Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move amendment No. 51:

In page 21, between lines 28 and 29, to insert the following:“(a) in section 784—

(i) by inserting the following after subsection (2E):

“(2F) Notwithstanding any other provision of this Chapter, a retirement annuity contract shall not cease to be an annuity contract for the time being approved by the Revenue Commissioners where, notwithstanding anything contained in the contract as approved—

(a) the person with whom the contract is made—

(i) on or before 31 March 2017—

(I) commences payment of an annuity to the individual,

(II) pays a lump sum of a kind referred to in subsection (2)(b) to the individual, or

(III) transfers the value of the individual’s accrued rights under the contract in accordance with subsection (2A),

or

(ii) in priority to any payment or transfer referred to in subparagraph (i), makes available from the cash and other assets representing the value of the individual’s accrued rights under the contract, to such extent as may be necessary, an amount for the purposes of discharging a tax liability in relation to the individual under the provisions of Chapter 2C of this Part in respect of the contract,

(b) insofar as subparagraph (i) of paragraph (a) is concerned, the annuity contract is deemed to be a vested RAC in accordance with section 787O(6), and

(c) insofar as subparagraph (ii) of paragraph (a) is concerned, the annuity contract is a vested RAC within the meaning of section 787O(1).”,

and

(ii) by inserting the following after subsection (7):

“(8) Where an annuity contract is a vested RAC within the meaning of section 787O(1), the provisions of section 784A(4) shall apply to the cash and other assets representing the individual’s accrued rights under the contract at the time of death of the individual as if that cash and those other assets were assets of an approved retirement fund.”,”.

Section 13, as initiated, amended certain provisions of Part 30 of, and Schedule 23B to, the Taxes Consolidation Act 1997 with the aim of closing off tax planning opportunities involving the use of personal retirement savings accounts, PRSAs. This tax planning involved the PRSA owner never taking benefits from the PRSA, which meant that various taxes were avoided and the assets of the PRSA passed tax-free to a surviving spouse or civil partner on the death of the owner after age 75 years. The amendments made in the Bill were designed to ensure all PRSAs vested no later than the owner’s 75th birthday were brought within the range of taxes that the tax planning was attempting to avoid. The range of amendments I am now proposing to section 13 reflect further consideration of the provision in the light of feedback and commentary received by my Department and Revenue since publication date. They are designed to ensure the closing off of this type of tax planning is fully effective by including retirement annuity contracts, RACs, within the provisions, as well as to clarify how certain aspects of the measure are to operate.

In summary, the following Committee Stage amendments are proposed: to provide that RACs which have not matured on, or by the time, an individual attains the age of 75 years will be treated as maturing, which will give rise to a benefit crystallisation event, BCE, in similar circumstances as PRSAs, as already provided for in the Bill as initiated; to clarify the transitional arrangements allowing individuals who are over 75 years at the date of passing of the Bill and who will face a deemed vesting of their PRSA or RAC on that date to access the assets in their PRSA or RAC by way of an annuity, a retirement lump sum or a transfer to an approved retirement fund and that such accessing will have to be completed by 31 March 2017; to make provision for any chargeable excess tax arising on a vested PRSA or RAC where the owner is over 75 years to be recovered by the administrator from the PRSA or RAC assets in priority to any other payment being made; to require an affected individual to provide a declaration in respect of the BCE for his or her administrator within 30 days of the deemed vesting of the PRSA or RAC, and, where a declaration is not made, to treat the entire value of the BCE as being chargeable to tax; to provide a review mechanism where it subsequently transpires that some, or all, of the value of the BCE should not have been charged to tax; and to provide for other minor technical amendments to ensure clarity of the provisions.

Amendment No. 51 amends section 784 of the TCA 1997, dealing with RACs, by inserting a new subsection 2F into section 784. This is primarily to provide transitional arrangements which mirror those provided for PRSAs in new section 787K(2D) of the Bill, as initiated. The new subsection 2F provides that an RAC which has been approved by Revenue will not lose that approved status where the insurance company with which the contract is made on or before 31 March 2017 pays an annuity or lump sum to the individual or transfers an amount to an ARF or, in priority to the making of such payments or transfers, uses the RAC assets to discharge any liability to chargeable excess tax arising as a result of the deemed vesting of the RAC. The facility to make a payment or transfer to the individual with whom the RAC is made after age 75 only applies where the RAC is deemed to have become a vested RAC on the date the Finance Act 2016 is passed, that is, in circumstances where the RAC owner is 75 years of age before that date. The use by the RAC administrator of the assets in the RAC to discharge a chargeable excess tax liability will apply in any circumstance where the RAC becomes vested on the date the RAC owner attains the age of 75 years, without having exercised his or her retirement entitlements under the contract by that time.

