Reporting ETFs in Form 11

[Zebedee]

Apologies if this has been asked before but my search didn’t find it.

On Form 11 they ask you to itemise investments acquired in 2017 in which you have a “material interest”. I bought a few etfs last year (small amounts in each and definitely not material in terms of the NAV of the ETF). Given deadlines etc I took the cautious approach and put them in and gave as much detail as I could.

Do I really have to give chapter and verse here or am I misunderstanding something?

All help gratefully received.

 

[Marc]

Investment Funds - Taxation
Most Irish regulated funds are authorised as UCITS and consequently fall within the definition of “investment undertaking” in s739B of TCA 1997. Payments from such an investment undertaking are therefore taxed under the gross roll-up regime (s739B – 739G TCA 1997) and not Capital Gains Tax legislation. The fund deducts the exit tax and the unit holder receives a net payment. The payment does not reckon in computing the total income of the unit holder and the exit tax deducted is a final liability.

However, where a fund cannot deduct exit tax – e.g. where the units are held in a clearing system, the unit holder is treated as if they have received a payment from an offshore fund and it will be necessary to self-assess to Irish tax as follows.

As an investor in certain offshore investment funds, you must self-assess yourself for Irish tax in respect of the initial investment, any increase in value of the investment on disposal and on the eighth anniversary of the investment. Failure to meet these reporting requirements may mean that a higher rate of taxation will apply to your investments.


Reporting initial investments
Details of the funds purchased including the name and address of the offshore fund, the date the interest in the fund was acquired, the amount of capital invested and the name and address of the intermediary should be included on Form 11.

· Name and address of the offshore fund

· Date of purchase

· Intermediary details:

Reporting of income payments
Income payments from distributing funds during a tax year must be reported and payment made to the Revenue before the 31st October the following tax year. Again, the name and address of the offshore fund should be reported along with the date of purchase, the amount of the initial investment (including initial costs of purchase).

Reporting of gains
Disposals made during a tax year must be reported and payment made to the Revenue before the 31st October the following tax year. Again, the name and address of the offshore fund should be reported along with the date of purchase, the amount of the initial investment (including initial costs of purchase).


Reporting on each Eighth anniversary
On the eighth anniversary of the purchase, (and every subsequent eight years) you are deemed to dispose and then re-acquire your investment in the fund. Tax is payable on any deemed gain arising. This tax is available for credit against the tax liability when the investment in this fund is ultimately disposed of, if the investment has not increased in value, then no tax is taken. Each investor must make the necessary timely returns to the Revenue in order to avail of the necessary tax benefits outlined above. Any gain on the 8th anniversary is reported in the same was as any other gain, as set out above.

 

[Zebedee]

Thanks for the quick response. Much appreciated.

 

[jpd]

I have some ETF shares I purchased in 2005 - 50 shares purchased for € 100 so a purchase cost of € 5,000

In 2013, 8 years had passed, so a deemed disposal event occurred.
The shares were now worth € 130 so I had a gain of 50 x € 130 = € 6,500 minus purchase cost of € 5,000 = gain of € 1,500
This was reported on Form 11 and was taxed at EXIT tax rate of 36% = € 540

In 2021, a second 8 years has passed and the shares were now worth € 170. So my gain is now 50 x € 170 = € 8,500 minus € 5,000 = gain of € 3,500
This is reported on Form 11 and now taxed at 41% = € 1,435

However, I get a tax credit for the tax paid on the prior deemed disposal in 2013 - so a credit of € 540

Does anyone know where on Form 11 you enter this tax credit?

 

[evil_g]

I have some ETF shares I purchased in 2005 - 50 shares purchased for € 100 so a purchase cost of € 5,000

In 2013, 8 years had passed, so a deemed disposal event occurred.
The shares were now worth € 130 so I had a gain of 50 x € 130 = € 6,500 minus purchase cost of € 5,000 = gain of € 1,500
This was reported on Form 11 and was taxed at EXIT tax rate of 36% = € 540

In 2021, a second 8 years has passed and the shares were now worth € 170. So my gain is now 50 x € 170 = € 8,500 minus € 5,000 = gain of € 3,500
This is reported on Form 11 and now taxed at 41% = € 1,435

However, I get a tax credit for the tax paid on the prior deemed disposal in 2013 - so a credit of € 540

Does anyone know where on Form 11 you enter this tax credit?

