Q&A

I have held a number of Tuskar Resources plc shares for many years. I understand his company has gone into liquidation, though I have no definite notification of this.

Tuskar Resources

Does this mean that I can write the capital off against capital gains on other shares in the current year, e.g. First Active?

Mr M.M., email

You are right that Tuskar Resources is no more. One of the raft of exploration stocks that flattered to deceive over a number of years, it was wound up by the High Court in March 2001 after running into trouble with its operations in Nigeria.

I am not too sure about the protocol on notifying shareholders in such circumstances. The receiver - Mr Paul Reilly of Grant Thornton - would no doubt have had access to the share register but then again his role was largely to organise the affairs of the company in such a way as to ensure that creditors would get back as much as possible from the collapse. Notifying shareholders individually - especially in an Irish exploration stock where there were undoubtedly thousands of small investors involved - would incur costs that might not be justifiable within a receivership.

In any case, shareholders would be at the back of the queue of creditors when it came to receiving any money from the collapse. Stock market investment is, in this event, seen as speculative. However, the collapse does leave you nursing a loss on your investment. Assuming this loss has not been offset against a subsequent capital gain, it is there for you to use against any gain arising from the sale of First Active or any other stock at a profit.

Vodafone and First Active

I have recently received a letter telling me I have just two weeks to settle a tax liability for First Active shares that I owned. This seems a very short time. I am concerned that no one told me earlier that this deadline was coming. Should I not have got more notice?

Separately, I now understand that the October 31st deadline relates to gains made before September 30th. Can I now sell some Vodafone shares that I own as a result of the Eircom disaster and set them against the First Active capital gain even though the September 30th deadline has passed? The Vodafone shares are worth less than when I originally got them.

Mr M.D., Dublin

Your surprise at the imminence of the your capital gains tax liability is understandable, I guess, for a novice investor. From your letter, it would appear that your only other involvement with stocks has been the unfortunate Eircom debacle when the issue of capital gains tax liability was never an issue except for those fortunate few who got out early.

As I recall, there was mention of the dates of tax liability at the time of the Royal Bank of Scotland deal for First Active and I am sure that it was noted in the documentation you would have received at that time. Indeed, capital gains was an issue and it was certainly noted in the press that the timing of the payment to shareholders of the €6.20 a share was in part to ensure it did not raise further capital gains tax issues for First Active shareholders who had already received money from the group as part of the capital reduction programme.

As a matter of interest, PricewaterhouseCoopers' Ms Anne Bolster points out that this is the first time she is aware of the Revenue sending out such letters, perhaps an indication of its more intense focus on smaller taxpayers. The capital gains tax system has also changed recently. It used to be the case that you had to pay any capital gains tax liability by the end of the October in the tax year following the one in which the gain was made. Now, any capital gain made up to September 30th in a given tax year must be paid by October 31st of the same tax year and subsequent gain made in the remaining three months of the tax year must be settled by January 24th of the subsequent tax year. While awkward, this pulling back of deadlines should make it easier for people to remember when their tax is due.

On the more interesting element of the question, it appears that bureaucracy is determined to go mad. Having spoken to the Revenue and several accountants, including Ms Bolster, I understand that you are obliged to pay the tax due on the First Active capital gain by October 31st. Should you choose to sell some or all of your Vodafone shares this month - or between now and the end of the year - to crystallise a loss, you will have to separately file for a rebate at the January deadline.

This seems crazy. In the current tax year, you will have a smaller net gain than you had at the end of September and this will be known before the end-October tax deadline. I see no reason why you should not be able to make a computation on the basis of the net liability. You will be out of pocket for the three-month period and the Revenue will have the expense in time and labour to process two returns when there only needs to be one.

But those are the rules. Technically, if you offset on October loss against a pre- September gain, you run the risk of facing interest and penalty payments. Ouch! To cap it all, the Revenue will pay you no interest on the effective overpayment that it is obliging you to make by the end of this month - that's a fair and transparent tax regime for you.

Eircom and CGT

I am trying to assess my tax bill on the sale of the First Active shares. I previously owned Eircom shares and, along with thousands of others, was left with a loss when the company was taken private. I still own some Vodafone shares as a result. I understood I could set this loss against the First Active gain but a colleague now tells me that the Eircom loss was used up by the money given to me last year when First Active paid all shareholders some money. I thought that figure was covered by the annual capital gains tax exemption. Who's right?

Mr M.B., email

The bad news is that your colleague is right. The general rule in relation to capital gains and losses is that any existing losses are offset against a gain first. Only then do other issues - including the annual capital gains tax relief or any liability to capital gains tax - arise.

As such, the losses you incurred in the Eircom flotation would first have to be offset against the gains you made last year when First Active had their capital reduction scheme - which yielded shareholders a cheque of €1.12 per First Active share held. If those losses did not fully offset the capital reduction exercise gains, then and only then would the € 1,270 annual capital gains tax free allowance kick in.

As far as this year's First Active liability following the €6.20-a-share takeover is concerned, you would only have Eircom losses to offset against it if you still had losses outstanding after the capital reduction scheme last year - which for most investors is unlikely.

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.