I move amendment No. 1:
In page 8, after line 23, to insert the following:
"(e) the grandparent of that other person.".
Capital Acquisitions Tax Bill, 1975: Report Stage.
Before the Minister commences I would ask if he would confirm that all the amendments on this white sheet—strictly speaking it should be a green sheet but the one that was issued today is white—have previously been circulated?
I have not the amendments in the form to which the Deputy refers.
I think they have but I want confirmation of it.
They have been circulated.
Might I open by saying I would like to extend a welcome back to Deputy Colley. I hope he has recovered from his indisposition.
Thank you.
We missed the valuable contribution I am sure he could have made on the Select Committee on the Corporation Profits Tax.
In relation to this amendment it may seem strange that it is necessary to put it down at all, but subsection (4) (c) makes a grandchild a relative of his grandfather for the purposes of the Act, but this does not make the grandfather a relative of the grandchild. The purpose of the amendment, therefore, is to establish this relationship by making the grandparent a relative of the grandchild.
Can the Minister recall if the relationship inserted in subsection (4), the relationship of the grandchild to the grandparent, was that inserted by amendment on Committee Stage?
No, it was in the Bill as initiated.
The omission now being rectified was presumably inadvertent, not intentional?
Yes, it was inadvertent. If left as initiated it would affect detrimentally the operation of sections 16 and 17, where, for instance, a grandfather who had control of a company made a gift of a minority holding to a grandchild. It was never intended to operate detrimentally in such circumstances.
Amendment agreed to.
I move amendment No. 2:
In page 10, lines 46 to 49, to delete paragraph (b) and to substitute the following paragraph:
"(b) In this subsection, a reference to a contract or agreement does not include a reference to a contract or agreement—
(i) which is a complete grant, transfer, assignment or conveyance; or
(ii) which was enforceable by action prior to the 28th day of February, 1974."
Section 5, subsection (6), as amended in Committee, charges tax on a gift made on or after 28th February, 1974, in pursuance of a contract made before that date if there is a conveyance on or after that date. The purpose of the present amendment is to limit this to the case where the prior contract was unenforceable before that date.
The House may recall that we had a discussion on this on the Committee Stage. In view of the provisions of section 5, subsection (1), the gift is taken when a binding contract to make it is entered into, so that if a binding contract was made before the date of the White Paper, 28th February, 1974, there would be no gift or tax payable. Section 5, subsection (6), as originally introduced, made an exception in the case where the binding contract was made before the date of the White Paper and the assignment conveyance in pursuance of the contract was made after that date, so that gift tax would be charged in such case. There was an amendment on Committee Stage in regard to a subsequent transfer or conveyance. I accept this rule could be unfair in some cases and the present amendment proposes that tax will not be charged in respect of a complete grant, transfer or assignment or conveyance. I take it this takes care of the points that were validity raised.
I must confess I am not quite clear as to whether the Minister's amendment does what we sought to do in Committee. I think it does, the Minister has assured us it does and to that extent we are prepared to agree to it and to indicate our appreciation of the fact that the Minister has made an effort to meet the point made.
Amendment agreed to.
Amendment No. 3 in the name of the Minister may be recommitted. It involves a matter of substance.
Bill recommitted in respect of amendment No. 3.
I move amendment No. 3:
In page 12, lines 38 to 41, to delete subparagraph (ii) and to substitute the following subparagraph:—
"(ii) a part or portion of the property—
(I) which was to be appropriated to the inheritance, or
(II) out of which property was to be appropriated to the inheritance.
was situate in the State, that part or proportion of the inheritance.".
This is a technical amendment mainly of a drafting nature. One of the cases which the sub-paragraph is designed to cover is as follows. A foreigner leaves a bequest of all his investments to a legatee. The investments are partly Irish and partly foreign. The taxable inheritance is the Irish part of the inheritance, that is, the Irish investments. As sub-paragraph (ii) stands, it does not cover this case because it deals only with property "out of which" property was to be appropriated whereas, in this example, the investments as a whole constitute the property which is to be appropriated to the inheritance. This amendment is designed to cover that type of case.
Amendment agreed to.
Amendment reported.
If the House agrees, amendments Nos. 4 and 5 may be taken together.
I move amendment No. 4:
In page 19, subsection (2), line 14, to delete "In so far as any gift or inheritance" and substitute "Save as provided in subsection (7), in so far as any gift or inheritance".
