Tom and Susan Diamond, aged 56 and 54 respectively, came to Ireland from South Africa 12 years ago and set up their own enterprises which have been very successful. They are resident and ordinarily resident in Ireland however they are still domiciled in South Africa. They are now considering retiring from their businesses so that they can travel around the world and enjoy the wealth that they have accumulated over the years.
Tom owns 100% of the shares, and is also a director, in his jewellery business which he has worked in full time since he started in 2003. He has built up a good reputation around Ireland as a leading supplier of wedding rings and other luxury items. He has received a couple of offers from competitors to buy his business however he would prefer to keep the business within his family and is considering selling it to his son, Grant, for €765,000 which is the market value of the business. He paid €100 for the share capital of the company upon incorporation.
The property that the jewellery business operates out of is owned by Tom personally and he wants to sell this to his son as well as the business. He purchased the property in July 2004 for €190,000 and it is now valued at €310,000.
Grant moved to Ireland from South Africa, where he was domiciled and resident, in January 2014 and did not leave the country last year. He owns a number of properties in South Africa and is considering selling them to fund the purchase of the business from his father. The properties have increased significantly in value since he purchased them in 2008.
Grant recently purchased an investment property in Dublin which he funded with a bank loan. He is currently renovating it so that he can lease it out to local businesses in the area and expects it to be ready in a month’s time. Grant is interested in taking over the family business but has also received an offer to work as a manager in a leading I.T. firm in South Africa.
Susan had her own dress making business and ceased trading on 28th February 2015. The year end for her accounts was 31st August and her profits for the last few years have been as follows:
6 months ended 28th February 2015 €18,000
12 months ended 31st August 2014 €31,000
12 months ended 31st August 2013 €33,000
Tom was recently talking to a friend of his who told him that there are possible tax reliefs which he and his family could avail of. He has approached you about tax advice in relation to the above transactions.
Write a letter to Tom addressing the tax issues for Tom and his family covering the following points:
(a) Outline the conditions required for Tom to avail of retirement relief should he sell his shares to either his son or a third party and advise if he meets each criteria (12)
(b) Advise Tom on the tax treatment of the disposal of the property which is used by his company (10)
(c) Calculate Tom’s capital gains tax liability if he sells his shares and the property to his son Grant and if he decided to sell to one of his competitors (18)
(d) Outline the implications from a tax perspective if Grant decided to sell the business in a year’s time and return to South Africa (10)
(e) Advise Grant on his capital gains tax liabilities if he were to sell his investment properties in South Africa (10)
(f) Explain to Grant what pre-trading expenses are allowable and disallowable as deductions from the rental income he would earn from the investment property in Dublin (12)
(g) Advise Grant on how to treat bank interest from a tax perspective if he funds the purchase of the investment property using a loan (8)
(h) Explain the cessation rules to Susan (8)
(i) Calculate her taxable profits for 2013, 2014 & 2015 and advise if she has any further liability