Tom Murphy, started his Solicitor practice on the list in September 2017. He prepared his first set of accounts for the 7-month accounting period that ended on 31 March 2018. His profit for that 7-month accounting period was €25,025.
He had the following profits for each of the following accounting periods: > €45,000 profit for the 12-month accounting period ended 31 March 2019. > €75,000 profit for the 12-month accounting period ended 31 March 2020. > ln 2021, Tom changed his accounting period end to the 30th of June.
He had a profit in the amount of €105,000 for the 15-month accounting period that ended on 30 June 2021. Tom received professional fees from Failte Ireland in the amount of €40,000 (net) during the 12-month accounting period that ended on 30 June 2022.
This is the first period he provided services to Failte Ireland. His total profit for the 12-month accounting period that ended 30 June 2022 was €100,000. Tom’s wife, Anna, is an employee of Pharma limited. She only works part-time for the company as she cares for her 85-year-old widowed father.
Her father lives with Tom and Anna and is maintained at their expense. Anna has income in the amount of €10,200 in respect of the tax year 2022. Tom and Anna are jointly assessed for Income Tax purposes.
Explain how Tom’s assessable profits are arrived at for each of the tax years 2017 to 2021. Provide details, in monetary terms, of all assessable profits.
Explain how Tom’s assessable profit is arrived at for the tax year 2022, taking into consideration his new source of income from providing professional services to Failte Ireland.
Discuss what non-refundable and refundable tax credits would be available to Tom and Anna and whether they should avail of all tax credits, where they can. Provide monetary amounts/calculations, where applicable.
Tom’s sister, Maria, is single. She took voluntary redundancy from her employment at Google on the 30th of April 2022. She has asked for some tax advice in relation to the following issues. She had worked for Google for 10 years and 6 months. Her severance package was as follows: € Statutory Redundancy 25,000 Ex gratia lump sum 55,000 Car 4,000 Tax-free lump sum from pension 6,500 scheme Maria, who is 45, had never previously received a lump sum payment from employment.
Her average emoluments for the 3 years prior {o the date of termination was €60,000. Her salary from 1 January to 30 April 2022 was €18,000 and she paid a PAYE of €3,600 in respect of the tax year 2022. Maria’s pension from the firm’s pension scheme from 1 May 2022 to 31 December 2022 is expected to be €22,000. PAYE of €4,400 will be withheld in respect of the tax year 2022.
She has always been interested in renovating/restoring antique furniture and has often purchased old pieces and spent hours restoring them. Maria used some of her redundancy packages to purchase and restore a number of pieces of antique furniture.
In June 2022, she sold 3 fully restored antique wardrobes for €1,500 each, in July 2022 she sold 2 fully restored antique mirrors for €250 each and in August 2022, she sold 5 fully restored antique lamps for €200 each. She used the proceeds from the sales to buy some more furniture which she has been working on since. Requirement:
Explain how termination payments are taxed under Irish Income Tax legislation. Using the figures provided, advise what the maximum tax-exempt portion of Maria’s termination payment will be.
Explain the six badges of trade.
Explain, giving reasons, why Maria would be considered to be carrying on a trade in respect of the antique furniture activities.
Calculate Maria’s expected Income Tax liability for the tax year 2022 using the figures provided above. Where additional information is required, please make your own assumptions providing an explanation for each assumption
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