These amendments are designed to afford relief to timber comprised in a gift or inheritance taken by a donee or successor who does not meet the requirements of being a "farmer" within the terms of the defination in section 19. The relief applies to growing trees and underwood only and not to the land on which they are growing. In section 19, growing trees and underwood are agricultural property and if comprised in a gift or inheritance taken by a person who satisfies the requirements of the definition of a farmer, such trees and underwood may be valued at their agricultural value. In most cases only 50 per cent of the market value of standing timber would be liable to tax. If the land and timber are worth more than £200,000 a maximum deduction of
£100,000 is permissible, but it appeared that the concession made to agriculture and forestry in section 19 may not be available in regard to a large proportion of privately owned woodland in the State because, due to the long period required for the maturity of planting, only persons with fairly considerable private means can afford to hold on to woodland as a long-term investment. Thus the donee or successor would not qualify as a farmer because his nonagricultural wealth represents more than 25 per cent of his total wealth.
To assist what would be regarded as a nationally and socially desirable, though often unremunerative, form of industry, the proposed amendment is being introduced. In the case of growing trees, the amendment seeks to remove the requirement that the donee or successor be a farmer as defined. This means that any donee or successor who takes such property may have 50 per cent of its market value deducted, or if the property is worth more than £200,000 may make a deduction of £100,000. It relates to trees and underwood only and not to the land itself. Woodland has a fairly small amenity value apart from that of the trees.
Any amendment which is designed to improve the position in relation to forestry, the growing of timber, is very welcome. As the Minister said, and as we had pointed out, the nature of forestry is such that it requires a long-term investment without return for a very long time. Consequently any amendment designed to ease the effects of the impact of capital acquisitions tax in relation to such property is welcome and desirable in the national interest. Whether these amendments give adequate relief in regard to forestry is another matter. I rather doubt in regard to all the circumstances whether it does, but it is welcome in so far as it improves the position.
In regard to amendment No. 4, I asked the Minister whether the reference to subsection (7) is intended to relate to the existing subsection or the proposed new subsection (7).
It is to the new subsection (7). The existing subsection would become subsection (8).
I thought that was so. The reason I asked is that the Minister will be aware that in some other amendments where a similar situation arose there was an asterisk and a note at the bottom and this was the appropriate reference if the amendment were accepted. Since that was not there in relation to this amendment it seemed to be inconsistent.
(Dublin Central): Does this amendment mean you do not have to be a recognised farmer to get this concession?
Yes.
(Dublin Central): This is desirable because this type of investment is very necessary in many counties in Ireland where forestry would be an ideal type of investment. It is, however, a most expensive form of investment because of the prolonged period over which it operates. It takes from ten to 15 years to realise anything out of such an investment—in other words realisation of one's investment would be in a future generation. Therefore, all possible encouragement should be given to invest in forestry if only from the point of view of easing the situation in which we have to import such a lot of foreign timber. There are certain counties in which this type of investment is ideally suited and, if we could get a right development plan for these counties and give them the proper encouragement, this would be a step in the right direction and the Minister is perfectly right in not confining this to farmers.
Amendment agreed to.
I move amendment No. 5:
In page 20, after line 28, to insert the following subsection:—
"(7) The provisions of subsection (2) shall have effect in relation to agricultural property which consists of trees or underwood as if the words `and is taken by a donee or successor who is, on the valuation date and after taking the gift or inheritance, a farmer,' were omitted therefrom.".
Amendment agreed to.
Amendment No. 6 is in the name of the Minister and recommittal is necessary again in respect of this amendment. It involves new matter of substance which does not effectively arise out of the Committee proceedings.
Bill recommitted in respect of amendment No. 6.
I move amendment No. 6:
In page 22, after line 41, to insert the following subsection:
"(3) Notwithstanding anything contained in subsection (2), if—
(a) an interest in property which was limited to cease on an event was limited to the disponer by the disposition creating that interest; and
(b) on the coming to an end of that interest, the provisions of subsection (1) have effect in relation to a gift or inheritance which was taken by a donee or successor under that disposition and which consists of the property in which that interest subsisted, then—
a further gift or inheritance taken by the same donee or successor under another disposition made by the same disponer (being the disposition by which that interest has come to an end) shall not be a taxable gift or a taxable inheritance in so far as it consists of the whole or any part of the same property".
