Practical case
Marriage formed by Mr. LCA and Mrs. DZH, aged 76 and 75, respectively, married under a community property regime.
The following events of fiscal significance have taken place during 2023:
-
On May 2, 2009, they subscribed to 100 convertible bonds and issued them at 14 years from Company “PS” for a nominal amount equivalent to 6,000 euros, plus the equivalent of 60 euros in commissions and expenses.
The agreed interest rate is 7.5%, payable annually during the month of May, with an additional conversion premium provided for, consisting of a 20% reduction on the stock market price of the shares of Company “PS” on the day of conversion.
On May 2, 2023, the bonds were converted into shares, receiving 500 shares of 6 euros, which were valued for these purposes at 200%. The average change in the stock market session that day was 250 percent.
-
In 1997 they acquired some shares of “TPS” , for the financing of which they requested a bank loan. In March 2023 received dividends from said company for a total amount of 1,502 euros, paying the amount of 90 euros as administration and deposit expenses for these securities.
-
On December 31, 2023 TZ bank informs you that, during that year, it has credited your current account with 37 euros, in the form of interest generated by the current account. A withholding tax of 7.03 euros is recorded on the interest paid in May.
-
On July 10, 2007, they subscribed for a full amount of 40,000 euros to securities issued by bank "ZZ" which were in the nature of preferred shares in accordance with Law 13/1985. On October 15, 2023, these securities were converted into bonds of the bank itself for a nominal amount equivalent to 38,100 euros, with the bank assuming responsibility for the commissions and expenses inherent to the operation.
On November 25, 2023, the bonds were exchanged for 5,000 shares of ZZ Bank. The market value of the shares received at the time of the exchange was 8.10 euros/share.
- Since Mr. LCA He left his direct operation upon retirement, the couple has leased a cafeteria establishment owned by both. The rental fee for 2023 was 1,300 euros per month, with the tenant having made the corresponding withholding tax when making each payment. The lease of a cafeteria includes both the premises and all the facilities and furniture, with the tenant being responsible for replacing the kitchenware, crockery and table linen, as well as purchases and current expenses incurred by the ordinary operation of the business.
The effective depreciation of the premises, acquired in 1988 and since then used as a café business that the couple now rents, is estimated at 900 euros during the year 2023.
The furniture was purchased on 31 December 2016 for 15,000 euros, and a 10% depreciation is tax-admissible in 2023.
The expenses incurred by the couple in relation to the cafeteria during the 2023 financial year, show the following amounts:
- 1,100 euros, for repair of the air conditioning system.
- 800 euros, from the Property Tax receipt (Urbana).
- 360 euros, for administration costs.
Mr. LCA and Mrs. DZH choose to file a joint return in the IRPF .
Determine the net return on movable capital to be included in the general tax base and in the savings tax base.
Solution:
Previous note: Since this is a marriage under a community property regime and all income comes from assets whose ownership belongs jointly to both spouses, the income will correspond equally to each of them. Therefore, if they had chosen to file individual returns, each would include in their return half of the taxable income and half of the tax-deductible expenses determined below.
However, having chosen to file jointly, they must accumulate all the income and expenses incurred.
A. Income from movable capital to be included in the taxable savings base
1. Returns on convertible bonds of company “PS”:
The profitability obtained in 2023 is made up of two parts: interest (explicit part) and conversion premium (implicit part). Therefore, “PS” bonds constitute a financial asset with mixed returns.
a. Coupon May 2023:
(*) The withholding rate applicable in 2023 is 19 percent. The withholdings on capital gains must be included in box [0597] on page 21 of the declaration. (Back)
b. Conversion:
2. “TPS” Share Dividends:
(*) The applicable withholding rate in 2023 is 19%. The withholdings on capital gains must be included in box [0597] of the declaration. (Back)
3. Current account interest at TZ bank:
(*) The applicable withholding rate in 2023 is 19%. The withholdings on capital gains must be included in box [0597] of the declaration. (Back).
4. Preferred shares or other securities received in lieu of these:
a. Conversion of preferred shares into bonds:
b. Exchange of bonds into shares:
Total to compute (2,400 -1,900) = 500
Determination of the total net income to be included in the taxable savings base
(*) The applicable withholding rate in 2023 is 19%. The withholdings on capital gains must be included in box [0597] of the declaration. (Back)
B. Income from movable capital to be included in the general tax base (Cafeteria lease)
This involves leasing a business in operation, in which the premises, facilities, furniture, clientele, etc. are transferred along with the business premises. Consequently, the capital gains obtained must be integrated into the general tax base.
The net income is determined according to the following details:
a. Total income:
b. Deductible expenses:
c. Net return (15,600 - 4,660) = 10,940
d. Reduction= 0
e. Reduced net return = 10,940
f. Withholdings supported (19% s/15,600) (*) = 2.964
(*) The applicable withholding rate in 2023 is 19%. The withholdings on capital gains must be included in box [0597] of the declaration. (Back)