Catherine Murphy (Kildare North, Social Democrats)
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303. To ask the Minister for Finance the revenue liability that sports clubs incur in instances in which they are granted a house from a developer to offer as a prize in the course of their fundraising activities; and if he will further clarify whether any duty or tax are due by either the developer, sports club organising the raffle or the eventual winner of the prize. [8380/22]

Catherine Murphy (Kildare North, Social Democrats)
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304. To ask the Minister for Finance if he or the Revenue Commissioners have engaged with officials in the Department of Justice regarding the rules that govern raffles in instances in which houses are offered as a prize in the context of the Gaming and Lotteries (Amendment) Act 2019. [8381/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 303 and 304 together.

As the Deputy is aware, I introduced a Committee stage amendment to section 604 of the Taxes Consolidation Act 1997 in the 2021 Finance Act which provides that where an individual disposes of their principal primary residence by way of a lottery or game with prizes, any gain over the market value of the property is subject to Capital Gains Tax. During the preparation of this amendment as well as during the passage of the Finance Bill through the Houses of the Oireachtas, my officials engaged with officials from both Revenue and the Department of Justice in relation to this provision in order to ensure that it was not contrary to Department of Justice policy and legislation in this general area.

I would note that this amendment affects only the disposal of a principal primary residence through a game or lottery and the winner of a such prize is not subject to CGT on their winnings.

The practice of raffles or lotteries being run by different organisations, mostly community-based (including sports clubs and local schools), to generate funds for their activities has been commonplace for many years. Increasingly, the practice has extended to a situation where a real asset, such as a car or a house, is put forward as the prize for the winner rather than a cash sum.

I am advised by the Revenue Commissioners that the Deputy’s question requires consideration across a number of tax heads, as set out below.

Stamp Duty

From the description provided, it is not clear whether there will be a transfer of a house from the developer to the sports club and a subsequent transfer to the raffle winner, or a transfer directly from the developer to the raffle winner. However, I can advise that the transfer of a property (including a house) constitutes a conveyance on sale for the purposes of the Stamp Duties Consolidation Act (SDCA) 1999. Stamp duty is payable by the transferee, whether or not it was transferred by way of sale, gift or as a result of winning a raffle. Where a property is sold, or otherwise transferred, for less than market value, section 30 SDCA 1999 imposes a charge to stamp duty at the market value of the property.

Stamp duty on transfers of residential property is chargeable at the rate of 1% where the market value does not exceed €1 million. Where the market value exceeds €1 million, stamp duty is chargeable at 1% on the first €1 million and 2% on the balance in excess of €1 million.

Capital Acquisitions Tax

In the normal course of events, a charge to capital acquisitions tax (CAT) arises on the gifting of assets between individuals or groups of individuals. The beneficiary of the asset being transferred is liable for this charge. Notwithstanding this, section 76(2) of the Capital Acquisitions Tax Consolidation Act (CATCA) 2003 provides that a gift or inheritance taken for public or charitable purposes is exempt from tax and is not taken into account in computing tax, to the extent that Revenue is satisfied that it has been, or will be, applied for purposes which in accordance with the laws of the State are public or charitable.

While the CATCA 2003 does not provide a definition of “charitable purpose”, section 3 (1) of the Charities Act 2009 provides that each of the following shall be a charitable purpose:

- the relief of poverty

- the advancement of education

- the advancement of religion

- other purposes beneficial to the community.

Donations to local sports clubs are generally considered to be beneficial to the community and consequently a donation of a dwelling house by a local sports club for the purposes of fund raising would generally be exempt from CAT.

On the matter of the transfer of the dwelling house to a winner of a raffle, section 82 CATCA 2003 provides for an exemption from CAT for certain types of receipts. Among these is the receipt of winnings from betting (including pool betting) or any lottery, sweepstake or game with prizes. Such winnings are exempt from CAT provided those winnings are received bona fide, i.e. the winnings are received from betting or games the outcome or which is not certain or cannot be controlled by either the organiser or the winner. Accordingly, provided the raffle is run by the local sports club in a bona fide manner, the receipt of the dwelling house by the winner will be exempt from CAT.

Capital Gains Tax

It is not clear from the description provided as to whether the property transferred is an investment property; however, it is assumed, based on the transferor being described as a developer, that the property is stock in the developer’s trade, and not an investment asset. On this basis, no capital gains tax (CGT) consequences arise on the transfer of the property by the developer.

Should the property be transferred by the sports club to the prize winner, any gain arising on the transfer will be exempt from CGT, as charitable and sporting organisations may be exempt from CGT in respect of chargeable gains which arise on the disposal of their assets, should the gain arising on the disposal be applied to charitable purposes or for the purpose of promoting athletic or amateur games or sports, in accordance with section 609 and/or section 610A of the Taxes Consolidation Act (TCA) 1997.

Winnings from betting, lotteries, sweepstakes or games with prizes are exempt from CGT, as are rights to winnings from those sources (for example, the sale of a bet), by virtue of section 613(2) TCA 1997. As such, no CGT liability arises for the prize winner on wining the property. If the prize winner subsequently disposes of the property, the base cost of the asset is its market value at the date it is acquired, and CGT will be calculated on any rise in value since it was acquired.

Income Tax/Corporation Tax

On the assumption that the property transferred by the developer is part of their stock in trade, the transfer will be reflected as a sale at cost in their accounts for the relevant accounting period; whether or not this cost may be deducted in arriving at taxable profits depends on whether the expense meets the requirement of having been incurred wholly and exclusively for the purpose of the developer’s trade.

Section 235 TCA 1997 provides an exemption from income tax or corporation tax, as appropriate, for bodies which are established and existing for the sole purpose of promoting:

- an athletic game or an athletic sport, or

- an amateur game or an amateur sport.

The exemption applies to that portion of the income of the “approved body” which has been or will be applied for the purpose of promoting an athletic or amateur game or sport. This means that if the proceeds of the raffle are applied for such purpose then the exemption should apply. However, each case would need to be considered based on its own facts.

VAT

The VAT rating of goods and services is subject to the requirements of the EU VAT Directive with which Irish VAT law must comply. Revenue’s understanding of the transaction, from the details provided, is that a developer initially developed a property for sale which was then granted or given to a sports club as a prize for fundraising activities and where the developer did not receive consideration for the house. In these circumstances and in accordance with VAT legislation the developer has diverted the property to a non-business use which is known as a 'self-supply'. As this is the first supply of the property by the developer, it is, therefore, a taxable supply and, in simple, terms, the value of the self-supply is the cost incurred by the developer in relation to the property. The net effect of the rule is that where a property is diverted to a non-business use there is a claw-back of the VAT that had been deducted on the acquisition or development of the property.