This amendment is designed to alleviate possible hardship that could arise in cases which are not unusual, particularly in the transfer of farms. Hardship could arise, for instance, in this kind of case: you could have two charges for tax attaching to the same property taken by the same person from the same disponer and the amendment is designed to prevent the property being taxed more than once should a situation like that arise. For example, A settles property on himself for life with remainder to B. The only claim under this disposition will arise when B takes his interest in possession, normally at A's death, on which occasion inheritance tax would become payable. But if A should surrender his life interest voluntarily to B he has made another gift to B which again would give rise to a tax on such a gift. As the same disponer and the same property are involved and as A has parted with only the one property it is necessary to provide that the property will be taxed once only. Under subsection (1) the tax to be paid would be inheritance tax arising on the first disposition on the taking in possession by B of the property.
Would the Minister verify the example he has just given? If A voluntarily surrenders his life interest, on the occasion of that surrender what would be the position under this amendment?
B will pay inheritance tax.
Would inheritance tax arise at that stage on the value of what A is surrendering? What is passing from A at that stage is the value of the life interest to B but B is also getting at that stage the whole property. What happens then at that point? Is tax payable on the value of the property as though A had died, plus whatever the value of the life interest being surrendered is, or how is it calculated?
The inheritance tax will be on the full disposition of the property because, in fact, what would happen would be it would be an accelerated inheritance. Originally the disposer would be settling property on himself for life with remainder to B. He accelerates it then but, rather than tax him both on the gift of the property during A's life plus an inheritance tax on the inheritance at the end of A's life, we simply charge the inheritance tax on the value of the property, B going fully into possession, of course, when A will leave the property to him.
If we assume the value of the property to remain constant, in the circumstances envisaged by the Minister, on this surrender by A of his life interest would the tax payable then be the same as if A had died and B were inheriting the whole property?
Yes.
Calculated on the value of the property without reference to the value of the life interest being surrendered?
Yes.
Is the position the same where there is already an established settlement and A just does not happen to be the settlor?
It should be the same.
The Minister gave an example. The settlor would settle it on himself and then give to B in remainder. Is there a different situation where, say, X was the settlor of an established settlement and A surrenders to the life tenant namely, to B. I imagine the position would be the same but I just want it made clear.
It would be the same.
As far as the object of this amendment is concerned I would certainly concur with it, but I must confess I find the drafting of the amendment taken in conjunction with the section itself very confusing. The first line reads:
Notwithstanding anything contained in subsection (2)
Subsection (2) provides:
The provisions of subsection (1) shall not prejudice any charge for tax in respect of any gift or inheritance affecting the same property or any part of it under any disposition.
That is other than that mentioned in subsection (1). Now that is confusing enought but the next subsection starts:
Notwithstanding anything contained in subsection (2)
Then what is set out in the amendment applies. Would it be possible to make this a little clearer? That would be helpful because as subsection (3) stands it will take a great deal of working out to determine what precisely is the effect having regard to the fact that it says "Notwithstanding anything contained in subsection (2)" which itself provides that the provisions of subsection (1) shall not apply except in certain circumstances.
It is quite a mental challenge, I agree. I will have it considered between here and the Seanad.
Amendment agreed to.
Amendment reported.
Again recommittal is necessary in regard to amendment No. 7 since it involves new matter of substance which does not effectively arise out of the Committee proceedings.
Bill recommitted in respect of amendment No. 7.
I move amendment No. 7:
In page 23, after line 25, to insert the following subsection:
"(3) The provisions of this section shall not have effect where the second-mentioned interest is taken under the disposition under which the first-mentioned interest was created.".
This is a technical amendment designed to confirm that section 26 is not intended to cut down the tax payable under a settlement under which property is settled on the life tenant with provision to enlarge his interest to an absolute interest—for example, on the happening of a particular event, or on his attaining a certain age, or at the discretion of the trustees. The life tenant may under the terms of the settlement become absolute owner but, under section 20, he will be taxed in the first instance as life tenant only. If the contingency happens his original tax may be reduced retrospectively under section 20 and, in addition, the absolute interest taken will be taxed but without any reduction under section 26.
As it stands, section 26 provides for this situation, because the term of the limited interest expires when the life interest is withdrawn and replaced by the absolute interest; as there is no "unexpired balance of the term of the limited interest in possession" for the purpose of paragraph (c) of subsection (1), the reduction provided for in the section would be zero in those circumstances, that is, as was intended, no reduction would be given. It is considered that this interpretation of the section is too technical to be readily observable and it is considered that the addition of the new subsection will put the meaning beyond doubt. The section is now clearly confined to a gift or inheritance taken by the life tenant under a disposition other than the original settlement—that is, normally the disposition of the remainder man who has made a gift of his remainder interest to the life tenant.
The Minister may believe this makes the section clearer, but it is not quite so easy to accept that proposition.
