Q&A: What is the attitude of the Revenue to scrip issues and tax not deducted at source from dividends paid by Irish and foreign companies?
Friends tell me that they never include these in their tax returns and that trawling back through an individual's investment history is of no interest to the Revenue because of the expense involved for comparatively small sums of tax.
Mr R.G., Dublin
The attitude of the Revenue to scrip dividends is very straightforward - and the same as it is to other classes of dividends. The company paying the dividend is required to withhold tax at the standard rate (20 per cent). In the case of scrips, the number of shares issued to the shareholder is reduced to take account of the dividend withholding tax that would have been liable on the dividend if it had been paid in cash.
Taxpayers who pay income tax at the higher rate of 42 per cent are liable for the balance (22 per cent) in their annual tax return. In the eyes of the Revenue, dividends - in scrip or cash - are simply a form of income, just the same as your salary.
The situation is slightly different in relation to foreign companies because local dividend withholding tax may be deducted at source, which Irish shareholders may or may not be able to offset against their Irish tax liability.
I would be very careful in taking as gospel advice from anyone that Revenue will not pursue tax cheats. It is certainly the case that the sums involved may be small but given access to shareholder registers and modern technology, it would not be a labour intensive task to track down who should be paying income tax on dividends. The fact that it may not have happened is no indicator of future Revenue intentions - just ask the thousands of people who assumed the Revenue would never chase them over bogus non-resident accounts!
Income divided
Regarding last week's query from the two pensioners with joint income of €53,500 in 2005, who were taxed at 42 per cent on income above €47,700 despite the 20 per cent band for a married couple with two incomes being €58,800, I think you will find that the answer lies in the way that the income is divided between each partner.
Mr J.M., Dublin
You are quite right. While the 20 per cent band for a married couple with two incomes did extend last year to €58,800, neither party can claim the 20 per cent income tax rate on income above a threshold of €38,400.
Given that one partner had income of €44,000 and the other earnings of €9,500, €5,600 of the first income would be subject to tax at the higher 42 per cent rate.
Sorry for the slip, which hopefully didn't have too many people pursuing the Revenue in vain for rebates.
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. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
