Improving business performance

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Improving business performance
through understanding business
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Tax Presentation to RIAI Ned Gladney B Comm, C
Dip AF, AITI Tax Director
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Overview

• Sole Traders
• Partnerships
• Company
• Rental Property Shelters
• Pensions
• Tax Risk Management

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Sole Trader

• One person band
• One owner
• All profits subject to Income Tax

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Partnership

• Two person band
• Group
• Share profits and losses
• All profits subject to Income Tax

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Company

• Distinct legal entity
• Separate from Directors/ Shareholders
• Life of its own
• Pays Corporation Tax on profits

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Tax Rates - Comparison

• Company profits 12.5
• Marginal income tax rate levies 47

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Other CT Rates
25 Case 3 25 Case 4 25 Case
5 20 Residential Land
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Surcharge

• Close Company
• Under control of 5 or fewer persons
• Under control of Directors

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Professional Service Company

• Profession
• Professional Services
• Services To Connected Parties
• Architects - Professionals

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Surcharge Professional Income
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Sole Trader
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Company Surcharge
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When To Incorporate

• Cut off point - Drawings - Level of profits

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Cessation of Sole Trader/ Partnership

• Income tax cessation rules
• Timing very important

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Tax Planning Companies

• Goodwill
• Company Premises
• Pension Planning

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• Goodwill
• Setting up company
• Cessation of Sole Trader/ Partnership
• Goodwill transfers to New Co.

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Goodwill

• Market Value?
• Has it a Value?
• Personal Asset?

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Goodwill

• Market value 100,000
• CGT cost 20,000
• Net 80,000

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Goodwill
Tax Cost of extracting 80,000 as Income Total
PAYE/levies 70,944 Less CT Saving 18,868 Net
Tax Cost 52,076
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Comparison
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Company - Premises

• Premises personal ownership
• Company is tenant
• Rent
• Rental Shelter

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Company - Pensions

• Greater ability to fund by company

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Tax Based Property Schemes

• Designated Areas
• Non Designated Areas/ Incentives

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Designated Areas

• Designated property in cities, towns, counties
  and streets
• Urban renewal scheme
• Deadline 31.7.06
• Condition 15 certified by 30.9.03 re
  expenditure as at 31.7.03
• Rural, Town, LOTS
• Deadline 31.7.06
• Condition Planning applied for by 31.12.04

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• Rural, Town, LOTS
• Exempt development
• Different conditions
• Detailed development plan
• Building contract
• 15 work completed by 31.12.04

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Non Designated Area Incentives

• 3rd Level Educational Buildings
• Multi Story Car Parks
• Hotels Holiday Cottages
• Park Ride
• Student Accommodation
• Nursing Convalescent Homes
• Creches
• Private Hospitals
• Sports Injury Clinics

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Overview of Reliefs

• Passive Investors
• Limit 31,750 p.a.
• Balance against rents only
• Section 23
• Section 50 Rents only
• Mainly used as rental shelters

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Use of Reliefs

• Existing Rental Income
• Charge Rent to Company

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Comparison
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Pension Planning

• Personal Pensions
• Defined Funding Basis
• Company Pension Schemes
• Defined Benefits Basis
• SAPS

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Company Pension Schemes

• Three year rule
• Watch level of funding
• ARFS

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Pension Planning

• McCreevey Changes
• Personal Ownership of Pension
• ARF Option

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Pension Funding

• Tax relief on contribution
• Tax free investment
• No Income Tax
• No Corporation Tax
• No Capital Gains Tax

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At Retirement

• Transfer to ARF
• Approved
• Retirement
• Fund
• ARF Tax Exempt
• Take 25 tax free

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Post Retirement

• Take 25 tax free
• Pay tax on balance as withdrawn
• On death pass on to spouse/ family

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Sole Trade/ Partnership

• Maximum tax allowable pension contributions
• 15 Up to 30 years
• 20 30 39
• 25 40 49
• 30 50 years
• Subject to earnings cap of 254,000 p.a.

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Company

• May fund to provide for a 2/3rds Salary
• Greater scope for funding

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2004 Pension Changes

• Pension can borrow
• Possible to gear for property investment

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Pension Options 2004

• Transfer existing fund to self directed pension
• Borrow up to 75
• Acquire property
• Pension grows tax free
• Contributions tax deductible
• At retirement take 25
• Balance into ARF

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Tax Risk Management

• VAT
• BIK
• Revenue Audits

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Value Added Tax

• VAT on property
• Highly complex
• VAT 4A
• Capitalised Value
• Economic Value Test
• Exemption Waiver
• VAT Audits

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BIK

• Radical changes FA 2003
• Before - Employees
• Problem
• Risk
• Cost

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BIK

• Now - Employers
• Problem
• Risk
• Cost

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BIK

• Additional Costs
• Employer PRSI 10.75
• Employee PRSI 6
• Ceiling 42,160 2 above)
• Employers Admin Costs
• HR Issues

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BIK Typical Benefits

• Medical Insurance
• Company Cars/ Vans
• Club Subs
• Goods at a Discount
• Free Services
• Non Cash Benefits

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BIK Excluded Benefits

• Pension Contributions
• Travel Passes
• Laptops and mobiles
• Incidental private use
• Professional Subs
• Home Computers
• Medical Check Ups

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Revenue Audits

• Small Errors
• Big Penalties
• Interest
• Penalties
• Publication

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Closing Thoughts

• Tax
• Life
• Threats
• Opportunities
• Manage
• Seize