988. Its market value at that
date was €21,000. His father had originally purchased the 50 acres in January 1980 for €5,000.
In October 2016, Gary sold 10 acres for €8,000. The market value of the 40 acres remaining is
€45,000.
(iv) Gary and Sandra sold a house they owned jointly for €300,000 net of disposal costs in
November 2016. This house was not their principal private residence. They had originally
purchased the house in March 1998 for €56,500. Legal costs of acquisition were €4,000. They
spent €40,000 on an extension in August 2001. In February 2002, they spent €5,000 on
repairing the roof.
Requirement
a) You are required to calculate Gary and Sandra’s capital gains tax for 2016.
18 Marks
b) State the date(s) by which any capital gains tax is payable.
2 Marks
Total 20 Marks
Page 11 of 32
Sample Paper 1
QUESTION 5
a) Sarah Murray commenced as a florist on 1st June 2014. Her tax adjusted profits for her first three
years are as follows:-
Year ended 31st May 2015 €9,600
Year ended 31st May 2016 €6,000
Year ended 31st May 2017 €12,000
Requirement
You are required to calculate Sarah’s Case I Income for her first three tax years exercising any
options available to her.
10 Marks
b) John White has been in business for many years. His year end is September each year. His tax
written down value at 1st January 2016 is as follows:-
Machinery €11,250
Motor Car €18,000
The machine was purchased in May 2014 for €15,000. The car was purchased in March 2014 for
€30,000. John uses the car 25% for private use. The emissions for this car were 140g/km.
During his year ended 30th
September 2016, John had the following transactions with regard to
his fixed assets:-
Date Transaction Cost/Sales Proceeds Grant Received
1/11/2015 Purchase of Machine €10,000 €1,000
10/07/2016 Sale of Car €19,200 -
10/07/2016 Purchase of new car €35,000 -
The emissions of the new car purchased on the 10th
July 2016 are 165 g/km. The private use by
John White remains at 25%.
Requirement
You are required to calculate John White’s capital allowances for 2016.
10 Marks
Total 20 Marks
Page 12 of 32
Sample Paper 1
QUESTION 6
The following multiple choice questions consist of TEN parts, each of which is followed by four possible
answers. There is only one correct answer.
Requirement
Indicate the correct answer to each of the following TEN parts.
[1] Green Ltd provides Mark with a company car on 1st October 2014. The car cost Green Ltd €20,000.
Its original market value was €26,000. Mark travels 26,500 business kilometres in 2016 and
reimburses his employer €1,000 in 2016 for the use of the car. What is Mark’s taxable Benefit–in–
Kind for 2016:
a) €6,000
b) €5,000
c) €6,240
d) €5,240
[2] Mark Byrne ceased business on the 30th
June 2016. He made up accounts to
30th
June each year. Profits as adjusted for tax purposes were as follows:-
Year ended 30th
June 2015 €10,000
Year ended 30th
June 2016 €12,000
The Schedule D, Case I profit assessed for 2016 is:-
a) €12,000
b) €10,000
c) € 6,000
d) €11,000
[3] Josie is single. In 2016 she paid €8,000 to her widowed mother, aged 68 under a Deed of Covenant.
She paid a further €4,000 in favour of her permanently incapacitated niece aged 9, under a separate
Deed of Covenant. In 2016 details of Josie’s income are as follows:
Gross Income €140,000
Total Income €100,000.
