Pearse Doherty (Donegal South West, Sinn Fein)
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189. To ask the Minister for Finance if he will outline the tax liabilities that may arise for a debtor if, under the provisions of the Personal Insolvency Act 2012, some debts attaching to the debtor are written-down or written-off. [18443/13]

Michael Noonan (Limerick City, Fine Gael)
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I am informed by the Revenue Commissioners that the only circumstance in which the write-down or write-off of an individual's debt under personal insolvency may give rise to an income tax liability, is in relation to certain trade debts of the insolvent person. It can only happen in very narrowly defined situations. A person, whose mortgage on their home or on a rental property, for example, is partly written-off, will not suffer any income tax charge on the write-off.

Since 1970, the income tax code provides for the write-off of trade debts to be treated as a receipt of income in the year of write-off. However, carried-forward losses in the trade up to that time can be set against that income and may well reduce the charge to zero. This applies to all traders and professionals, whether in insolvency or not. This year's Finance Act (section 18) introduced a similar provision relating to the write-off of loans used to acquire and develop land as part of a trade of land dealing or development. The new provision operates in the same way as the 1970 provision but is even more restricted in that it only applies to land dealers and developers. From an income tax point of view, the consequences of debt write-off are exactly the same, whether insolvency is involved or not.

I am further informed by the Commissioners, that within the past month, they have made it clear, publicly, that where for bona fide commercial reasons, a financial institution enters into a debt restructuring, forgiveness or write-off arrangement with a customer, then Revenue's approach is to accept that the financial institution is not intent on making a gift to the debtor and, consequently, no charge to Capital Acquisitions Tax will arise. However, where the bona fides of such arrangements are open to question or tax avoidance is involved, then this approach does not apply.

There are nocapital gains tax or value added tax implications associated with any benefit that might arise to a debtor from the writing-down or writing-off of a debt under the provisions of the Personal Insolvency Act 2012. In summary, I can say that in the majority of cases of personal insolvency, which may involve mortgage default on family homes and which will come within the ambit of the new Personal Insolvency Act 2012, there will be no tax consequences of any kind.