Corporate tax is calculated on both a high and low tax rate; currently the high rate is 25% and is applicable to non-business profits such as investments and rental income. The minimum is currently 12.5% ​​for trading income. Due to the differences between income and capital gains tax and high and low corporate tax rates, determining whether a transaction is taking place is essential. Establishing whether an operation is conducted is critical as it will determine the tax liability for the person responsible and the tax collection for the government. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay To ascertain whether a trade is being conducted there are 6 badges of trade that can be assessed to decide whether an activity constitutes a trade, also a There is a large body of law on this topic which can be used as a precedence, in Absent a business operation the profit arising from such activity will not be subject to income tax but would fall within the ambit of capital gains tax at the current rate of 33% was applicable. “Given that trading income is subject to income tax at marginal rates of 60% (including PRSI, USC and a further 5% USC if you claim certain property relief) whilst capital gains tax is payable at 33% the distinction is very important" (Irish Tax Institute, 2017/2018) Taxation has existed for a long time, from the “private” one which dates back to 1177 in Ireland and was collected on ships that imported wine, where a levy of one ninth of said wine was withheld for the According to the custom of kings, after all there were many formal engagements requiring refreshments and libations, in ancient Rome, for example, records of each citizen's property were kept and a wealth tax known as a "tribute" was imposed on each citizen in relation to property they own, this echoes a similar, if very unwelcome, tax currently applied to Irish families, the LPT local property tax, if the Romans were forward thinking or our government regressive, a topic for another day. Our tax framework has evolved and progressed in complexity and basis in the intervening years. Before 1975 corporations were subject to income tax and corporate profits tax on their income and capital gains tax on their earnings. In 1976, a single corporation tax was introduced which included both income and taxable capital gains. These new provisions were made in the Corporation Tax Act 1976 which made the necessary changes to the legislation. This framework is based on common law and previous case law which provides precedent, cases heard in the Irish justice system and the decisions of those cases. by binding presidents who must comply with in all subsequent cases. Our current tax regime for 2017/2018 is as follows Income Tax: Up to 40% plus PRSI and USC on an individual's business income. Capital gains tax – 33% on capital gains arising from the sale of other assets. Capital gains for companies – even 33%. Corporation tax of 25% on investment income in a company. Corporation tax 12.5% ​​on a company's trading income. "Companies normally include capital gains in their profits for corporation tax (CT) purposes. However, when a company makes a capital gain from the sale or transfer of development land, it must pay CGT rather than CT on the capital gain." “In order to ascertain whether, in any situation, a trade is being carried on, it is necessary to examine the facts of the caseparticular and interpret such facts in the context of the distinctions of trade and jurisprudence as applicable." The six badges of commerce. “Tax is charged under Schedule D cases I and II on the entire amount of profits or gains of traders and professionals respectively. Section 3 of the TCA97 defines the act as follows: “trade includes any commercial, manufacturing or commercial concern”. In 1954 a Royal Commission was established to establish the factors to be considered in indicating whether or not an exchange has taken place. These factors became known as the “Badges of Trade.” These trading badges are set out in the Royal Commission report as follows: The Object The nature of the commodity, raw materials and manufactured products are rarely purchased as investments, if we take the example of a market trader purchasing products from a wholesaler supplier sell at a profit, for example buying 300 pears with the intention of selling them later in the day, is not investing in pears but trading them. Antiques, classic cars, gold coins and rare wines would be classified as investments and not considered an exchange. Length of ownership period Rapid buying and selling of one or more assets after purchasing them is a good indicator that an exchange is taking place. For example, as above, the market trader will not want to store his products for a long period as they would spoil and become useless. Items purchased as investments are generally useful for a period of a few years to appreciate. It would be very simple to justify that an item which you have had in your possession for a considerable period, which you have purchased for personal use and enjoyment and which you dispose of, would not be treated as commercial profit, for example a classic car which you have owned for 15 years that you have would not constitute a well-conducted operation. Frequency or number of transactions by the same person. If a transaction is conducted one-off or very rarely it would not be classified as an exchange, for example, changing your car every 4 years where you sell your current vehicle and buy a new one, this cycle would be repeated every 4 years. In the case of the market trader, he would purchase a large volume of products from the wholesaler on a weekly or bi-weekly basis and sell them for a profit on many transactions, this would constitute an exchange. Additional work on the product. In normal circumstances, if you buy something and resell it without doing anything, you were hardly trading, the market trader even if he doesn't physically change the product places it on his counter where it will be visible to all potential buyers. If you bought a car and replaced a bad engine, had it spray painted with new tires, etc. To make it more attractive to buy, it could be interpreted that you were considered a trader. Circumstances responsible for the realization. Selling an asset to raise cash in emergency circumstances, such as a hospital bill or to support your child's college expenses or other unplanned expenses, would not be considered a business venture but an emergency sale of an investment. Likewise, if you received an inheritance of property that you didn't want or need and later sold the property via a classified ad, this would not be classified as an exchange as you did not purposely go out and purchase said property with the intention to sell would be for profit, if this were indeed the case the trading badge would apply. Making a cash inheritance is not the start of business.Reason. The reason related to the reasonfor which the transaction took place will identify whether an exchange is taking place or not. The market trader who purchases goods from the wholesaler with the intention of reselling them in a short space of time to make a profit and earn a living would clearly be engaged in a trade, however if he purchased an antique with the intention of keeping it for personal enjoyment it would be seen as an investment. The above badges have been widely debated and as such have been the subject of court hearings, many cases have been heard in recent years and the resulting decisions have set a precedent and are binding, in most cases reference will be made to previous case law to determine whether or not trade is conducted. It is important not to rely solely on trade badges as there are many complexities and instances in today's business environment. and a certain degree of practicality should also be considered. No single test is decisive in establishing an operation. In Marson V Morton (1986) 59 TC 381, the judge reviewed the badges of trade and expanded them by identifying the following questions. Has the taxpayer engaged in similar transactions? Is the transaction related to the taxpayer's business activity? How is it financed? Was the item normally traded? Was the type of commercial transaction for an item of that nature? Was any work carried out on the item for the purpose of resale? sold as purchased or split into lots? Did enjoyment, pride of ownership, or income come from it? What was the taxpayer's intention when purchasing the item? The above is in no sense a complete list of all relevant issues, nor are any of them decisive in all cases. They provide guidance for reaching an appropriate conclusion. The following case law provides precedence and guidance on what does and does not constitute a commercial activity. The case of Marson v Morton which tested the difference between capital and trading profits, the case involved the purchase of a plot of land with planning permission, the intention was to hold the land as an investment, there was no income generated by the land, after some time after an unsolicited offer the land was sold, the transaction was very far from the taxpayer's normal activity (he was a potato grower), the purchase was considered an investment so the sale was not had been a commercial profit, the transaction was deemed not to be a commercial venture. In Erichsen V Last 4 TC, Lord Justice Cotton defined trade as follows "where a person habitually does and contracts to do a thing capable of producing a profit, and for the purpose of producing a profit, carries on a trade or business " The case concerned the Great Northern Telegraph Company of Copenhagen, which was not resident in the United Kingdom. Eischen was the company's representative in England. The company had 3 cables running across the North Sea to Scotland and also had a number of employees there. The messages were collected by agreement with the Postmaster General who deducted the agreed commission and then handed the messages to the company's operators who in turn sent the messages across the North Sea to their destination. The company said it did not operate in the UK as its cables were not entirely located in the UK or in the company itself. The appeals court ruling made it clear that the issue was entirely real. The decision was: "Profit comes from the contract, the contract is here and there, you trade in England and you still trade in England even if the goods come from abroad or the”.