Professional, Practical, Proven

Academy 2019/20Advanced TaxationLecture 8Capital Gains Tax

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Introduction to CAPITAL GAINS TAXLecture 8Chapter 10 – page 151

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CGT Module

• 5 Weeks of CGT – we will look at :–Scope of CGT–Calculating CGT liability–Special CGT Rules–Revenue requirements to pay and file

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Scope of CGT

• CGT arises when there is a Disposal of Certain Assets

• “Disposal” for CGT purposes includes a :– SALE (full or part sale)– Gift– Exchange– Asset Destroyed or scrapped– Grant an option– Sum received to surrender rights

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Scope of CGT

• CGT arises when there is a Disposal of CertainAssets

• “Certain Assets” for CGT purposes in this course include :• Property – residential or commercial• Land – sites, farm• Shares – in public companies• Chattels : Antiques including Paintings, Jewelery etc• Options/debts (not original creditor)• Currency ( Not Euro)• And Sale/Gift must :

Have occurred since 6 April 1974 and Not be exempt from CGT

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Assets NOT CHARGEABLEto CGT (i.e. exempt)

• Government securities• Most assets disposed by Charities• Pension fund investments• Lotteries• Personal injury compensation• Property purchased 7/12/11 31/12/2014

in EEA held 4 years(see page152)• Principal Private Residence – some

conditions

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Sales Proceeds/consideration X• Less costs of disposal (legal, auctioneer etc) (X)

XLessCost of Acquisition Date /or 06/04/74 plus• Incidental costs of acquisition

(stamp duty, legal fees etc)• Less any capital grants• *Indexed at x.xxx (X)

*Enhancement expenditure• Indexed at x.xxx (X) (X)Chargeable Gain• Less capital losses available• *Less annual exemption

X(X)

(€1,270)(X)

• Taxable Gain X• *RATE of CGT (33%)• CGT Liability XX

PROFORMA CGT Computation

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Computation

• Usually a Chargeable Capital Gain is calculated as the difference between:

• Sales Proceeds (consideration) and• Allowable Purchase/Cost Price

• Therefore when preparing a capital gains tax computation, you have to know both

i. Sales Price – [and the associated selling costs]ii. Purchase Price – [and the associated purchase

costs]

iii. A loss can also arise

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Costs of disposal/selling

• SUBTRACT from sale proceeds:

– Fees, commission or remuneration for the professional services of any surveyor -valuer -legal advisor in relation to the sale

– Costs of advertising to sell the asset

– Note: Costs of disposal must be incurred wholly and exclusively for the purpose of the disposal of the asset

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Costs of purchase/acquisition

• ADD to Purchase price paid:Allowable costs which are :–Price paid to buy the asset/Cost of acquisition

[OR use Market Value if it was a gift – more later]

–Plus Incidental costs of acquisition –

Exclude (subtract) any capital grants received10

Try this one

• Tony sells his holiday home in 2019 for€180,000. He bought it in 2006 for €84,000

• Purchase costs were : Legal fees 3,000 and  auctioneers fees of 4,000.

• Selling fees charged were 2,200.

• What is Tony’s Chargeable Gain for 2019 ?

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Cost of Acquisition –Pre 6/4/1974

• Assets acquired prior to the introduction of CGT –pre 6 April 1974 we use MV at 6/4/1974

• The market value at 6 April 74 is taken to be the cost of the asset for CGT purposes –So you Ignore the pre 6 April 74 amount

example next side

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• John purchased a property in 1964 and paid€4,000 plus purchase costs of 500.

• The market value at 6 April 74 was €10,000.

• What is the acquisition cost of the property for CGT purposes?

Example

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Incidental Costs of acquisition– pre 6/4/74

• Incidental costs of acquisition incurred pre 6 April  1974 are not to be included in the CGT  computation

• The purchase costs are deemed to be included in  the market value of the asset at 6 April 1974

• HOWEVER ‐ if a grant payment was received for  the building then this the amount of the grant is  taken off the MV at 6 April 74

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Question‐Capital Grants

1. Pam had acquired a warehouse in 1970 for €5,000 plus purchase costs of €300. Pam had received a capital grant of €1,500 at that time when purchasing thebuilding.

• Market Value at 6 April 1974 was €8,500

Question: What is Pam’s acquisition cost of the property for CGT purposes?

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Another Question‐CapitalGrants

2. Mary sold a warehouse in 2019 for €82,000. Maryhad acquired it in 2005 for €12,000 plus purchase costs of€3,000. She had received a capital grant of €4,000 at that time when purchasing the building.

Question: What is Mary’s chargeable Gain in 2019?

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HOMEWORK 1

• Compute CGT liability for 2019

• Anita, who is a widow, sold a commercial property in 2019 for €320,000. She had purchased this for €200,000 in 2009.

• Question: What is the CGT liability due where costs associated with the sale are €10,000 and acquisition costs were€4,000.

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HOMEWORK 2

• Compute CGT liability for 2019

• Frank is single and sold a warehouse in 2019 for€320,000. He had purchased it for €20,000 in1973.He received a government grant for the building at that time of €3,000

• Question: What is the CGT liability due where costs associated with the sale are €10,000 and acquisition costs were €4,000.

• Market Value of the property on 6/4/1974 was€38,000.

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DisclaimerCare has been taken to ensure that all data and  information in Academy lectures is factual and that  numerical values are accurate.To the best of our knowledge, all information in the  Academy lectures is accurate at the time of  publication.Accounting Technicians Ireland and its lecturers  assume no responsibility for errors or misinterpretation  of the information contained in these lectures or in its  use.

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