It does not make it any more confusing.
I would not dispute that. Would the Minister have any example that would illustrate the effect of this?
It seems to be a case where there is a merger of the remainder man's interest in the life interest, where the life interest acquires the remainder interest.
Where section 26 operates, A settles property on B for life with remainder to C absolutely. B is a lady and is aged 50 when she takes her life interest in possession. Tax is payable on 78 per cent of the then market value of the property. When she dies or when her life interest is released or otherwise merges in the remainder interest, the inheritance taken by C, or by any alienee from C, will be taxed under A's disposition. Section 24 applies to any such premature cesser of her life interest. The full market value of the property at the later date will be the basis of the taxable value of C's inheritance.
However, a second claim for tax may also arise if B, the life tenant, were to take a gift or an inheritance of the remainder interest from C so that she is now absolute owner of the capital. Section 26 applies to this possible claim for tax. It does not apply to the primary claim for tax under A's disposition on C's inheritance which has been deferred until C, or his alienee, took an interest in possession. If B is now aged 60, the taxable value of the gift or inheritance she takes from C would, if section 26 did not apply, be the whole market value of the capital under sections 5, 11 and 18. Section 26 permits the deduction of approximately 65 per cent in respect of B's existing life interest, and the remaining 35 per cent of the present value of the funds will be taxable in respect of this second claim to tax. Any tax payable under the first claim, on C's acquisition from A, will be deductible from the capital before its net value is arrived at for the purpose of the second claim.
I am grateful to the Minister for that. I will not say it makes it clear but it makes it clearer than it was. Could I ask the Minister if the position as he has outlined it is the one under the section and the effect of the amendment is simply to make the operation of the section clear but not to change the operation originally proposed?
No, we are not changing the operation.
(Dublin Central): Do I take it that B's interest is only the life interest?
Yes.
(Dublin Central): And it is on this particular part, at aged 60, she is taxed at 65 per cent?
The value of B's interest is 65 per cent.
(Dublin Central): And that is taxed?
It is the remaining 35 per cent of the present value which will be taxable. We are now dealing with the second claim.
(Dublin Central): With C?
Yes.
(Dublin Central): She would be liable to 35 per cent?
We are dealing here with the case where B, the life tenant, takes a gift or inheritance of C's interest which is the remainder interest.
Or even part interest.
Yes, even part interest.
(Dublin Central): Is there double taxation here? I am a little confused about this section. We take the life interest and if the woman is 60 the value of the property will be taken at 65 per cent and she will be taxed on that.
Sixty-five per cent is B's existing life interest, and under section 26 there is a deduction of B's existing life interest which is roughly 65 per cent, leaving value to be taxed when C takes over his remainder interest of 35 per cent.
(Dublin Central): He will only be subject to 35 per cent?
Yes.
Amendment agreed to.
Amendment reported.
I move amendment No. 8:
In page 25, lines 1 to 5, to delete subsection (1) and to substitute the following subsection:—
"(1) A person shall be deemed to take a gift in each relevant period during the whole or part of which he is allowed to have the use, occupation or enjoyment of any property (to which property he is not beneficially entitled in possession) otherwise than for full consideration in money or money's worth."
Amendment No. 9 is consequential, so Nos. 8 and 9 may be taken together.
These two amendments to section 31 are being proposed because doubts were cast in the debate on Committee Stage on the interpretation of subsection (1). I have considered what was said and I think there was merit in it. It was thought that the word "thereto" in the third line of subsection (1) could be referred to the word "gift" instead of, as intended, to the word "property". Similarly with the word "thereto" in the third line of subsection (5). Therefore the amendments are moved to remedy any doubts or defects.
Amendment agreed to.
I move amendment No. 9:
In page 25, subsection (5), line 23, to delete "thereto" and to substitute "to that property".
Amendment agreed to.
I move amendment No. 10.
In page 27, line 22, before "consideration" to insert "full".
As amendments Nos. 10 and 11 are cognate, they may be taken together.
"Full consideration" is mentioned in section 47 (2) in the proposed amendments to section 47 (3), section 48 (4) and in section 64 (2). For consistency it is advisable to insert "full" before "consideration" in this section also, since a sale could be held to be bona fide even if not for full consideration. An accountable person could make a partial gift of the property to another by a sale at under value and the recipient would not be considered accountable. The property would, in any event, be charged under section 47, but without the proposed amendment the purchaser could not be called on to deliver a return or to furnish information. It would be necessary to prepare an official estimate of the tax and to sue for payment under section 49 (4). I might mention in relation to this that on Committee Stage my colleague, the Minister for Lands, was standing in for me at that time. This inconsistency was brought to his notice by Deputy Colley and the Minister for Lands undertook, on my behalf, to make this amendment.