The amount of tax relief available to Josie in respect of payments under Deed of Covenants is:
a) €11,000
b) €9,000
c) €12,000
d) €5,000
[4] Seamus owns his own business. He is registered for V.A.T. He supplies goods to a registered trader
on 18th
June 2016. He must issue a V.A.T. invoice to the registered trader by: -
a) 10th
July 2016
b) 19th
July 2016
c) 15th
July 2016
d) 30th
June 2016
Page 13 of 32
Sample Paper 1
QUESTION 6 (Cont’d)
[5] Wise Limited had an accounting period year ended 31st October 2016. The company paid a dividend
to its shareholders on 18th
June 2016. Dividend withholding tax must be paid by Wise Limited by: -
a) 23rd
September 2016
b) 31st December 2016
c) 23rd
July 2016
d) 14th
July 2016
[6] To account for V.A.T. on a cash receipts basis you must supply 90% of your turnover to a non-
registered person or your annual turnover must be below: -
a) € 37,500
b) € 75,000
c) €2,000,000
d) €1,250,000
[7] Lorraine borrowed €100,000 from her employer on 1st July 2016. She used the money to purchase her
main residence. Her employer charged her interest of 3.25%. What is Lorraine’s Benefit-in-Kind for
2016: -
a) € 875
b) €1,750
c) € 375
d) € 750
[8] Susan a single person purchased a house for €50,000 on 1st July 200. On 1
st July 2016 she sold the
house for €350,000. Susan lived in this house as her principal private residence for the period 1st July
2002 to 30th June 2008. She made no other disposals in 2016. Her capital gains tax for 2016 and her
payment date for this gain is: -
a) €49,095 15th
December 2016
b) €48,676 31st October 2017
c) €52,441 15th
December 2016
d) €48,676 15th
December 2016
[9] Joe sold a painting for €10,000 in May 2016. He was given the painting by his Aunt in July 1999 for
€1,000. The market value of the painting in July 1999 was €2,200. Joe’s chargeable capital gain
before annual exemption is: -
a) Nil as exempt
b) €9,000
c) €8,807
d) €7,375
Page 14 of 32
Sample Paper 1
QUESTION 6 (Cont’d)
[10] Acorn Ltd commenced trading on 1st July 2015 and incurred a trade loss of €10,000 in the year
ended 30th
June 2016. Acorn Ltd. also had the following income during the year ended 30th
June
2016:
Rental Income €6,000
Capital Gain - Adjusted for corporation tax €4,000
Calculate Acorn Limited’s corporation tax for the accounting period 30th
June 2016 assuming
maximum loss relief was claimed by Acorn Ltd.
a) Nil
b) €2,000
c) € 750
d) €1,250 Total 20 Marks
Page 15 of 32
Sample Paper 1
QUESTION 7
(a) List the six badges of trade which were identified by the Royal Commission of Taxation in 1954 and
write a brief note on each.
10 Marks
(b) Spruce Limited has prepared accounts for the 18-month accounting period ended 31st December
2016.
Details of the company’s income is as follows:
€
Case I adjusted income before capital allowances 25,000
Case III foreign interest 2,500
On 1st December 2015, Spruce Limited purchased plant and machinery for €20,000. The company did
not own any other plant and machinery.
Requirement:
Calculate the corporation tax due by Jupiter Limited for all accounting periods covered by Spruce
Limited’s 18 month accounting period to the 31st December 2016.
You may assume all income accrued evenly throughout the 18-month period.