It also inserts a new subsection 8 into section 784. This new subsection provides that where an annuity contract is a vested RAC - that is, where an annuity does not become payable or a transfer to an ARF, etc., has not been made on or before the date on which the RAC owner attains the age of 75 years - the amount of cash and other assets in the RAC representing the owner's rights under the contract at the time the owner dies are to be treated as if they were assets of an ARF and the taxation provisions in section 784A(4) apply accordingly. This new subsection mirrors the death-related PRSA provisions in section 787G(6), as provided for in section 13 of the Bill as published.

Amendment No. 54 amends section 787K(2D) as initiated, which provides transitional arrangements for individuals who are over 75 at the date of the passing of the Bill and who will face a deemed vesting of their PRSA or PRSAs on that date. The amendments are for the purposes of clarifying the circumstances in which such individuals will be allowed to receive a payment of their PRSA assets in the form of an annuity, a retirement lump sum or a transfer of the assets to an ARF on or before 31 March 2017. They will not be permitted to take periodic withdrawals after 31 March 2017. As with vested RACs, this also permits the use by the PRSA administrator of the assets in the PRSA to discharge a chargeable excess tax liability in any circumstance where the PRSA becomes vested on the date the PRSA contributor attains the age of 75 years without having drawn down benefits.

Amendment No. 55 makes a number of amendments to Chapter 2C of Part 30 of the TCA 1997, which deals with the limit on tax relieved pension funds, that is, the standard fund threshold regime, by inserting a definition of "vested RAC" into section 787O(1), which is the interpretation section for Chapter 2C, in relation to annuity contracts or trust schemes which are included in the existing definition of "relevant pension arrangement" in section 787O(1) that are approved by the Revenue Commissioners under section 784. Under this amendment, a vested RAC is an RAC from which the owner has not taken retirement benefits on or before the date of his or her 75th birthday. This definition is similar to the new paragraph (c) of the definition of "vested PRSA" in section 790D(1), which was included in the Bill as initiated.

It also inserts a new subsection 6 into section 787O. Where an RAC owner attains the age of 75 before the date of passing of the Finance Act 2016, without having taken benefits, this new subsection provides that the RAC is deemed to become a vested RAC on the date of passing of that Act. This mirrors the PRSA provision included in the new subsection 1A of section 790D of the Bill, as initiated. It also inserts a new subsection 5A into section 787R. This is an important amendment which will ensure that a BCE arising as a result of the vesting of an RAC or PRSA at age 75 is brought into charge to tax. In general, where a BCE is due to occur in respect of a pension arrangement, the scheme administrator may seek a declaration under section 787R(4) from the owner regarding prior BCEs so that the administrator can determine if the BCE in question gives rise to chargeable excess tax. In the context of these anti-avoidance measures, the purpose of this subsection is to counteract situations where individuals refuse to provide a declaration, thus leaving the administrator unable to determine the amount of any BCE that is to be subject to chargeable excess tax, that is, arising from the vested PRSA or vested RAC where the owner is 75.

Under this new subsection, an individual whose RAC or PRSA vests in accordance with section 13 of this Bill is required to provide a declaration containing the details referred to in section 787R(4) to his or her administrator within 30 days from the date of the deemed vesting, regardless of whether or not the declaration is requested by the administrator. Where an individual fails to provide a declaration, the administrator can assume that the individual's standard fund threshold, which is currently €2 million, or personal fund threshold, if applicable, which would be higher than €2 million, has already been fully "used up", so that the entire value of the BCE, the vested RAC or vested PRSA, will be treated as a "chargeable excess" and taxed at the higher rate of tax, which is currently 40%.

Finally, it amends subsection 5 of section 787S which in general allows for the adjustment of chargeable excess tax which is incorrectly included in a return to Revenue by an administrator. This amendment is a necessary counterbalance to the amendment to section 787R and deals with the situation where a BCE is taxed in full under the new section 787R(5A)(c), that is, where a declaration has not been submitted by the RAC or PRSA owner in circumstances where, if a declaration had been provided, no chargeable excess or a lesser amount would have arisen. The amended subsection 5 allows Revenue, on a case being made to it, to make any necessary adjustments to ensure that the tax liability is correct. This is particularly important for individuals with relatively small PRSAs or RACs who may accidentally, through illness or the like, find themselves in this situation. It allows the situation to be redressed.

Amendment No. 58 makes a minor amendment to new subsection 1A of section 790D included in the Bill as initiated, to make absolutely clear the date the PRSA is deemed to become a "vested PRSA" where the PRSA contributor has attained the age of 75 before the date of passing of the Finance Act 2016. In other words, this means the date of passing of the Finance Act 2016 and not the date the PRSA contributor attains the age of 75 years.

Amendments Nos. 59 and 62 insert new subparagraphs (bc) and (dc) into paragraphs 2 and 3, respectively, of Schedule 23B to the TCA 1997. These mirror the provisions already included in the Bill as initiated for vested PRSAs and respectively ensures that the vesting of an RAC at age 75 is treated as a BCE and sets out how the amount crystallised by the BCE is to be determined.

I commend these amendments to the committee.