I am grateful to the Minister for having covered this point. He did say something there which I would appreciate if he would clarify, that without this amendment tax would be payable but that it would not be possible to serve a notice on the purchaser and that an assessment would have to be made by the Revenue Commissioners. I am not quite clear why that would be so. Does the Minister mean, when he says that tax will be payable, that the tax would be payable on the full value of the property as distinct from the bona fide consideration, which was not full value?
The position is as Deputy Colley understood it to be, and as I stated it, and that is, that if the word "full" is not inserted now there would be difficulty in getting the return. The obligation to furnish the information would not lie on the donee, but by putting in the word "full" this obligation lies as of course there is an actual gift.
I do not quite understand why the insertion of the word "full" produces this obligation.
If the word "consideration" was not in any way qualified by the word "full" then the obligation on the donee would not arise in the kind of case which we have in mind here. Section 35 deals with accountable persons and it is making it clear. The effect of putting in the word "full" in this case brings within the net of accountable persons a person who receives a property at less than its full value.
If the full value of the property were £x and a transaction were entered into in which the consideration was half £x, why does the insertion of the word "full" make that person an accountable person, whereas if you found that the consideration was only for half £x he would not be an accountable person? In other words, why would he not be an accountable person anyway, at least in respect of whatever the consideration was?
Subsection (2) reads: "...the following persons shall also be accountable for the payment of any amount of the tax...""...(a) in the case of a gift...(ii) every trustee..." and so on, and "every person in whom the property is vested after that date, other than a bona fide purchaser or mortgagee for consideration in money or money's worth...”. That means that a person who does not pay the full amount is such an accountable person.
That appears to be the reverse. The effect of putting in the word "full" appears to be releasing from the obligation somebody who does not pay full consideration.
No. Before, any consideration would have released such a person from the status of an accountable person, but it is only when such a person pays less than the full consideration. It says every person other than somebody who pays the full price.
(Dublin Central): Does “consideration” mean the full price? If I fix a sum, is that a consideration?
No. Full consideration is that which would be paid by a willing purchaser to a willing vendor on the open market.
(Dublin Central): I thought it might be the full amount of the consideration agreed on.
No.
Amendment agreed to.
I move amendment No. 11:
In page 27, line 31, before "consideration" to insert "full".
Amendment agreed to.
I move amendment No. 12:
In page 28, after line 27, to add the following subsections:—
"(9) If a person, who is primarily accountable for the payment of tax in respect of a gift or inheritance (in this subsection and in subsection (11) referred to as the first gift or inheritance) derived from a disponer, has not paid the tax on the first gift or inheritance, the Commissioners may serve a notice in writing in accordance with subsection (11) on any person who is, by virtue of paragraph (a) (ii) or (b) of subsection (2), accountable for the payment of tax on any other gift or inheritance (referred to in subsections (10) and (11) as the second gift or inheritance) taken by the same donee or successor from the same disponer, and the person on whom the notice is served shall thereupon become accountable for the payment of tax in respect of the first gift or inheritance.
(10) The provisions of subsections (3), (4), (5), (6), (7) and (8) shall apply in relation to a person made accountable under subsection (9) as they apply in relation to a person referred to in paragraph (a) (ii) or (b) of subsection (2) and, for the purposes of this subsection—
(a) references in subsections (3) and (4) to the property of which the gift or inheritance consists; and
(b) the second and third references to property in subsection (8),
shall be construed as references to the property of which the second gift or inheritance consists, in so far as the last-mentioned property had not been duly paid out at the date of the service of the notice under subsection (9).
(11) A notice under subsection (9) shall refer expressly to the first and the second gift or inheritance, and shall inform the person on whom it is served of his accountability in respect of the first gift or inheritance.".
Amendments Nos. 12 and 13 may be taken together.
These amendments are necessary for the protection of the tax and to facilitate recovery thereof from the person primarily liable. The normal case in which resort would be had to this new provision is where a donee or successor who is resident abroad takes two separate benefits from one disponer under different titles and there is a personal representative or trustee resident in the State who has control over the property comprised in one gift or inheritance and the property comprised in the other is situate abroad and there is no person resident in the State who is accountable in respect of that foreign property. For example, A dies domiciled in Ireland leaving property by will to B who lives outside the State, say, in Northern Ireland. A had also placed money in a Northern Ireland bank in the joint names of himself and B and the money passes by survivorship to B. B has taken two inheritancies on A's death, one under the will and the other by survivorship. The personal representative is liable under subsection (2) to pay the tax on the legacy under the will but only B himself is liable in respect of the money passing by survivorship because it does not vest in the personal representative.
