Surcharge Calc on Non-Distributed Investment Income

J

JamesBM

Registered User
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I am trying to use the Revenue guidance at
https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-13/13-02-05.pdf

to calculate the above. Assuming Trading Income of €100k, Bank Interest Income of €10k and Trading Expenses of €40k does the below make sense? Thanks

A.Trading Income:
100,000​
B.Interest Income:
10,000​
C.Total Income:
110,000​
D.Trading Expenses:
-40,000​
E.Net Profit:
70,000​
Corporation Tax
On Trading Profits 12.5%*((E/C)*A):
7,954.55​
On Investment Income 25%*((E/C)*B):
1,590.91​
Total:
9,545.45​
Surcharge on Undistributed Investment Income:
Investment Income (E/C)*B:
6,363.64​
Less Corporation Tax:
1,590.91​
Less Trading Company Reduction @ 7.5%:
357.95​
Distributable Investment Income:
4,414.77​
Surcharge:
882.95​
 
The surcharge on is applied on the undistributed Investment Income of the prior year, not the current year.
 
T McGibney said:
The surcharge on is applied on the undistributed Investment Income of the prior year, not the current year.
Click to expand...
Apologies. Yes I understand that but was doing the calculation of the liability for the income in a given year ignoring the timing. I understand that if the above example was for tax year 2023 the surcharge would be included in the 2024 return and would be payable in June 2025 absent the payment of a dividend.
 
JamesBM said:
I believe it is consistent with the Revenue guidance (the link to which I attached) but I may have mis-read or misunderstood.
Click to expand...
It's wrong.

The CT on the investment income is the investment income multiplied by the 25% rate.

Trading deductions are irrelevant.
 
T McGibney said:
I don't see how it does. I'm not interested in arguing with you on it.
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You don't have to reply? Asserting something is wrong with no willingness to back it up is rarely helpful. I concede that I may be wrong for a range of reasons and I was hoping to use the forum to get some assistance on this issue.
 
JamesBM said:
You don't have to reply? Asserting something is wrong with no willingness to back it up is rarely helpful. I concede that I may be wrong for a range of reasons and I was hoping to use the forum to get some assistance on this issue.
Click to expand...
Of course I don't have to reply.

This is a complex area and if you think I'm going to stop what I'm doing to study a complex example in a Tax & Duty Manual, you have another thing coming.

You asked for feedback on your calculations and you've got that.
 
T McGibney said:
Of course I don't have to reply.

This is a complex area and if you think I'm going to stop what I'm doing to study a complex example in a Tax & Duty Manual, you have another thing coming.

You asked for feedback on your calculations and you've got that.
Click to expand...
Haha. No worries. It seemed from your reply you knew without studying?! I will try to resurrect the thread to see if someone else has a view.
 
JamesBM said:
Assuming Trading Income of €100k, Bank Interest Income of €10k and Trading Expenses of €40k does the below make sense?
Click to expand...
JamesBM said:
Surcharge:
882.95​
Click to expand...

You've calculated the surcharge at €882.95.

If we were to do a quick back of the envelope on this - per page 7 of the guidance (and before running through all the steps), what would we roughly expect to pay?

The surcharge is levied on the:

- Distributable Estate and Investment Income (DEI),
- reduced by 7.5% in the case of a trading co,
- with tax levied at 20%.

Your company received interest income of €10,000 gross.

CT @ 25% was paid of €2,500. This leaves €7,500 in the company that you are not distributing. This is the potential DEI.

If we reduce €7,500 * (1-0.075) we get €6,937.50.

20% tax on €6,937.50 = €1,387.50

If we were to run through the steps in the Revenue Guidance in your case, would we get this figure?

Step 1: €60,000 (€100,000 - €40,000) + €10,000 = €70,000
Step 2: €70,000 / €70,000 x €10,000 =€10,000
Step 3: €10,000 - €2,500 - €562.50 (€7,500 x 7.5%) = €6,937.50
Step 4: €6,937.50 - €0 = €6,937.50
Step 5: €6,937.50 x 20% = €1,387.50
 
AAAContributor said:
You've calculated the surcharge at €882.95.

If we were to do a quick back of the envelope on this - per page 7 of the guidance (and before running through all the steps), what would we roughly expect to pay?

The surcharge is levied on the:

- Distributable Estate and Investment Income (DEI),
- reduced by 7.5% in the case of a trading co,
- with tax levied at 20%.

Your company received interest income of €10,000 gross.

CT @ 25% was paid of €2,500. This leaves €7,500 in the company that you are not distributing. This is the potential DEI.

If we reduce €7,500 * (1-0.075) we get €6,937.50.

20% tax on €6,937.50 = €1,387.50

If we were to run through the steps in the Revenue Guidance in your case, would we get this figure?

Step 1: €60,000 (€100,000 - €40,000) + €10,000 = €70,000
Step 2: €70,000 / €70,000 x €10,000 =€10,000
Step 3: €10,000 - €2,500 - €562.50 (€7,500 x 7.5%) = €6,937.50
Step 4: €6,937.50 - €0 = €6,937.50
Step 5: €6,937.50 x 20% = €1,387.50
Click to expand...
Thank you very much. That is very helpful and I agree with the "back of the envelope" view being the most logical and it is what I was using before I looked at the Revenue guidance!
On the steps I interpreted it as (Total Income minus Trading Charges)/Total Income *Investment Income as 70,000/110,000*10,000 in my example and 43,000/46,000*14,000 in the Revenue example. I had (very dumbly!) mis-construed "Trading Charges" as Trading Expenses. Thanks again it is now clear to me.
 
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