HELP - exam question help

John Mason

hi, i am losing my reason here and hope someone can help me

shirley is 39, and is a self employed chiropodist, she is married but has opted for single assessment

her schedule case I income is €43,000.

she purchased a house in november 2007 for letting. she didnt get a tenant until march 2008, the rent was 1200 a month and she paid mortgage interest of 9600

this is all good until i go to the solution which is what follows:-

case I                            43000

[COLOR="Red"]less RAP  20%                 (8600)[/COLOR]

                                   34400


case iv   259.20x.80         324

sch f      374.4 x .80         468

case v 1200 x 10           12000

[COLOR="Red"]interest  9600 x10/12      (8000)[/COLOR]

now i have two questions - what the frick is RAP and why is it reducing the income by 20%

and why in goods name is the mortgage interest being taken off the rent ? it is a investment property so there shouldnt be any relief of it but even if there was, it shouldnt be up there

i am probably being really stupid but i am losing the plot here

Mr. Incognito

Well it's a deduction from Case 1 Trade Income so it's allowable trade expenses of 8,600. If you have a look in the question it might make reference to it. These are expenses incurred wholly and exclusively for the trade so it could be insurance, etc. The 20% makes me think that 20% of the income is estimate to be her allowable expenses?.

Interest is an allowable expense from case V income. The last budget reduced it to 75% of the interest charge.

Mortgage Interest relief on your PPR is granted at source. That might be where the confusion arises for you.

Hope that helps.

Barracudaincork

I would think that the 20% relates to her pension contribution as she is 39 etc you cant estimate expenses in tax as its that old chestnut "wholly and necesserily for the business" etc

John Mason

hi i have attached the question and answer here. its question 4.

there is no mention of business expenses and it there were, it shouldnt be in that part of the computaton.

her pension is a 1000 a month but schedule d, case 1 dont get pension relief

thanks

Mr. Incognito

Shirley contributes €1,000 per month to a Revenue approved pension fund.

Shirley is 39

The limits for pension contributions are

Up to 29 15%
30-39 is 20%
40-49 is 25%
50-54 is 30%
55-59 is 35%
60 and over 40%

So the 20% RAP is "Revenue Approved Pension. She gets a deduction for 20% only.

Of course Case 1 Trade's people get relief for pensions. Generally on the computation you will have all your sources of income and once you get the total it is a percentage of that total as the term is "net relevant earnings" so it should be

Case 1 43000
Case IV 324
Case V 4000
Schedule F 468

Total 47792

20% Pension Relieved Contributions 9,558.4

In addition the description "Approved Scheme" generally relates to a scheme set up by employers for the benefit of of employees. Shirley is self employed. It describes it as a Revenue Approved Pension Fund.

I'm open to correction on that but I can't see why the pension is confined to the Case 1 income in your sample answer.

John Mason

you are a star - thank you

yet another error on these stupid papers.

do you know why they have taken interest off the property in the first part of the question

is this another error, do you think ?

Mr. Incognito

No that's correct.

All letting expenses in relation to the letting are deductible from Case V income. This includes mortgage interest, ground rents and repairs etc. Capital expenditure wouldn't be but current expenditure in connection with the letting is.

John Mason

thanks, i just realised that when i posted and then boards went down,

i am so stressd about this whole thing. every single solution (3 tax 1 pilot papers; 2 tax 2 pilot papers; 3 financial pilot papers) have errors and i am continously seconded guess myself, i kinda lost the plot last night with the pension thing

i think i have found a load of other errors in the multiple choice questions but i dont care anymore,


okay deep breaths and back to it.


anyway, thanks for all your help

gingerhousewife

Net Relevant Earnings, as defined in S787B TCA1997 means:

remuneration from a non–pensionable office or employment

plus trading/professional income

less losses and capital allowances relating specifically to the employment or trade/profession

less charges on income.

Therefore, Case IV, Case V and Schedule F are not included in the calculation, so 20% of Case I is the correct allowable contribution into a revenue approved pension.

Barracudaincork

I agree with the above poster, its only on net relevant earnings and not on all earnings such as Case v etc

So therefore the exam question is right in taking on 20% of the Case 1 income only.

Pink Fluffy Bunny, when are your exams and what part are you particularly struggling with?

namenotavailablE

To clarify a point: if Shirley had paid trade charges and non-trade charges, how would these be treated in the calculation of NRE?

My understanding is that the trade charges would be deducted from Case I and the non-trade charges would be initially deducted from Case III/IV/V etc with any excess being deductible from Case I.

Can someone confirm this or set me right?

John Mason

exams start on monday

struggling with tax one, tax two, financial two and law & ethics:o:o:o

Barracudaincork

pink fluffy bunny wrote: »

exams start on monday

struggling with tax one, tax two, financial two and law & ethics:o:o:o

PM me re the tax ones and i will try and help