The proposed amendment gives the commissioners the power to call upon the personal representative to account for and pay the tax on the money in Northern Ireland out of the property he holds for the successor under the will. The result is that the executor will delay sending the legacy out of the State until the beneficiary has paid tax on the Northern Ireland money. A similar situation could exist where a testator makes separate wills for his property in different countries with different personal representatives for a common beneficiary who is resident abroad. The Irish personal representative would be asked to pay the tax on the foreign assets out of the funds held by him on behalf of that beneficiary.
I take it that no obligation arises in respect of the personal representative unless and until he has been served with the notice in writing by the Revenue Commissioners?
Yes, such would be necessary.
If, in fact, he has paid before he is served with the notice, is that the end of the matter as far as he is concerned?
No. If a payment is made before notice no liability would arise.
I am glad the Minister is accepting that principle. He may recall that he did not accept it in other legislation, but I think it is a sound principle. Could the Minister indicate, if he takes the first example that he gave where A dies domiciled in the State leaving property to B who is resident in Northern Ireland, and in addition to that A had money held jointly with B in a bank in Northern Ireland, and this is the property in respect of which the Minister is trying to ensure that tax is collected, how he envisages that the Revenue Commissioners will become aware of this transaction in the first place? He will agree that it is quite conceivable that the personal representative might not be aware of it at all.
Secondly, how does the question of liability arise in respect of property situate outside the State? Can there be a liability in the country in which the property is situate—say, in this case, to the UK government—at the same time and in respect of the same property?
In the ordinary event, if an executor or personal representative is informed fully, he will include the asset outside the State when he is returning a schedule of assets to the Revenue Commissioners here. In such a case a demand for payment would be made but if the personal representative is not aware of the existence of such an asset I acknowledge that he would be blameless in not returning it in the schedule of assets. However, the legal obligation would rest on B to pay the appropriate duty, B being aware that duty was payable. Assuming that B made a return to the UK authorities, liability of payment of capital transfer tax would arise in the UK but because of the double taxation agreements credit would be given for tax so paid against the liability for tax in this State. The question of whether the tax is paid in another jurisdiction is a matter primarily for the authorities in that jurisdiction but our right to recover the tax on all assets that exist would be qualified only by the operation of the double taxation agreements.
May I refer the Minister to amendment No. 12, paragraph (10) where, after paragraph (b) it reads:
...shall be construed as references to the property of which the second gift or inheritance consists, in so far as the last-mentioned property had not been duly paid out....
I am concerned with the use of the wording "duly paid out". If we are talking in terms of cash such phraseology would clearly be appropriate but if the property was, say, a house —leasehold property—would the phrase be appropriate?
The Deputy is deserving of full marks so far as his English is concerned. I will have a look at this wording.
I suspect it was drafted on the assumption that the property was cash.
That is what was contemplated because that is the kind of property, which, usually, is most difficult to trace but I will have a look at it.
In regard to amendment No. 13 would the Minister agree that the effect is to add subsection (9) to the reference that is there already to subsection (2)?
Yes.
Therefore, the effect is to say that in subsection (6) any person who is accountable for the payment of tax by virtue of subsection (2) of this new subsection...and that the person who would be accountable under the new subsection, (9), would be the personal representative who has received notice in writing. Is that so?
Yes.
Is that the only effect of this amendment?
Yes.
Amendment agreed to.
I move amendment No. 13:
In page 29, line 47, to delete "section 35 (2)" and to substitute "subsection (2) or (9) of section 35".
Amendment agreed to.
Bill recommitted in respect of amendment No. 14.
I move amendment No. 14:
In page 30, after line 32, to insert the following subsection:
"(5) Any oath or affidavit to be made for the purposes of this Act may be made—
(a) before the Commissioners;
(b) before any officer or person authorised by the Commissioners in that behalf;
(c) before any Commissioner for Oaths or any Peace Commissioner or Notary Public in the State; or
(d) at any place outside the State, before any person duly authorised to administer oaths there.".
