Remittance basis calculation of CGT for resident, non-domiciled person

cuy

Registered User
Messages
11
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
  • 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.
2013
  • 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.
2014
  • sells his holdings in Pear Inc. for 20,000 EUR (realizing a 10,000 EUR gain).
  • remits 5,000 EUR back to Ireland.
2015
  • sells his holdings in MegaSoft Inc. for 5,000 EUR (crystallizing a 5,000 EUR loss).
2016
  • sells his holdings in Rainforest Inc. for 25,000 EUR (realizing a 15,000 EUR gain).
2017
  • remits 10,000 EUR back to Ireland.
2018
  • remits 10,000 EUR back to Ireland.
2019
  • remits 25,000 EUR balance back to Ireland.

The following table summarizes the situation at the end of each tax year:

YearRFSTPEARMSFTRealized gain (loss)RemittanceCash
201230K
201310K10K10K0
201415K(sold for 20K)5K10K5K15K
201520K(sold for 5K)(5K)20K
2016(sold for 25K)15K45K
201710K35K
201810K25K
201925K0


Comparison of chargeable gain in the arising and remittance basis of taxation:

YearArising basis chargeable gainRemittance basis chargeable gainRemittance basis balance of gain assessable in future yearsNotes
2012
2013
201410K5K5K
20155K & (5K)5K gain from previous year & 5K loss incurred this year
201610K5K + 15K - (5K) = 15K5K loss offsets 15K gain
201710K15 K - 10K = 5K
20185K05K chargeable gain, 5K capital remittance
2019No 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
 
You seem to overcomplicated this.

You’re operating a mixed fund/account. You started with €30k, grew it to, say, €60k.

The first €30k you remit is subject to CGT.
 
You seem to overcomplicated this.

Thanks, I'm actually glad to hear that. I was hoping there would be an easier way to work this out!

You’re operating a mixed fund/account. You started with €30k, grew it to, say, €60k.

The first €30k you remit is subject to CGT.

Ok, so in my example above, the account started with 30K and grew to 50K.
Using this simplified approach, 20K would be subject to CGT (i.e. that 20K is the difference between the final amount the account grew to and the starting amount).
That 20K figure is also the sum of the gains and losses: 10K gain in PEAR - 5K loss in MSFT + 15K gain in RFST = 20K subject to CGT.
This simplified approach is effectively allowing the 5K loss against other gains in the account, which seems reasonable.
 
But, yes, let’s say a mixed fund grows from €30k to €50k, with the €20k increase being made up of €21k of gains, €3k of losses, and €2k of income.

If the individual then ‘remits’ €20k, he or she will have €2k of taxable income and €18k of taxable gains, so yes, they are getting value for the losses in effect.
 
  • Like
Reactions: cuy
Assuming the gains are realised of course

May I ask a question about how unrealized gains in an account are handled, please?

Is the idea that any remittance from this account is assessable for CGT, as long as the balance in the account remains above the starting amount?
Whereas, remittances that cause the balance in the account to dip below the starting amount are considered remittances of capital, and not assessable for CGT?

For example, considered an account with a starting amount of 20K, which are equally invested in shares of ABC and XYZ (10K in ABC and 10K in XYZ).
After a year, shares in ABC are sold for 15K, while shares in XYZ increase in value to 15K, but are not sold. Account now has 15K in cash and 15K in XYZ (unrealized).

What are the implications of remitting that 15K cash for CGT:
  1. does it trigger a CGT liability on 10K, while the remainder 5K is considered remittance of capital (because balance of account has grown to 20K due the current 15K valuation of XYZ, the unrealized gain)?
  2. does it trigger a CGT liability on 5K (the actual realized gain on the sale of ABC), while the remainder 10K is a remittance of capital?
 
Hi,

I will have tax due to remittance of profits of overseas property disposal. The proceeds have not been remitted to Ireland yet, if I wait until 1st January 2021, would that mean the tax would not be due until 31st October 2021?

There is ~20k of Profits, however part of the downpayment initially was from a small gift from my parents. I plan on repaying them, can I take that out of the profits thus reducing the taxable amount?
 
Hi again,

Quick question, my foreign property is in a non-euro currency. When calculating the profit do I use the prevailing exchange rate at the time of purchase or the current exchange rate to calculate tax due?

The property has increased in value in local currency terms, but due to the exchange rate change the property has lost money in Euro terms.
 
This is an advantage of remittance basis: delaying a chargeable gain and consequent CGT payment to a future date when the gain is remitted.
Is the chargeable gain carried over or is it reset to 0 in the future tax years?
 
Back
Top