Completing a capital gains tax return is relatively straight forward in Ireland, especially if you follow our guide, but there is one section of the form that frequently throws investors.
How do you navigate aggregate consideration on the Form CG1 in situations where you might have bought and sold the same asset multiple times in a single tax year?
In this blog post, we will go through one way to approach it for those of you confused on the subject.
What is aggregate consideration?
The CG1 form, which is used to submit capital gains tax returns in Ireland, is a one size fits all document that is meant to be used for capturing all types of taxable events, such as the disposal of a house, farm, crypto, option, and stock. Because this one form is designed to encapsulate all types of transactions it can lead to some confusion.
The aggregate consideration is a fancy way of asking you what is the total sales proceeds that you received when you sold your assets.
If we take a simple example, Rory buys 10 Apple shares for €1,600 in January 2023 and them sells all 10 shares for €2,200 in December 2023 (these were Rory’s only transactions throughout the year). The aggregate consideration in this example is €2,200.
What to do in more complex situations?
In the previous example, it was very easy to identify the aggregate consideration. But what about a situation where you have bought and sold the same stock multiple times?
During 2023, Ann bought and sold Apple shares on multiple occasions. The below graph shows all her transactions.
The aggregate consideration in this scenario would be €5,800 which combines (aggregates) the sales proceeds from all the transactions.
This may be annoying for some people but it is best to take the literal definition of what Revenue is asking for here and make sure that you keep proper records of what backs up that transaction.
Those who are most confused about what to do in this situation are often day traders who may have 100s of trades per month, which could result in their aggregate consideration being in the 100s of thousands or even millions.
But if you are day trading in Ireland, then you need to first consider is capital gains tax actually the correct tax head that your trading activity falls under, or whether should it be income tax? That will depend on your assessment of whether or not that trading meets the badges of trade.
Badges of Trade
The taxation of swing trading / day trading in Ireland could be capital gains tax or income taxes (PAYE, USC, & PRSI) depending on whether you are carrying out a trade or not.
If you are casually day trading every so often it is likely that you are not carrying on a trade. In this case, any profits you make from trading would be taxed at the usual 33% capital gains tax rate.
You would also be entitled to an annual exemption of €1,270 that can be offset against your profits before you calculate your taxable gains. Losses can be carried forward indefinitely and offset against future gains.
However, if you deem yourself to be carrying on a trade then you must submit a Form 11 each year reporting your trade profits and this will be accumulated with all your other income and taxed at the relevant income tax rates.
Revenue has provided some detailed guidance on the criteria that should be analysed to see whether you are carrying on a trade. This includes the following 6 criteria:
- 1. The Subject Matter of the Sale
- 2. The Length of Period of Ownership
- 3. The Frequency of Similar Transaction
- 4. Supplementary Work
- 5. The Circumstances that Were Responsible for the Realisation
- 6. Motive
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.