Income Tax Purposes

Answer the questions given below on the basis of reading the case study-

Denis and Adrian Gavin are brothers and are Irish domiciled. They were both employed by a large multi-national firm. When the firm lost market share worldwide it was decided to close the Irish and overseas operations. Both Denis and Adrian lost their jobs through redundancy in 2014.

Denis remained unemployed until 1 July 2015 when he moved to Canada. He started work shortly after his arrival in Canada. He hopes to remain with that Canadian employer for at least another four years. In 2010 Denis bought a house in Ireland and occupied it as his principal private residence, at that time, he took out a mortgage to fund the purchase of the house. He could not sell his house when he was moving to Canada; therefore he rented it to a friend at market rent rates. He did not inform the Revenue Commissioners that he rented the house – he thought he had no need to since he was no longer resident in Ireland.

Adrian remained unemployed since 2014. He is about to set up his own business manufacturing specialist waste disposal bins for the health care industry. He will start off in business as a sole trader and if the business grows sufficiently he will transfer the business to a company. He hopes to commence trade on 1 November 2017; he will prepare accounts to 31 October each year. His projected profits are:

  •  Year ended 31/10/2018 €50,000
  •  Year ended 31/10/2019 €30,000

For the first two years of trading Adrian will rent commercial premises and lease a car. He hopes to buy an industrial building and get it customised to include certain items of plant which will be needed for the manufacturing process.

In 2019, if Adrian does not transfer the business to a company, he may consider entering into a partnership with Paul, his friend since childhood. Paul has about €500,000 cash which he inherited on the death of his mother. Adrian will want to keep control of the business given that it’s his “know how” which will be the reason for the existence of the business. Adrian’s interest in Paul being a partner is only because Paul will be able to invest money in the business. Paul will have no input in the day to day running of the business and the business name will not be changed.

Adrian meets you at a football match on 1 October 2017; you have not been in touch with each other for over three years. When he hears that you are studying taxation at college, he immediately tells you of his plans and asks for some tax advice. Adrian also fills you in on Denis’s move to Canada etc. (Denis will authorise you to discuss his tax affairs with Adrian).


Write a letter to Adrian addressing the tax issues for both himself and Denis. For Denis, please refer to the following:

Marks (%)

Explain Denis’s Irish tax residency position for each year since he left Ireland.


Explain what impact his tax residency position has for Irish income tax purposes.


Explain what the tax compliance implications are by having an Irish rental source of income.


Advise on what allowable expenses, Denis may deduct from the gross rents, in particular comment on the conditions for claiming interest on borrowed money.


In relation to Adrian, please address the following:

Expenditure on Plant may qualify for capital allowances. This issue has been the subject of many court cases over the years. Quote two decided cases where the taxpayer was successful in obtaining capital allowances on plant and two which were not successful. For each case give a brief description of the facts of the case.


Explain the commencement rules for a business and set out the assessable profits for Adrian for the first three tax years of trading, you may assume that there are no adjustments required to the profits.


The proposed partnership with Paul may not be treated as a partnership for income tax purposes, explain why this may be so, quoting relevant case law.


When should Adrian register for VAT – explaining the reasons for your answer?


What is the VAT treatment (quoting relevant VAT rates) for sales to business and private customers in the EU?


Explain the terms “Two-Thirds Rule”, “Multi Supply” and “Composite Supply”


Presentation – logical structure, grammar, referencing


Total marks


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