My Business Expo

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• My Business Expo
• Tax Planning
• 24th March 2003

Presented by Paul
Mee
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Company Pension

• Owner managed company worth 1M
• Free cash in company of 600,000
• Underfunded pension scheme
• 20 years of service as director
• Exiting now at 55 years of age
• Normal retirement age 60
• Salary 70,000

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Company Pension

• Max pension entitlement as a of remuneration
  53.33
• Max pension allowable 37,331
• Fund required for pension 746,620
• Existing pension fund 150,000
• Company can contribute 596,620

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On Retirement

• 25 lump sum tax free
• Balance to ARF which gives full ownership of the
  fund

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Company Pension

• Very useful as part of an overall exit strategy
  for owner managed businesses
• Maximises retirement relief.
• Payment can be made prior to sale to reduce value
  of company below retirement relief exemption
  limit of 500,000 so no CGT

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Property Ownership
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Facts

• Purchased property for 200,000 in 1992 as an
  investment
• Value after 10 Years 519,000
• Indexed base cost 268,200

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Mrs No Advice

• Buys property through a company
• Implications on sale
• Taxable Gain 250,800
• 20 CGT on sale 50,160
• 20 CGT on liquidation 93,768
• Total exposure to CGT 143,928

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Mrs Advice

• Buys property in her own name
• Taxable Gain 250,800
• 20 CGT on the sale 50,160
• Saving 93,768

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Intangible Assets
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Types Of Intangibles

• Patent Royalties
• Trademarks

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Mrs No Advice

• Valuable Patent Royalties and Trademarks
• Owned through a company
• Purchaser only interested in intangibles
• Double CGT exposure same as in property example

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Mrs With Advice

• Owns the intangibles herself
• Patent royalty income tax free in her hands
• Gain after CGT on trademarks retained personally
• Grant of limited use for capital sum tax free
• Grant of exclusive use for capital sum CGT
• Complete sale of patent rights Income Tax

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Offset CAT v CGT
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Mr No Advice

• Land worth 2 million
• Nominal base cost for CGT
• Sells land and pays 400,000 CGT
• Gifts 1.6 million net cash to his children who
  pay 320,000 Capital Acquisitions Tax
• Total tax 720,000

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Mr Advice

• Gifts 2.0 million of land to his children
• Mr Advice has CGT of 400,000
• Children pays no CAT as their fathers CGT is
  offsetable against the CAT paid
• Children sell the land for no CGT
• Tax saving 320,000

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Acquisition of a Company
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Mr No Advice

• Buying a company for 500,000
• Personal borrowings cost 60,000 p.a.
• (interest plus capital)
• Salary of 120,000 needed to finance the
  borrowing
• Significant cash drain on company

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Mr Advice

• Sets up a Newco to make the acquisition
• 60,000 repayment p.a. in Newco
• Newco receives a loan from the acquired company
  to make the loan repayments
• Cash drain on acquired company halved.

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Contractors V Employees
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Contractors

• Contractor bears the responsibility for payment
  of PAYE/PRSI to the Collector General
• No employers PRSI contribution on payments to
  contractors

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Employees

• Employer bears the responsibility for collection
  of PAYE/PRSI
• Employee has rights under the Employments
  Protection Act
• Employer bears the liability to the public for
  employees work

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Issues to Consider

• Sub-contraction of work
• Fixed wage
• Supply of materials for the job
• Equipment and small tools of the trade
• Exposure to the financial risk in carrying out
  the work
• Set hours of work
• Work for one person or one business

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If Revenue classes an individual as an employee
not self employed

• Employer is then liable for payment of all PAYE
  and PRSI that should have applied

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Addition of Shareholders in a Family Business
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No Advice

• Husband and wife with two children
• Husband and wife own company
• Down the road when the company is very
  valueable, it is decided to bring in the children
  as shareholders
• CAT and CGT issues

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With Advice

• Issue shares to the children when setting up the
  business
• 60 of shares to the husband and wife
• 20 to each of the children
• No CAT issues as business is valueless
• Avoids transferring significant value later on

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• My Business Expo
• Tax Planning
• 24th March 2003

Presented by Paul
Mee