Q&A

Dominic Coyle answers queries on DIRT tax, shares versus dividends and Irish Nationwide share entitlements.

Paying DIRT tax on the double

With regard to your answer in last week's column on the tax rate applicable to scrip dividends, there is an equally widely held belief out there, not just amongst ordinary taxpayers but also financial institutions, that the deduction of DIRT tax at source from interest due on savings satisfies all Revenue requirements for taxes due.

Not true! The Revenue require full disclosure in a PAYE taxpayer's annual return of all interest earned on which DIRT tax has been deducted and then proceed to levy additional tax on the difference between the DIRT deducted by the financial institution and the tax due if calculated at the taxpayer's marginal (eg, maximum) rate.

This is what Revenue have been doing to me for years past. My financial adviser in AIB tells me that this is wrong and that Revenue owe me a refund of the additional tax levied at the marginal rate. As there are quite substantial sums involved, I would be grateful for your view as to who is right?

Mr C.L., Dublin

If I were you, I would get in touch with the Revenue sooner rather than later.

Quoting from their own website: "Deposit interest that has been subjected to DIRT is taxable under Schedule D Case IV. The DIRT deducted is deemed to cover the tax liability arising on this income in full, irrespective of the marginal rate of income tax ordinarily paid by an individual.

"However, individuals are still required to declare this type of income to Revenue."

So, you and the Revenue are correct - contrary to the common belief out there - when you say that interest on which DIRT has been paid must be detailed to the Revenue in an annual return.

However, DIRT is still levied at 20 per cent and, as the quote above states, this satisfies any tax liability, regardless of whether you pay tax at the higher marginal rate of 42 per cent or not.

Bonus shares versus scrip dividends

In a recent query, you confirmed that scrip dividends are treated as income. How do bonus shares differ from scrip dividends, and are they similarly treated as income rather than as a capital gain?

The background to my query is that my brother, a farmer, has shares in Dairygold Co-op on which he receives interest every year, paid gross.

He also receives bonus shares every year as a loyalty bonus for trading with the co-op. Like all co-op shares, these currently have a nominal value, and I know from a recent newspaper article that Dairygold shares are traded on the grey market at €2.34 per share.

For tax purposes, should the bonus shares be treated as acquired at zero cost for capital gains tax purposes at a future disposal date, or should they be treated as income every year as they arise? If it is the latter, how might the value of this income be calculated?

There is the added background that Dairygold is shortly to be split into two entities, at which point I presume that the carrying cost of the shares must be split between the two entities for tax purposes.

Mr J.F., Dublin

A scrip dividend is treated as income and taxed accordingly - the company deducts withholding tax at 20 per cent at source and the taxpayer, if they are liable to tax at the 42 per cent level, is obliged to pay Revenue the balance with their annual return.

Bonus shares, as you surmise, are entirely different and are treated as an asset, which is liable to capital gains tax (CGT). When assessing capital gains, the base price of a bonus share is zero because the shareholder has paid nothing for it. CGT is thus liable on the full value of the share - allowing for an individual's annual capital gains tax allowance of €1,270.

Irish Nationwide share entitlements

I read with interest your comprehensive answer to a reader outlining the different amounts needed in an Irish Nationwide share account over a period of time starting in 1996.

As a holder of a share account with this building society, I have been informed by my local branch that there are a number of different share accounts - all with different conditions attached. For example, one type of share account required a minimum of £10,000 in 1996 and if it fell below this amount in the interim, that would make the holder ineligible for any payout in any eventual demutualisation of Irish Nationwide.

In your answer you specified that the relevant threshold was £1,000 on January 10th, 1996.

I would be obliged if you would clarify for me if the information you gave referred to one type of share account only and, if so, are there as many different conditions as there are share accounts in Irish Nationwide?

Mr S. O'F., Cavan

I cannot tell you how many Irish Nationwide share accounts have specific conditions, but it is the case that an institution can lay down conditions over and above the statutory minimum for any account. A plethora of such examples abound among the offerings from banks and building societies, even today.

The figures I gave were the baseline requirements for opening any share account with the society at any particular date. However, it is quite likely a number of these accounts would have additional, more onerous requirements as you have been told by your branch.

Account holders in doubt should check with the society.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or 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 queries.