10 Marks
Total 20 Marks
Page 16 of 32
Sample Paper 1
Advanced Taxation (Republic of Ireland)
Sample Paper 1 – Suggested Solutions
Page 17 of 32
Sample Paper 1
Solution 1
David and Susan
Income Tax Liability 2016
(i)
Notes €
Schedule D – Case II (H) 1 82,000
Schedule D – Case IV (H)
€2,360 x 100 4,000
[100-41]
Schedule D – Case V (H) 2 36,800
Schedule E (W) 5,000
Schedule F (W)
€2,560 x 100 3,200
80
131,000
Less: Charges
Retirement Annuity 3 (10,000)
Statutory Income 121,000
Allowances
Permanent Health Insurance 4 (850)
Taxable Income 120,150
€ 51,000 at 20% = €10,200 (Note 5)
€ 4,000 at 41% = € 1,640 (Note 6)
€ 65,150 at 40% = €26,060
€ 120,150 €37,900
Page 18 of 32
Sample Paper 1
Solution 1 (Cont’d)
Less: Non Refundable Tax Credits
Married €3,300
P.A.Y.E. (Note 7) €1,000
Earned Income € 550
Carers (Note 8 and note 5) Nil
DIRT €4,000 at 41% €1,640
College Fees (Note 9) € 140 € 6,630
Tax Liability €31,270
Less: Refundable Tax Credits
P.A.Y.E. Paid € 950
DWT €3,200 at 20% € 640 € 1,590
€29,680
(ii)
David Total Income €
Schedule D – Case I 82,000
Schedule D – Case IV 4,000
Schedule D – Case V 36,800
122,800
P.R.S.I and Universal Social Charge
PRSI €122,800 at 4% = €4,912
Universal Social Charge - David Only
Schedule D – Case I 82,000
Schedule D – Case IV exempt
Schedule D – Case V 36,800
118,800
€12,012 at 1% = € 120.12
€ 6,656 at 3% = € 199.68
€51,376 at 5.5% = €2,825.68
€29,956 at 8% = €2,396.48
€18,800 at 11%1 = €2,068.00
€118,800 €7,609
1 A 3% surcharge applies to USC for non-PAYE income in excess of €100,000
Page 19 of 32
Sample Paper 1
Solution 1 (Cont’d)
(iii)
The payment date for David’s preliminary tax for 2016 is 31st October 2016.
(iv)
The filing date for David’s form 11 for 2016 is 31st October 2017.
Notes
1. Schedule D – Case II
As David is not in commencement or cessation the basis of assessment is current year.
2016 c/y 30th June 2016 €90,000
Less capital allowances € 8,000
Schedule D – Case II €82,000
2. Schedule D – Case V
Rent 24,000 x 2/12 = €4,000
(Nov-Dec)
Premium
€40,000 X (51-10) = €32,800
50
Schedule D – Case V €36,800
3. Retirement Annuity
Schedule D – Case II €82,000
Maximum tax relief
€82,000 x 25% = €20,500
Relief restricted to amount paid €10,000
Page 20 of 32
Sample Paper 1
Solution 1 (Cont’d)
4. Permanent Health Insurance
Maximum 10% of Statutory Income
Case I + Case IV + Case V – Retirement annuity
€82,000 + €4,000 + €36,800 - €10,000 = €112,800 at 10% = €11,280
Limited to premium paid of €850.
5. The married band for one income is €42,800, this will be increased by Susan’s income of €8,200. This
gives a married band of €51,000.
6. The maximum tax that deposit interest is assessed on is 41%.
7. The P.A.Y.E credit is restricted as Susan’s Schedule E income is only €5,000. Therefore, the P.A.Y.E.
credit is limited to €5,000 x 20% = €1,000.
8. The carer’s credit does not apply as Susan’s income exceeds €6,700 and the increased band was claimed.
9. College fees €2,200 - €1,500 = €700 at 20% = €140.
Solution 2
(a)
Blayney Limited
Case I Computation
Year ended 30th
September 2016
Notes € €
Net profit
219,975
Add Backs
Depreciation 10,510
Interest on late payment of corporation tax
1,510
Legal Fees (1) 4,250
Increase in general provision for bad debts 800
Entertainment (€5,000 – €1,580) 3,420
Motor expenses and lease rental (2) 3.188 23,678
243,653
Deductions
Other income (120,000)
Case 1 Excluding capital allowances 123,653
NOTES
(1) Legal Fees €
Parking Fines 450
Disposal of warehouse 3,800
4,250
(2) Motor expenses and lease rental.
There is no addback for expenses only lease rental for cars as any personal usage will be dealt
with through the PAYE system.
