Hi,
I would very much appreciate your help in figuring out how to calculate capital gain tax liabilities for a non-domiciled individual resident in Ireland according to the remittance basis of taxation.
Resident non-domiciled individuals "may avail of an alternate computational basis of assessment in respect of income from foreign securities and possessions. This alternate computational basis of assessment determines that the income from the foreign securities and possessions of persons who are not domiciled in the State (...) shall be computed on the full amount of the actual sums received in the State in the relevant tax year rather than the income arising in that year. This basis of computation is more commonly known as the “remittance basis” of assessment".
I've read through the The Remittance Basis of Assessment: Part 05-02-21A document published by Revenue but I have further questions that are best posed in the context of an example.
Let's assume that a non-domiciled individual resident in Ireland uses his foreign European bank account to buy/hold/sell securities as follows:
2012
The following table summarizes the situation at the end of each tax year:
Comparison of chargeable gain in the arising and remittance basis of taxation:
In year 2014, the arising basis of taxation triggers a chargeable gain of 10K, whereas the remittance basis only triggers a chargeable gain of 5K, because only 5K out of a 10K gain are assessable in 2014 (the 5K that are remitted). This is an advantage of remittance basis: delaying a chargeable gain and consequent CGT payment to a future date when the gain is remitted.
In year 2015, a loss occurs. I assume this loss can be carried forward to offset future gains, in both the arising and remittance basis of taxation. However, it seems that losses cannot be remitted, i.e. losses incurred in foreign securities cannot be offset against gains realized in other investments within the State. In this case, the arising basis of taxation is more beneficial, as it allows losses to be offset against any other chargeable gain. Is this correct?
In year 2016, for the arising basis, the previous year's 5K loss is used to offset the 15K gain, resulting in a 10K chargeable gain. Remittance basis of taxation results in no chargeable gain because no money is remitted, the 5K loss offsets the 15K gain in the balance of gain assessable in future years. Is this correct?
In year 2017, 10K are remitted and chargeable on the remittance basis.
In year 2018, 10K are remitted, of which 5K are assessable because they constitute a remittance of a chargeable gain, while the remaining 5K are not assessable because they constitute a remittance of capital (out of the original 30K transferred in 2012).
In year 2019, 25K are remitted, they are not assessable because they are a return of capital.
In the example above, the total chargeable gain over the time period (and therefore, the total amount of CGT liability) is the same whether the "arising basis" or the "remittance basis" of taxation applies, because the entirety of the gains are remitted.
If the gains were not remitted into Ireland (i.e. the remittances in year 2017, 2018, 2019 did not occur), then no CGT liability would arise in respect of those unremitted gains. This is perhaps the biggest advantage of the remittance basis of taxation for CGT, but it applies only if gains are never remitted to Ireland.
Another advantage that the "remittance basis" affords is that gains realized but not remitted are shielded from CGT and can be reinvested fully instead of being taxed in the year they are realized (i.e. disposal does not trigger a CGT liability, only remittance does).
Are there any other benefits of remittance basis over arising basis that I've overlooked?
Are there any other downsides of remittance basis compared to arising basis, besides the offsetting of losses?
And, more importantly, can anyone confirm that the above calculations are correct, especially with regards to the offsetting of losses?
Also, please let me know if you have any suggestions on how to restructure the tables to make it easier to present the information and calculate gains, losses, balance of assessable gain?
Many thanks,
- cuy
I would very much appreciate your help in figuring out how to calculate capital gain tax liabilities for a non-domiciled individual resident in Ireland according to the remittance basis of taxation.
Resident non-domiciled individuals "may avail of an alternate computational basis of assessment in respect of income from foreign securities and possessions. This alternate computational basis of assessment determines that the income from the foreign securities and possessions of persons who are not domiciled in the State (...) shall be computed on the full amount of the actual sums received in the State in the relevant tax year rather than the income arising in that year. This basis of computation is more commonly known as the “remittance basis” of assessment".
I've read through the The Remittance Basis of Assessment: Part 05-02-21A document published by Revenue but I have further questions that are best posed in the context of an example.
Let's assume that a non-domiciled individual resident in Ireland uses his foreign European bank account to buy/hold/sell securities as follows:
2012
- transfers 30,000 EUR from his Irish bank account to his foreign bank account. The 30K EUR in question are savings from his salary for his employment in Ireland, taxed under the PAYE regime.
- buys 10,000 EUR worth of shares in Rainforest Inc.: RFST.