Under subsection (2) of section 37 the Revenue Commissioners may require a return or an additional return to be made on oath. Of course, the Inland Revenue affidavit is also to be sworn. The amendment facilitates persons who are required to take an oath for the purpose of the Act by allowing the oath to be administered by a Revenue official or a peace commissioner if it is inconvenient for the person concerned to go before a commissioner for oaths. A similar provision exists in relation to death duties, under section 24 of the Stamp Duties Management Act, 1891, as amended by section 7, subsection (6), of the Revenue Act, 1898. That position applied only to stamp duty and as the capital acquisitions tax is not a stamp duty it is necessary to add the subsection proposed in the amendment.
When the Minister says that similar provision was made does he mean literally "similar", that is, in the sense of allowing a Revenue official or a peace commissioner to administer an oath?
Yes. I might add that I was as surprised as the Deputy to discover this.
I do not think it is used very often.
Amendment agreed to.
Amendment reported.
I move amendment No. 15:
In page 33, subsection (3), line 12, after "sale" to insert "or compulsory acquisition".
This amendment is consequential on Committee Stage amendment No. 40 which inserted "or compulsorily acquired" in lines 2 and 3 of the subsection. The amendment is being proposed in the interest of consistency.
I have a slight problem in regard to this amendment. It is an amendment to subsection (3) and that subsection provides that:
In any case where and to the extent that the property of which the taxable gift or taxable inheritance consists is sold or compulsorily acquired, all unpaid instalments shall, unless the interest of the donee or successor is a limited interest, be paid on completion of the sale and if not so paid, shall be tax in arrear.
The effect of the amendment is to put in "shall be paid on completion of the sale or compulsory acquisition". The intention is clear but my difficulty is that I am aware that in regard to compulsory acquisition proceedings it can happen that the proceedings may be completed, that is, that the legal formalities may be completed—or what will correspond to the closing of sale in the case of an ordinary sale— and a considerable time can elapse thereafter before the money is paid over by the local authority. I doubt if it is the Minister's intention—if it is it would not be correct in my view— to provide that a person could become liable for payment of all the outstanding instalments, and so on, on completion of the legal formalities but without getting the proceeds of the compulsory acquisition. That failure to pay would mean that the outstanding instalments would be taxed in arrear, thereby becoming liable for interest. The kernel of this is the meaning of the word "completion" in relation to compulsory acquisition. If "completion" means payment of the money due there is no problem, but if it does not mean that, if it simply means completion of the legal formalities, there is a problem. I doubt if the Minister would want the situation to be as it could be if "completion" in this context means just the legal formalities being completed.
Deputy Colley has a point. In my view it is possible to have a compulsory acquisition order made and the local authority going in and using the land. Then one may have the second stage of assessing the price and the compensation, which is often a very protracted procedure. There have been difficulties about getting the arbitration and the money assessed. On a strict reading of the section there is a danger of interest for something like that running before the person gets money into his hand or has the ability to pay. In my view it is necessary to qualify this by reference to "money paid". Under the compulsory acquisition code there is a provision whereby the compensation payable can be less than would otherwise be because the local authority agreed to carry out amenity works. Very often this means a further delay and there is no final completion until the amenity works have been carried out. This does not happen in all cases but I am aware that it has occurred. It would be unfair to the person who had his property acquired if he had to pay interest. Admittedly, there is a provision for the payment of interest on the compensation money from a certain date but interest payable on compensation money may not be at the same rate as the interest that might be payable on tax.
It is 18 per cent.
I believe it is a low rate of interest in today's terms but there is a real difficulty here and I should like the Minister to have a look at the drafting. I can see his intention and in my view he is correct in the wording used but there should be something inserted to save an injustice occurring.
We had a useful debate on this on Committee Stage and I said the Revenue Commissioners would not deem a compulsory acquisition to be completed until the consideration had been paid and received by the beneficiary. Deputy Esmonde troubles me with the question of the compensation possibly taking the form of the completion of some amenity work which would require physical building. The Revenue Commissioners inform me that their practice would be to deem the transaction not to be completed until the amenity work was completed which, in the light of experience, would give the beneficiary a considerable period of delay after the time that the terms of the transaction had been settled.
We often have cases in relation to road widening where the transaction involves the rebuilding of a wall but these are matters which the Revenue Commissioners, using their powers of care and management of the tax, would be able to handle properly in the light of the difficulties which will arise in a particular situation. I shudder to think of how complex the Bill might have to be to try to deal with all the difficulties that could well arise in situations of that kind.
May we take it that apart from the question of amenities the intention is that the section would not operate until the compensation money had been paid over?
That is the intention.
