Jody aged 58 is an Australian domiciled individual and moved to Ireland in 2003 to live with his long term partner. Jody’s partner died in 2009. In her will Jody’s partner bequeathed him 100% of her shares in her manufacturing company valued at €600,000, together with a house and half-an-acre of grounds (situated in Ireland) valued at €440,000 (these were the value of the assets in 2009 on the valuation date). Jody immediately invested €800,000 of additional capital in the company. In 2011 Jody personally purchased a new premises at a cost of €2,040,000 and rented this premises to the business.
Recently, Jody has been diagnosed with a terminal illness and wishes to get his affairs in order. He would like to transfer his assets to his loved ones before he dies as opposed to transferring his assets on his death. He is not interested in the tax implications for himself on the transfer. At this time he is more interested in the implications for his loved ones. He intends to gift his assets to his brother Michael, Michael’s children John and Jennifer and his friends and Vanessa and Peter.
Michael, John, and Jennifer are all Australian domiciled. Jennifer and Michael moved to Ireland in November 2015. John moved to Ireland in 2011. Vanessa is French and has lived in Ireland for the past two years.
Jody intends to make the following gifts:
The shares in the manufacturing company to his nephew John. The shares in the company are currently valued at €3,800,000 and the shares are comprised of trading assets of €3,400,000, made up of plant and equipment and financial investments of €900,000 and operating liabilities of €500,000. John has worked full-time in the business with Jody since arriving in Ireland. John will also receive the business premises. The premises have been leased to the manufacturing company since its purchase. The premises is currently valued at €1,360,000.
The house and half an acre grounds to Jennifer, subject to the right of residence, support and maintenance for Michael (aged 69). Jody has lived in this house since 2003. Michael’s right of residence, support and maintenance is valued at 25% of the value of the house and grounds. The house and grounds are currently valued at €700,000.
His holiday home in France to his friend Vanessa. The property is valued at €1,000,000 and had cost Jody €1,530,000 in 2007.
Peter is currently completing his agricultural science degree in a university in Dublin. Jody has a savings fund worth €700,000 and would like to give this to Peter on the basis that he invests this funds in agricultural property within the next 12 months. Peters only other asset is a car worth €6,000.
None of the potential beneficiaries has received any prior benefits.
(i) Draft a letter to Jody advising him of the capital acquisitions tax (CAT) and stamp duty implications arising from the transfer of assets to:
• Peter 45 Marks
Note: It is necessary to clearly indicate and discuss all reliefs (if any) available to the beneficiaries on the receipt of the benefits as well as providing CAT calculations (where necessary) in the appendix to your letter
Professional marks will be awarded in question for the appropriateness and format of the letter and the effectiveness with which the information is communicated. 5 Marks
You are a VAT adviser and you have been asked to advise a client of yours Kelly Limited on the following VAT issues:
On 4 March 2017 Kelly Ltd sold an office premises in Sligo for €2,200,000 (ex VAT). The premises had been purchased at a cost of €2,800,000 in April 2015. The purchase transaction in 2015 was exempt from VAT and no joint option to tax the property was exercised. The offices were in need of some repairs and re-decoration. The repair and re-decoration work was completed on 30 June 2016 and cost €480,000 inclusive of VAT. Kelly Ltd occupied the premises for the purposes of its business only from 1 July 2016 to the date of sale. The finance director of Kelly Limited is interested in the VAT implications of this property.
Kelly Ltd purchased a building in Kilkenny on 1 November 2016 for €1,600,000 plus VAT at 13•5%. The company claimed an input deduction for all of the VAT incurred, on the basis that they intended to put the building to a 100% taxable use. They intended to use it for its consultancy business. However during 2017 the building diversified into training which is exempt from VAT. At the end of the initial interval Kelly Ltd calculated that the use to which the property had been put during that interval was 80% consultancy and 20% training.
Kelly Limited acquired a five floor property located just off St. Stephens Green, Dublin, in March 2017 and completely gutted and re-developed the property in the following months.
The total cost of the acquisition and re-development of the property was €7,500,000, with VAT of €1,012,500 incurred by Kelly. Each floor is approximately 1,500 square feet. Kelly Limited are interested in finding out if the VAT can be recovered on this property.
• The ground and first floor is being leased to a third party company which will run an accountancy business from these floors.
• Kelly has decided to allow Kelly (Cork) Limited occupy the second floor. Kelly (Cork) Limited is a 100% subsidiary of Kelly Limited. No formal letting agreement has been put in place. Kelly (Cork) Limited is an investment company. This year Kelly (Cork) Limited has an overhead VAT recovery rate of 42%.
• In relation to the third floor, Kelly is currently in negotiations with a third party insurance company that requires additional office space. The bank currently has a VAT recovery rate of 44%.
• The fourth floor of the property is a penthouse apartment and Kelly has recently rented this to an international popstar who has come to Ireland to seek some peace and quiet following the break-up of her marriage.
(i) Explain to KELLY Limited the VAT implications arising from Issue One, Issue Two and Issue Three. 40 Marks
The marks are allocated as follows:
Issue One 7.5 Marks
Issue Two 7.5 Marks
Issue Three 25 Marks
You are required to provide detailed explanations of all transactions as well as providing calculations (if necessary) to demonstrate your understanding of the issues.
Evidence of research and professional presentation of appropriate academic work correctly referenced using the Harvard Referencing System 10 Marks
Total 100 Marks