Insight

THE FINANCE ACT 2010 – CHANGES TO THE ADMINISTRATION OF CAPITAL ACQUISITIONS TAX

(July 2010)

Changes introduced by the Act

Introduction

The Finance Act 2010 (the “Act”) was passed on 3 April 2010.

The Act introduced a number of amendments to the administration of Captial Acquisitions Tax ("CAT"), which are intended to simplify and streamline the administration of CAT.

CAT is no longer a Charge on Property

Prior to the passing of the Act, CAT was a charge on property, the subject of a gift or inheritance, for twelve years, unless a certificate of discharge was provided by the Revenue Commissioners (the “Revenue”). The Act abolished the charge from the date of the passing of the Act, removing the requirement for clearance certificates (form CA11).

This provision extends to all applications for certificates of discharge. This includes those relating to gifts and inheritances taken prior to the passing of the Act, except in cases where Revenue have already instituted proceedings for the recovery of tax on foot of the charge (however, Revenue have indicated that no such proceedings have been instituted to date).

The Revenue have confirmed that if there is a requirement for a certificate of discharge in a contract for sale, it is to be treated as superfluous to the contract and is no longer required or available.

Secondary Accountability abolished

Prior to the passing of the Act, the beneficiary was primarily liable for CAT and the person who made the gift or inheritance, was secondarily accountable (including trustees and personal representatives).

However, the Act abolishes secondary accountability from the date of the passing of the Act, except in cases where the Revenue have already instituted proceedings (again, Revenue have indicated that no such proceedings have been instituted to date), or where there are agency obligations in certain estates where there are non-resident beneficiaries (more information in relation to these agency obligations can be found in our client update entitled “The Finance Act 2010 – Changes to the Administration of Probate” on our website www.mop.ie).

New Pay and File deadline from 14 June 2010

The Act introduced a fixed pay and file deadline for CAT of 31 October in order to align CAT with the income tax pay and file deadline.

The new pay and file deadlines are as follows;

(a) If the valuation date occurs between 1 January and 31 August of any year, the tax return shall be paid and filed by 31 October in that same year, and

(b) If the valuation date occurs between 1 September and 31 December of any year, tax shall be paid and the return filed on or before 31 October in the following year.

The Revenue have confirmed that valuation dates arising between 1 September 2009 and 31 August 2010 can avail of the new 31 October 2010 deadline for CAT pay and file purposes, provided the returns are filed online through the Revenue’s online service.

New Return – IT38 Online/Paper Filing

In relation to the new fixed pay and file regime, the existing IT38 (CAT return) is being replaced by a new and simpler version which will provide for the filing of a paper return where the beneficiary is not claiming any relief or exemptions, other than the small gifts exemption.

A paper return may only be filed, if the following three conditions are satisfied;

(a) No relief/exemption/credit is claimed, apart from the small gift exemption;

(b) The benefit taken is an absolute interest without conditions or restrictions; and

(c) The property included in the paper return was taken from only one disponer and is not part of a larger benefit or series of benefits taken by a beneficiary on the same day.

A major advantage of filing returns through ROS is that the system will calculate the CAT based on the information entered on the electronic return. However, in the case of a paper return, the person will have to compute the liability themselves.

It is possible for an agent to pay and file on behalf of a beneficiary using ROS. For example, if we, Matheson Ormsby Prentice, are instructed or obliged to pay and file on behalf of a beneficiary, we can file through ROS (as an agent) and pay the CAT using either funds held in the relevant client account, or from funds held in the beneficiary’s private bank account (details of which must be provided to the Revenue prior to the filing of the return).