If you paid the tax without selling the shares in 2013 can you not just report your position today as though you had purchased €6,500 worth in 2018?

i.e. Your taxable gain is €2,000?

(I haven't had to fill out a Form 11 yet, so will be interested in the actual answer).

 

[jpd]

No, the Exit Tax is now 41% - so you can not just calculate 41% of the gain from 8 years ago

The gain from 2005 to 2013 is also taxed at 41% - not the 36% charged in 2013

 

[jpd]

Got a reply from Revenue but it did not make any sense

2005: Purchase
2013: Gain on Deemed disposal after 8 years - taxed at 36% and tax paid
2021: Gain on Deemed disposal after 16 years taxed at 41% = tax due on gain after 16 years less credit for tax paid in 2013

Tax and Duty Manual 27-04-01 6 4.1.5
Calculating an 8 year deemed disposal [s747E(6)]
The taxable gain arising on the 8 year deemed disposal (the chargeable event) is the value of the units at the time less their cost of acquisition.

Question: Where do I enter the tax credit on Form 11?

Dear Sir

As you have already included gain and tax paid in your 2013 return you only need to disclose the gain in your 2021 return.
The Section on the return is to include the details for 2021 is under
Foreign Income Section/Offshore Funds/Gain taxable at 41%.


Kind Regards

Question not answered - reply seems to show that the agent does not understand the tax rules correctly - or maybe I don't

The examples in the Revenue guides, etc are either misleading or the reply above is wrong

I have resubmitted my question

 

[jpd]

Latest reply from Revenue - any comments?

Dear Sir,

There is a deemed disposal and reacquisition of a material interest in an offshore fund at the ending of each period of 8 years beginning with the acquisition of the interest and each subsequent 8-year period. For the purposes of the section, the person is deemed to have disposed of his/her material interest immediately before the ending of the period and to have immediately reacquired it at market value at that time.

I cannot locate any Revenue information relating to a deemed disposal after 16 years. Each 8 year period is dealt with separately.

 

[AAAContributor]

any comments?

Fair play to your buy-and-hold approach.

I have had queries on funds taxation in the past and have had non-answers returned to me with tracts of the tax and duty manual quoted back to me which is less than helpful (and I wasn't looking for tax advice or anything esoteric requiring a tax adviser).

The key is to get to the right person in Revenue who is familiar with the area.

I have had some success on past queries in this area replying to the agent and asking if they could kindly forward on the query to the author(s) of the funds manuals as they surely should know and be able to resolve the matter. It might prompt a change in the design of the form if a section is needed for a credit.

I think that funds/ETFs are becoming more ubiquitous here as retail investment products for post-tax money and the area needs to be a little more citizen-friendly in my view. The inability to use losses would be a great start for instance. How was that ever written in to the legislation when losses on investment trusts, property, individual shares etc. can be set off against gains.

I'm sure you're not the first one to have this query and maybe someone will be along here shortly to say what they have done.

Failing all that, would you fudge it by putting in a notional figure on the form/ROS that if taxed at 41% gets you the right net liability you have to pay?!

 

[jpd]

Thanks, I did think of doing as you suggest but in the event of an audit or query, especically if I was no longer around, it might be difficult to explain and justify the values used - I will keep perserving to get a definitive answer

 

[jpd]

A final answer from Revenue clarifying how to calculate the gain on a deemed disposal after 8 and subsequent years
I will use this to calculate the gain and tax due although it seems to be in contradiction to the guides on taxation of foreign funds that they updated in Feb 2022

Not sure what happens whe you eventually dispose of the shares in a foreign funds but will cross that bridge when I come to it

Dear Sir,

The person is deemed to have disposed of his/her material interest immediately before the ending of the period and to have immediately reacquired it at market value at that time.

When the 8 year deemed disposal took place the first time, you were deemed to have reacquired them at the market value at that time.

This then becomes the value of the shares for the purposes of calculating the tax due after a further 8 year deemed disposal takes place.