Car for managing director is category D
Disallow
€5,100 X [(€32,000-€12,000)/€32,000] = €3,188
Page 22 of 32
Sample Paper 1
Solution 2 (Cont’d)
(b) Blayney Limited
Capital Allowances computation
Machinery Car Van
€ € €
TWDV 1 October 2015 12,750 21,000 22,750
W&T Note 1 (2,125) (3,000) (3,250)
TWDV 30 September 2016 10,625 18,000 19,500
Note 1
Wear and Tear
Machine
Cost 18,000
Less: grant 1,000
17,000 at 12 ½ % = €2,125
Car 27,500
Limit 24,000 at 12 ½ % = €3,000
Van (no limit) 26,000 at 12 ½% = €3,250
€8,375
(c)
Blayney Limited
Corporation Tax Computation
Year ended 30th
September 2016
Notes €
Schedule D Case I
€123,653 - €8,375 = 115,278
Less: Trade loss carried forward (10,000)
105,278
Schedule D Case III 10,000
Income 115,278
Gain 2 82,310
Profits 197,588
Corporation Tax Case I €105,278 at 12 ½% = €13,160
Case III € 10,000 at 25% = € 2,500
Gain € 82,310 at 12 ½% = €10,289
€25,949
Page 23 of 32
Sample Paper 1
Solution 2 (Cont’d)
Note 2 €
1. Sales proceeds 350,000
Less Disposal Costs (3,800)
Net Proceeds 346,200
Less: acquisition costs
97/98 255,700 x 1.232 (315,022)
Capital Gain 31,178
Adjusted for corporation tax
€31,178 x 33 = €82,310
12.5
2. Dividends received from other Irish companies is exempt from corporation tax.
Page 24 of 32
Sample Paper 1
Solution 3
Part A
(a) Where there is no obligation on a person to register for V.A.T., the issues to be considered are as
follows:
(i) The percentage of the customers or potential customers who are registered or likely
to be registered for V.A.T.
(ii) Whether the V.A.T element of the purchase/input costs are significant.
(iii) The additional work involved in having to issue V.A.T. invoices and lodging of
V.A.T. returns with the revenue.
(iv) The possibility of a V.A.T audit and the danger of penalty/interest exposures if the
V.A.T. returns are not correct and/or V.A.T. due for a period is not paid on time.
(b) The rate of V.A.T. applying to a service which is supplied with goods is dependent on the ⅔ rule. This
is a rule, which provides that a transaction is liable for V.A.T. as a sale of goods at the rate of V.A.T.
applicable to the goods supplied, and not at a rate applicable to the service if the value of goods used
in providing the service exceeds two thirds of the consideration charged to the customer.
(c) Where a supply is made of an exempt item it is not regarded as a taxable supply for V.A.T. purposes
and the trader therefore cannot register for VAT or obtain credit in respect of input V.A.T.
Part B
(i)
Aíne Taylor
V.A.T. Computation - March/April 2016
V.A.T. on sales € €
€300,000 at 23% 69,000
V.A.T. on expenses
Goods for resale
184,500 x 23 (34,500)
123
Entertaining customer Not allowed
Petrol Not allowed
Diesel
1107 x 23 (207)
123
Telephone
492 x 23 (92)
123
Electricity
681 x 13.5 (81) (34,880)
113.5 V.A.T. Due 34,120
(ii) The V.A.T. due must be paid on or before 23rd
of May 2016.
Page 25 of 32
Sample Paper 1
Solution 4
(a)
(i) Number Cost
€
1st March 1999 5,000 8,400
15th
September 2002 12,000 25,500
As shares are sold on a FIFO basis, Gary has sold all his holding purchased on 1st March 1999
and 5,000 of the 12,000 shares he purchased on 15th
September 2002.
