Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

Where a person receives an interest-free loan for less than full consideration, he or she is deemed to take a gift for capital acquisitions tax purposes. The gift is the interest-free element of the loan rather than the loan itself. This section of the Bill amends section 46 of the Capital Acquisitions Tax Consolidation Act 2003 to provide for the introduction of a mandatory reporting obligation in respect of such loans. Where the reporting obligation applies, the recipient of the loan will be required to provide details of it to Revenue in a capital acquisitions tax return. Currently, an obligation to file a capital acquisitions tax return arises where the total taxable value of all gifts and inheritances taken by a beneficiary on or after 5 December 1991 within the same group threshold exceeds 80% of the group threshold; the benefit comprises agricultural property and agricultural relief is being claimed; or the benefit comprises business property and business property relief is being claimed.

At the moment, most gifts arising in respect of interest-free loans are not reported to Revenue in a capital acquisitions tax return. This is because the recipient of the loan will often value the benefit at a very low interest rate and this, coupled with the application of the small gifts exemption and the capital acquisitions tax thresholds, means that no capital acquisitions tax return is filed. As a result, there is a risk that capital acquisitions tax is not being self-assessed correctly on such loans.

The introduction of this new reporting obligation is intended to address this issue. It will apply where the interest-free loan was received from a close relative, either directly or indirectly, and the amount outstanding on all such loans during the reporting period was at least €335,000. The information provided will assist Revenue in assessing whether the value of the interest-free element of such loans has been self-assessed correctly for capital acquisitions tax purposes.

The additional measure in the section is solely a reporting obligation. It does not change the liability issues that arise in respect of the administration of capital acquisitions tax.