Capital Gains Tax

mantoinette

Hi - I am doing exams and the syllabus is based on the tax year 2009. There are two CGT rates for 2009 - 22% up to the 7the of April 2009 and 25% from 8th April 2009 onwards. Therefore i must do two separate CGT calculations for 2009 if there are assets sold before 7th April and after 8th April using the two rates.

Does anyone know is there a rule that you must take a portion of the annual exemption of €1,270`off both calculations - or can you choose to take the annual exemption just off the 25% computation?

Many thanks

namenotavailablE

Interesting query- neither my text book nor the Revenue's website address this matter.

From first principles, I'd guess that you would set the exemption against the earliest arising gain and- if some is still available- set the remainder against the subsequent gains. However, I can see your logic behind a time-based apportionment exercise (distributing the annual amount between different fractions of the year) which could be more beneficial to the taxpayer. Equally, if the Revenue were allowing taxpayers to choose the most beneficial route, that would allow them to set it against the 25% gains.

There is a precedent for the last of these options: companies can set non-trade charges against 'passive income' when computing their CT liability as the legislation does not mandate a particular set-off sequence. Revenue practice permits set-off against the income taxed at the highest rate- the passive income- in priority to the income taxed at the lower 12.5% rate. In the absence of specific guidance, it might be possible to argue that the annual exemption should apply to the gains chargeable at the 25% rate.

If you receive a definitive answer to your query, you might post it here.

jeckle

If you contact the Office of the Revenue Commissioners they will be able to answer your question.

nompere

This is copied directly from the Revenue notes on Taxes Consolidation Act 1997 (http://www.revenue.ie/en/practitioner/law/notes/taxes-consolidation-act-1997-2008.html)

"Where an individual is chargeable to tax for a year of assessment at 2 rates, the exemption is to be allowed as far as possible against the gains chargeable at the higher of the rates and then from the gains chargeable at the lower rate. Similarly, where a person is chargeable at 3 or more rates, the exemption is to be allowed as far as possible from the gains chargeable at the highest rate and then from the gains chargeable at the next highest rate and so on." (Section 601 (3))

There's a similar provision for losses - S. 546(4)

Seems pretty straightforward.

namenotavailablE

That's a very useful link, nompere- thanks for that!

mantoinette

Thanks guys for this info. This is my first time posting a thread on the site and I have to say its very good!!

bubblicious

Your syllabus should state which CGT rate is examinable, as they generally don't like to make the exams more difficult than they have to be! Ask your lecturer, they should know straight away which rate is examinable - or at least be able to answer your question! Then again, they only told us that the fist finance act 2008 was examinable for our FAE's not long before the exams!

Jubbadog

Hey Guys,
I see that u are well up in the knowledge of CGT. If i may put a scenario to you, maybe you could comment. My wife (Jane) recently was given a site which had a derelict dwelling on it from her mother (Ann). the total size of the site is just shy of 1 acre and no money exchanged hands. We applied for planning to demolish the dwelling and buiild a new home for ourselves. Someone got into my head recently that Ann was liable for capital gains tax on the value of the site with derelict dwelling as the notion of an asset had been disposed off. Could anyone shed any light on the subject. We have our new house finished and the pot is fairly dry - a tax bill would not be good now

namenotavailablE

Taken from page 16 of the PDF file available at this link:

"Transfer of a site from parent to child
Section 603A Taxes Consolidation Act 1997 provides that Capital Gains Tax will no longer apply on the transfer of a site from a parent to a child where the transfer takes place after 6 December 2000 and is to enable the child to construct a principal private residence on the site. The site must not be valued at more than €254,000 to qualify for the relief. However, if the child subsequently disposes of the site without having occupied a principal private residence on the site for at least three years, then the capital gain which would have accrued to the parent on the initial transfer will accrue to the child. However, the gain will not accrue to the child where he or she transfers an interest in the site to his or her spouse."

Jubbadog

Thats great info, thanks:D

Legend100

The 2008 budget increased the exemption from €254k to €500K