- buys 10,000 EUR worth of shares in Pear Inc.: PEAR.
- buys 10,000 EUR worth of shares in MegaSoft Inc.: MSFT.
- sells his holdings in Pear Inc. for 20,000 EUR (realizing a 10,000 EUR gain).
- remits 5,000 EUR back to Ireland.
- sells his holdings in MegaSoft Inc. for 5,000 EUR (crystallizing a 5,000 EUR loss).
- sells his holdings in Rainforest Inc. for 25,000 EUR (realizing a 15,000 EUR gain).
- remits 10,000 EUR back to Ireland.
- remits 10,000 EUR back to Ireland.
- remits 25,000 EUR balance back to Ireland.
The following table summarizes the situation at the end of each tax year:
Year | RFST | PEAR | MSFT | Realized gain (loss) | Remittance | Cash |
---|---|---|---|---|---|---|
2012 | 30K | |||||
2013 | 10K | 10K | 10K | 0 | ||
2014 | 15K | (sold for 20K) | 5K | 10K | 5K | 15K |
2015 | 20K | (sold for 5K) | (5K) | 20K | ||
2016 | (sold for 25K) | 15K | 45K | |||
2017 | 10K | 35K | ||||
2018 | 10K | 25K | ||||
2019 | 25K | 0 |
Comparison of chargeable gain in the arising and remittance basis of taxation:
Year | Arising basis chargeable gain | Remittance basis chargeable gain | Remittance basis balance of gain assessable in future years | Notes |
---|---|---|---|---|
2012 | ||||
2013 | ||||
2014 | 10K | 5K | 5K | |
2015 | 5K & (5K) | 5K gain from previous year & 5K loss incurred this year | ||
2016 | 10K | 5K + 15K - (5K) = 15K | 5K loss offsets 15K gain | |
2017 | 10K | 15 K - 10K = 5K | ||
2018 | 5K | 0 | 5K chargeable gain, 5K capital remittance | |
2019 | No chargeable gain, only capital remitted |
In year 2014, the arising basis of taxation triggers a chargeable gain of 10K, whereas the remittance basis only triggers a chargeable gain of 5K, because only 5K out of a 10K gain are assessable in 2014 (the 5K that are remitted). This is an advantage of remittance basis: delaying a chargeable gain and consequent CGT payment to a future date when the gain is remitted.
In year 2015, a loss occurs. I assume this loss can be carried forward to offset future gains, in both the arising and remittance basis of taxation. However, it seems that losses cannot be remitted, i.e. losses incurred in foreign securities cannot be offset against gains realized in other investments within the State. In this case, the arising basis of taxation is more beneficial, as it allows losses to be offset against any other chargeable gain. Is this correct?
In year 2016, for the arising basis, the previous year's 5K loss is used to offset the 15K gain, resulting in a 10K chargeable gain. Remittance basis of taxation results in no chargeable gain because no money is remitted, the 5K loss offsets the 15K gain in the balance of gain assessable in future years. Is this correct?
In year 2017, 10K are remitted and chargeable on the remittance basis.
In year 2018, 10K are remitted, of which 5K are assessable because they constitute a remittance of a chargeable gain, while the remaining 5K are not assessable because they constitute a remittance of capital (out of the original 30K transferred in 2012).
In year 2019, 25K are remitted, they are not assessable because they are a return of capital.
In the example above, the total chargeable gain over the time period (and therefore, the total amount of CGT liability) is the same whether the "arising basis" or the "remittance basis" of taxation applies, because the entirety of the gains are remitted.
If the gains were not remitted into Ireland (i.e. the remittances in year 2017, 2018, 2019 did not occur), then no CGT liability would arise in respect of those unremitted gains. This is perhaps the biggest advantage of the remittance basis of taxation for CGT, but it applies only if gains are never remitted to Ireland.
Another advantage that the "remittance basis" affords is that gains realized but not remitted are shielded from CGT and can be reinvested fully instead of being taxed in the year they are realized (i.e. disposal does not trigger a CGT liability, only remittance does).
Are there any other benefits of remittance basis over arising basis that I've overlooked?
Are there any other downsides of remittance basis compared to arising basis, besides the offsetting of losses?
And, more importantly, can anyone confirm that the above calculations are correct, especially with regards to the offsetting of losses?
Also, please let me know if you have any suggestions on how to restructure the tables to make it easier to present the information and calculate gains, losses, balance of assessable gain?
Many thanks,
- cuy