Holding purchased 1st March 1999
Sales proceeds €
€35,000 x 5,000 = 17,500
10,000
98/99 € 8,400 x 1.212 (10,181)
Gain 7,319
Holding purchased 15th
September 2002
Sales proceeds
€35,000 x 5,000 = €17,500
10,000
2002 €25,500 x 5,000 = €10,625
12,000
€10,625 x 1.049 = (€11,146)
Gain € 6,354
(ii) Sales Proceeds €10,000
80/81 €800 x 3.240 € 2,592
Gain € 7,408
(iii) Sales Proceeds € 8,000
Cost 87/88 €21,000
€21,000 x €8,000
€8,000 + €45,000
€3,170 x 1.583 (€5,018)
Gain €2,982
Page 26 of 32
Sample Paper 1
Solution 4 (Cont’d)
( iv) Sales Proceeds €300,000
Cost 97/98 €56,500
Add: acquisition costs €4,000
€60,500
€60,500 x 1.232 (€74,536)
Enhancement expenditure
2001 €40,000 x 1.087 (€43,480)
Gain €181,984
The repairs are not allowed in capital gains tax as they are not capital expenditure.
Gary and Sandra
Capital Gains Tax Computation – 2016
(Note-Separate calculation of gain shown for each)
Gary Sandra
€ €
(i) €7,319 + €6,354 13,673
(ii) 7,408
(iii) 2,982
(iv) 181,984 / 2 90,992 90,992
107,647 98,400
Less: annual exemption (1,270) (1,270)
106,377 97,130
Capital Gains Tax at 33% 35,104 32,053
Total Capital Gains Tax for 2016
€35,104 + €32,053 = €67,157.
(b) The tax on the sale of the shares, painting and the land must be paid by 15th
December 2016, as
these gains arise in the initial period.
The tax on the sale of the house must be paid by the 31st January 2017 as that gain arises in the
later period.
Page 27 of 32
Sample Paper 1
Solution 5
(a) Tax year Basis of Assessment Amount
2014 Actual
1st June 2014 to 31
st December 2014
€9,600 x 7/12 €5,600
2015 12 months ended 31st May 2015 €9,600
2016 12 months ended 31st May 2016 €6,000
Section 66 TCA 1997
This option is available in the third year.
Original assessment for year 2
€9,600
Actual for year 2 – 2015
1st January 2015 to 31
st December 2015
€9,600 x 5/12 = €4,000
€6,000 x 7/12 = €3,500 €7,500
Excess €2,100 *
Adjustment in Year 3 2016 original assessment €6,000
Less: Section 66 (€2,100) *
Final assessment €3,900
Final Assessments
2014 €5,600
2015 €9,600
2016 €3,900 (as revised)
Page 28 of 32
Sample Paper 1
Solution 5 (Cont’d)
(b) John White
Capital Allowances Computation – 2016
Machinery Motor Car
€ €
TWDV – 1st January 2016 11,250 18,000
Disposal (18,000)
Additions 9,000 12,000 Note 1
20,250 12,000
Wear and Tear (3,000) Note 2 (1,500)
TWDV – 31st December 2016 17,250 10,500
Balancing charge / allowance computation
Sales Proceeds €19,200 x €24,000 = €15,360
€30,000
TWDV €18,000
Balancing allowance €2,640
Restricted to business use
€2,640 x 75% = €1,980
Summary € €
Wear and Tear
Machinery 3,000
Car €1,500 x 75% 1,125 4,125
Balancing allowance 1,980
Total Capital allowances for 2016 6,105
NOTES
1. As the car’s emissions are 165g/km, the cost of the car (for capital allowances) is restricted to the lower
of:-
(i) €35,000 x 50% = €17,500
or
(ii) €24,000 x 50% = €12,000
2. Wear and Tear for Machinery
€
Opening cost 15,000
Cost of addition less grant 9,000
24,000
Wear and Tear at 12 ½ % = 3,000
Page 29 of 32
Sample Paper 1
Solution 6
(1) – (d) €26,000 x 24% = €6,240 - €1,000 = €5,240
(2) – (c) Actual 1/1/2015 to 30/06/2015
€12,000 x 6/12 = €6,000
(3) – (b) No restriction on payment in respect of permanently incapacitated child so full €4,000
allowed.Payment in respect of adult aged over 65 restricted to 5% of total income so relief restricted to
(€100,000 @ 5%) €5,000.
