The issue to which the Deputy refers is the tax provision applying to the release/forgiveness of a debt relating to land held as trading stock. This provision applies to individuals -
- who own land as part of their trade,
- the value of that land was previously written down, in many cases giving rise to large trading losses, and
- who benefitted from debt forgiveness on borrowings made to purchase that land.
The 2013 tax provision was introduced to ensure that, where loans are taken out to acquire land by individuals engaged actively or otherwise in a trade of dealing in or developing land and these loans are subsequently released or forgiven, the amount forgiven is treated as a receipt of income. The debt forgiveness is accordingly regarded as “reckonable income” for PRSI purposes and is liable to PRSI at the Class S rate of 4%.
While generally PRSI and tax rules are similar, they do differ in terms the treatment of trading losses carried forward from a previous year. Tax is charged after losses brought forward from previous years while PRSI is charged only on the profits generated in a particular year, without regard to losses in prior years. This difference means that the treatment of debt forgiven needs to ensure that it does not give rise to a loss of PRSI income.
My Department is finalising its examination of this issue to ensure the appropriate treatment of debt forgiven for PRSI purposes and will liaise with the all relevant bodies on completion of its deliberations.
I hope this clarifies the matter for the Deputy.
