It is assumed the Deputy is seeking confirmation as to whether, under a Personal Insolvency Arrangement, the write-down of a loan, in whole or in part, relating to an employee of a bank will give rise to a benefit-in-kind charge for tax purposes.
Section 122(3) of the Taxes Consolidation Act (TCA) 1997 provides that where a loan is made by an employer to an employee and the loan, or any interest due on that loan, is written off, in whole or in part, then the amount written off is treated as a taxable benefit in the hands of the employee (or former employee where the employee has left the bank’s employment). It is the responsibility of the bank, as the employer, to identify any benefits to staff to which section 122(3) TCA 1997 applies and to compute and pay the tax liability.
I am advised by Revenue that its approach with respect to the possible application of section 122(3) in the case of loan restructurings, involving the full or partial write-down for an employee or former employee, is that where non-preferential loan(s) are/were originally advanced by a bank to the employee in the normal course of business and the bank can show to Revenue’s satisfaction that the outcome of the write-down would be the same for that employee or former employee as it would be for a non-employee customer of the bank, then, no liability to income tax will arise in respect of the write off of the non-preferential loan(s).
If the employee or former employee has only preferential loans from the bank then section 122(3) TCA 1997 applies to give rise to a tax liability on the full amount written off by the bank.
If there are a number of loans, including preferential loans, then, regardless of the order of the write off, the amount written off has to be first set against the amount of any preferential loan(s) outstanding and any tax liability arising on the preferential loan(s), so treated as written off first, has to be paid in accordance with section 122(3) TCA 1997.