Relief die (€4,000 +€5,000) = €9,000.
(4) – (c)
(5) – (d)
(6) – (c)
(7) – (c) €100,000 x (4 % - 3 ¼ %) = €750
€750 x 6/12 = €375
(8) – (d) Sales proceeds €350,000
2002
€50,000 x 1.049 € 52,450
€297,550
Total ownership
1/7/2002 to 1/7/2016 = 14 years
Non occupation
1/7/2009 to 1/7/2016 = 7 years
Last 12 months of ownership (1/7/2015- 1/7/2016) is deemed occupation.
€297,550 x 7/14 = €148,775
Less: annual exemption € 1,270
€147,505
Tax 33% € 48,676
Sold in July 2016: Payment date 15th
December 2016
(9) – (d) Sales proceeds €10,000
99/00
€2,200 x 1.193 € 2,625
Gain € 7,375
Page 30 of 32
Sample Paper 1
Solution 6 (Cont’d)
(10) – (c) Acorn Ltd
Corporation Tax Computation
Schedule D – Case I Nil
Schedule D – Case V € 6,000
Income € 6,000
Gain € 4,000
Profits €10,000
Corporation tax
€6,000 x 25% = € 1,500
€4,000 x 12 ½ % = € 500
€ 2,000
Less: Trade loss
€10,000 x 12 ½ % = (€1,250)
€750
Page 31 of 32
Sample Paper 1
Solution 7
(a) The six badges of trade as identified by the Royal Commission of Taxation in 1954 were as follows:
1. Subject matter;
2. Frequency of transactions;
3. Length of ownership;
4. Supplementary work and marketing;
5. Circumstances in which the asset is realised;
6. Profit motive.
1. Subject Matter
The question as to whether a person is trading or not sometimes can be decided by examining the subject
matter of the transaction under review. Assets, such as painting are quite often held as an investment for
their intrinsic value. Consequently, a subsequent disposal at a profit may produce a gain of a capital
nature rather than a trading profit. On the other hand, a profit arising from the sale of articles such as
clothing stock, cosmetics and so forth are more likely classified as a trading profit.
2. Frequency of Transactions
A gain arising from a once off transaction could indicate that it is of a capital rather than a trading nature.
Whereas, gain/profit arising from the frequent sale of assets would indicate a trading profit.
3. Length of ownership
Here, the courts infer that the sale of items shortly after their purchase indicate an adventure in the nature
of a trade.
4. Supplementary work and marketing
In a case where work is done to convert, or create an asset, rather than simply making it more marketable,
the courts will almost certainly ascribe a trading motive.
5. Circumstances in which the asset is realised
Where a taxpayer can show that the reason why the asset was sold was in response to an emergency or a
sudden opportunity to realise a windfall gain, rather than as part of an organised scheme for making
profit, he could go a long way to establishing that the gain was capital rather than trading in nature.
6. Profit Motive
While the absence of a profit motive does not necessarily mean that a trade was not carried on and indeed
there is abundance of case law to prove this point, it is nevertheless a strong indication that trading is
carried on.
Page 32 of 32
Sample Paper 1
Solution 7 (Cont’d)
(b) Spruce Limited
12 months to 6 months to
30-Jun-16 31-Dec-16
€ €
Profits (25,000 X 12/18) 16,667
(25,000 X 6/18) 8,333
Capital allowances (20,000 @ 12.5%) (2,500)*
20,000 @ 12.5% X 6/12 (1,250) **
Case I 14,167 7,083
Case III 1,667 833
Total Income 15,834 7,916
Taxed as Follows
Case 1@ 12.5% 1,770 885
Passive Income @ 25% 417 208
Tax Due 2,187 1,093
* As accounts are for 12 months 12 months capital allowances due
** As accounts are only for 6 months only 6 months capital allowances due.
