Q&A: Q I have a sum of money on deposit with an Irish bank for one year maturing on January 5th, 2009, on which date the interest will be credited.
Dirt tax is going up from 20 per cent to 23 per cent from January 1st, 2009. Does this mean that the entire year's interest will be taxed at the new rate of 23 per cent even though most of it relates to the calendar year 2008?
As this is the first year I have deposit interest accruing, will I have nothing to declare on my tax return for 2008 if it is not paid until 2009?
With regard to the new 1 per cent income levy, there seems to be some confusion as to whether it is payable on the contributory old age pension. Can you clarify this please and also whether it applies to deposit interest, which is already suffering a 3 per cent increase in the Dirt tax?
Mr D.W., e-mail
A Until the Finance Act is formally passed by the Oireachtas it is impossible to be certain how the measures announced in the Budget will be implemented.
However, if the new, higher rate of Deposit Interest Retention Tax (Dirt) is brought in on the same basis as the current tax regime you are going to be paying Dirt at the 23 per cent level.
Dirt is levied on deposit interest. As your interest is credited to the account in 2009, that will be the relevant date for assessing Dirt unless the measure is amended in the Finance Bill. The fact that the one-year account has largely been operating within 2008 will not matter.
The corollary is that you will not have to file a tax return in relation to this Dirt income in 2008 as the interest income only materialises in 2009.
In relation to the 1 per cent income levy, this measure has already been amended even before publication of the Finance Bill.
Again, it is impossible to say how it will operate with certainty until that Bill has passed into law but, as currently envisaged, the income levy will apply on all income, provided that an individual's income is above the minimum wage of €17,542 a year.
If your income is below that level, you will be exempt; if it is higher - regardless of whether this is from pension or other income - all the income is liable to the 1 per cent charge.
In relation to the levy and Dirt, the rule up to now is that Dirt is a full and final tax liability on deposit interest. My understanding is that this will continue but, again, we will have to wait for the Finance Bill to be sure.
Q Could you work out for me what my tax liability, if any, is in the light of the following share transactions.
On April 18th, 2000, I acquired 450 shares in AIB at €10.95. Between 2002 and 2004, I received 51 AIB shares in lieu of dividends at an average price of €12.14.
In late September of this year I bought 1,000 AIB shares at €4.775. A few days later, in early October, I sold 1,000 shares in the bank at €6.69.
What price are the 501 shares I still have deemed to have cost?
Mr M.K., Dublin
A First off, you deserve congratulation. Amid the carnage that is the stock market you have managed to net a tidy profit in AIB in a matter of days.
Given that the Irish financials lost 35 per cent of their value last month and 30.6 per cent in September, that's good going.
Mind you, given that the Irish financial shares index is now down more than 75 per cent so far in 2008, you'd hope there would be some value to be found.
But back to the matter at hand.
When it comes to shares in the same company that have been bought over a period of time the basic rule is "first in, first out".
Thus, when you sold 1,000 shares in AIB in early October, they were not the 1,000 shares you bought days earlier - at least as far as the Revenue is concerned.
For the purposes of capital gain, the 450 original shares you acquired back in 2000 are deemed to be the first ones sold last month. These are followed by the 51 shares in the bank that you got in lieu of dividends.
That amounts to 501 shares. The remaining 499 sold in October come from the tranche of stock you bought at the end of September.
Thus the 501 shares you now own following the October transaction are deemed to have been acquired in September at a price of €4.775 per share.
When it comes to capital gains, you are unlikely to have an issue.
At €6.69 you will have realised €6,690 from the sale of the shares. Even if all the shares had been bought at the €4.775 low, the gain would only have been €1,915 - not too far above the €1,270 annual capital gains tax exemption.
But, of course, not all the shares are valued at €4.775. You are deemed to have sold the original shares you acquired in 2000 at €10.95. Some 450 shares at €10.95 comes to €4,927.50.
The next 51 shares sold last month had, you tell me, an average price of €12.14 or €619.14 in total. The remaining 499 shares did cost €4.775 apiece or a total of €2,382.73.
Thus, in total, the shares you sold cost you €7,929.37. Given that you realised €6,690 from the sale of the AIB stock, you have an outstanding capital loss of €1,239.37. This you can either offset against other capital gains you may have made this year or carry it forward until you have capital gains against which it can be set.
In case you are wondering, there was a provision in place in 2000 to allow you to index the cost of assets for the purposes of calculating capital gain.
However, indexation cannot be used to increase a capital loss and so does not apply in this case.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.