Tutorial 1

TX4305

TX4305

• Patrick O’Sullivan

• Tutorial times: Monday 12-1 KBG10

• Monday 1-2 SG18

• 09004068@studentmail.ul.ie

TX4305

• Q1. Discuss the need for taxation.

• Q2. Under what circumstances should social planners encourage taxpayers to engage in costly tax planning?

• Q3. “Income is summarised into various classifications”

• (i) Explain why this is necessary and

• (ii) Identify and classify the various sources of income according to Schedule and Case.

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• Q4. (TX4305 Past Exam Question 2004/05)

• Required

• What criteria would you use to evaluate a modern tax system?(7 marks)

• Analyse to what extent you consider that the Irish tax system conforms to these criteria.(13 marks)

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• 4 Cannons of Taxation• Equity : A fair tax system is concerned not only

with the perceived fairness of individual tax measures, but also when deciding on how the total should be borne by society and who bears the tax burden.

• Horizontal fairness: Requires that persons in the same situation to be treated equally.

• Vertical fairness: Requires that persons in different circumstances should be treated differently.

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• Efficiency: Tax should not affect consumer behaviour . The revenue collected from the tax should justify the cost of collection.

• Certainty: Tax legislation cannot be unclear nor ambiguous. It should be applied fairly and equally

• Convenience: It should be possible to collect taxes with minimal effort and with minimal disruption to the tax payer.

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• Q3 (ii)

• Attributes of ideal modern tax system are:

• Revenue raising

• Redistribution of income & wealth

• Instrument of economic and social policy

• Harmonisation?

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• Q5.• Patrick Last is a shopkeeper in Leitrim. He advises you of the the following:

• Income Tax Liability• 2012 €45,000• 2013 €30,000

• Both the preliminary and final tax payments for 2012 were paid by the due dates. He filed his tax return for 2012 on 1 December 2013 and paid his preliminary tax in full on that date also.

• Advise Patrick what additional tax penalties and interest arise for 2012 and 2013. You should also calculate the amounts involved.

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• Further to our recent conversation, I am writing to you to outline the implication of late ‘pay and file’ for 2013.

• A surcharge arises because you did not file your 2012 tax return by 31 October 2013. You will be liable to a surcharge of 5% of your 2012 tax liability for being less than two months late with your tax return for 2012, i.e., €45,000 x 5% = €2,250

Interest

• 2012: As the surcharge forms part of your income tax liability for 2012, due 31 October 2012, you will be charged interest from that date to 1 December 2013. €195 (€2,250 for 395 days @ 0.0219%).

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• 2013: Your preliminary tax for this year falls due on 31 October 2013, so you will be charged interest from that date to 1 December 2013. €204 (€30,000 @ 0.0219% for 31 days).

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• Q6.• Declan Earley has traded as a builder for many years and estimates

that his profits for 2013 will be substantially in excess of previous years. He is doing a cash flow forecast for 2013 and would like you to calculate his preliminary tax for that year.

• His annual income tax liabilities are as follows:

• 2013: €250,000 (estimate based on 2013 accounts)• 2012: €195,000 actual• 2011: €50,000 actual

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• As the payment is an ‘up front’ one, since the tax is being paid before the year of assessment has expired, he may use one of the following options to estimate the tax payable:

• 90% of the ultimate final liability for 2013 of €250,000, i.e. €225,000, which falls due on 31 October 2013. The balance is due on 31 October 2014.

• 100% of the tax liability for 2012 of €195,000, which also falls due on 31 October 2012. The balance is due on 31 October 2014.

• 105% of the tax liability for 2011 of €50,000, i.e., €52,500, but only if paid by direct debit, in a minimum of three instalments of €17,500 before 31 October 2013. The balance is due on 31 October 2014.

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• Q7.

• Becky and Pat are not married. They have one child, Jason aged 7. Becky cares for Jason from Monday to Friday while Jason lives with Pat at weekends. Becky’s salary for the tax year 2013 is €45,000 while Pat’s salary for that tax year is €30,000.

• Compute the income tax liabilities of Becky and Pat for the tax-year 2013.

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• Becky € €

• Salary(Schedule E)45,000

• €36,800 @ 20% 7,360• €8,200 @ 41% 3,362 10,722

• Less Tax Credits:• Single 1,650• One-parent family 1,650• Employee 1,650

(4,950)• Net Income tax payable 5,772

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• Salary (Schedule E) €30,000

• €30,000 @ 20%6,000

•

• Less Tax Credits: €

• Single 1,650• One-parent family 1,650• Employee 1,650

(4,950)• Net Income tax payable 1,050

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• Q8.

• Ursula, who is single, is in practice as an architect. Her Case ii income for 2013 is €70,000. She does a small amount of part-time lecturing. In 2013 she earned €7,000 for the lecturing which is taxed under Schedule E. PAYE of €1,500 was deducted from her lecturing income. During 2013, Ursula incurred un-reimbursed medical expenses of €800.

• Computer her income tax liability for the tax year 2013

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• Schedule D Case ii income 70,000

• Schedule E income – salary 7,000

Total income 77,000

• €32,800 @ 20% 6,560

• €44,200 @ 41% 18,122 24,682

• Less Tax Credits:

• Single 1,650

• Employee (ltd to €7,000 @ 20%) 1,400

• Medical Expenses (€800 @ 20%) 160

• PAYE deducted 1,500 (€4,710)

• Net income tax payable 19,972