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g a z e t t e
j u l y / a u g u s t 1986
than restrictions which attach to all shares of that
class.
- The scheme will not allow any person obtaining
rights under it to transfer any of them but may
provide that if such person dies before exercise of
rights, such rights may be exercised within 1 year
of death.
There is a further capital gains tax relief where shares
are issued under an approved share option scheme in a
company which derives 75% of its sales from manufac-
turing activities or from exempted trading operations
carried out in Shannon Airport. The employee is
considered as having acquired the shares at the date the
option is granted for the purposes of determining the
tax rate only.
In calculating the value of shares the inflation factor
may not be used based upon the length of ownership of
the option.
Purchase of Shares
The 1986 Act provides for an income tax deduction of
up to £750 which may be granted to full time employees
or full time directors of trading companies, or certain
types of holding companies who subscribe for new
ordinary shares issued after 6th April 1986 in those
companies (s. 12).
The sum of £750 is the maximum deduction for all
years of assessment. The shares:—
- cannot be issued for less than market value
- cannot carry any preferential rights
- cannot be subject to any restrictions
- must be issued in a company which is registered
and incorporated in Ireland
- must be held by the employee or director for 5
years; otherwise the relief will be withdrawn. If
the shares are sold within 4 years the full tax relief
is withdrawn; if disposal takes place in the fifth
year, 75% of tax relief is withdrawn.
The base value for capital gains tax is reduced by the
amount of the deduction allowed for income tax.
There is no requirement that the employee subscribe
for shares under a formal scheme established by the
company.
Approved Profit Sharing Schemes
Chapter IX of the Finance Act, 1982 provides for
special tax treatment for Revenue approved profit
sharing schemes. These tax concessions took effect from
6th April 1982. The Finance Acts, 1984 and 1986 further
improved these concessions. The legislation is very
complicated and thus the following constitutes general
guidelines only. It is estimated that at the end of 1985
about 20-30 schemes have been formally approved by
the Revenue.
2
Establishment
Income tax relief is extended to individuals partici-
pating in profit sharing schemes which have been
approved by the Revenue (section 51(1) and (3)). Part 1
of the Third Schedule to the 1982 Act sets out the rules
for approval of such schemes. Paragraph 1 provides
that a body corporate which has established a profit
sharing scheme in accordance with certain rules may
apply to the Revenue Commissioners for approval.
Accordingly the scheme has to be set up before such
approval can be obtained. Such schemes may extend
over a group of companies.
Advantages of Scheme
Income tax relief is extended to individuals
(employees) participating in such scheme which is set-up
under trust. Such relief provides there is no charge to
income tax:—
- on receipt of a right to receive the beneficial
interest in shares appropriated to him (s.51(l) (3))
- on the value of the shares when they are sold
provided such sale is not within a 5 year period
(s.51(l)(3))
- on the value of the shares when they are sold
provided such sale is not within a 5 year period
(s.51(l) (3))
- on the value of the shares when they are sold
provided such sales is not within a 5 year period
(s.53(l) and 11 of 1986 Act).
Further it is provided that:—
- any sum paid to the trustees by the company in the
accounting period shall be deducted in computing
for Schedule D the profits or gains for that
accounting period in a trade carried on by the
company; or
- if the company is an investment company (within
the meaning of the Corporation Tax Act, 1976),
such sums may be deducted as expenses of
management in computing the profits of the
company for the accounting period for the
purposes of corporation tax (s.58(l)). However,
the following conditions must be fulfilled, the
sum:—
- must be applied by the trustees in the acquisition
of shares for employees who are eligible to
participate in the scheme before the expiry of the
relevant period — 9 months beginning on the day
after the period of account in which the sum is
charged as an expense of the company or a longer
period may be allowed by the Revenue;
- is necessary to meet the reasonable expenses of
trustees in administering the scheme (s.58(2)).
The 1984 Act provides no limitation on the sum which
may be deducted from trading income (net after capital
allowances) or income of an investment company
(s.31(b), 1984 Act). However, the sum deducted must be
reasonable in the light of numbers participating in the
scheme (s.24, 1983 Act).
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