What about the situation with regard to compulsory acquisition under the Land Acts where land bonds are paid? Will the bonds be accepted as payment? It is all very well if they are 16 per cent land bonds as they are at present, but I can foresee some grave change with sterling doing peculiar things at present and this may affect other interest rates. Could a proportion be taken as part payment? It is Government money and it is Government tax.
I am glad to be able to reassure the Deputy that such land bonds would be surrenderable to pay the tax liability. Having regard to the fact that land bonds when issued must be related to the interest paid by the State on the most recently issued national loan such land bonds would probably be quite near to par on the open market if sold at the time, all these events being current. Of late some recently issued land bonds are being sold above par and the holders of such bonds would be welcome to surrender them at par if they so wished.
(Dublin Central): Will the land bonds be accepted at par? Some land bonds are at 65 now.
Yes.
When the Minister says that land bonds would be accepted in payment of the tax is there a statutory provision to that effect?
Yes, they must be accepted in payment of the tax. The question was posed whether or not land bonds paid where the Land Commission acquired a property could be used to pay the tax and I replied that they could. Of course, such land bonds would be as close to par as would make no difference. Historically issued land bonds—Deputy Fitzpatrick was contemplating land bonds which might be at a value of 65—would be surrenderable only at their market value and not at par. The case at issue is whether land bonds paid for a piece of land could be handed over to the Revenue Commissioners for the purpose of paying any tax which might arise on the compulsory acquisition and the answer is "Yes".
(Dublin Central): A person requiring his property would have no other means of finding cash except these land bonds which would be at 65.
If there is a compulsory acquisition by the Land Commission and they issue the current land bonds it is those current land bonds which will be taken at par because that is the consideration that is paid for that acquisition which would give rise to the charge under this Bill.
(Dublin Central): I do not think the Minister has stated that they will be at par.
He said they will be at par. But if you have land bonds for other land acquired, they are taken at their market value. What I am concerned about here is that if there is a compulsory acquisition of, say, plot A——
(Dublin Central): Those land bonds are 65 at the moment.
No, they will be the current bonds issued at par.
(Dublin Central): I am speaking about the bonds issued 15 years ago.
That is historical They are not concerned with the particular land acquired.
Amendment agreed to.
Amendments Nos. 16, 17, 18 and 19 are cognate amendments, and by agreement will be taken together on Report Stage.
I move amendment No. 16:
In page 34, in lines 17 and 18, to delete ", in the case of real property,".
Following the precedent set in section 42 of the Succession Duty Act, 1853, the present section, as drafted, emphasised the charge for tax on real property, which includes chattels real. On Committee Stage, subsection (2) was amended to apply to all property. Deputy Colley suggested that subsection (1) should be similarly amended. Charges on personalty are normally not helpful in enforcing claims due to the informality of transfers of personalty and this is recognised in the amendment which imports a new subsection (3) in this section relating to purchasers who have no notice of a charge for tax. In view of the protection so given by subsection (3), it is proposed to accept the view put forward by Deputy Colley on Committee Stage, that subsection (1) should apply to personalty as well as to real property. Accordingly, the subsection now provides that all property, other than money or negotiable instruments which are impossible to charge, will be charged with tax if it is comprised of the gift or inheritance at the valuation date. The revenue charge will have priority over charges created by the donee or successor.
Furthermore, as provided in the proviso, settled property, whether realty or personalty, may be dealt with by the trustees in strict conformity with the terms and the settlement of the charge will attach to the substituted property held by the trustees. This will enable the trustees to sell and reinvest settled funds despite the charge for unpaid tax. It is essential that the property be settled at the time of such sale. If the successor had taken the settled propery absolutely on the death of a life tenant, it is no longer settled and the charge does not shift to the proceeds of the sale.
These amendments make the approach more consistent than it was. I am not quite sure if the total effect as spelled out by the Minister is quite what I was advocating, but it is getting close to it. I take it that the practical effect is this: All property, other than money or negotiable securities can become liable to the charge for tax, but similarly can be dealt with by way of what is in effect a certificate of discharge disposed of to bona fide purchasers without restriction, and that the same limitations would apply to all property, whether real or personal. That is the intention, I presume and the effect of what is being done here.
That is correct.
Amendment agreed to.
I move amendment No. 17:
In page 34, in line 21, to delete "real".
Amendment agreed to.
I move amendment No. 18:
In page 34, in line 29, to delete "real".
Amendment agreed to.
I move amendment No. 19:
In page 34, in line 30, to delete "real".
Amendment agreed to.
Amendment No. 20 is in the name of the Minister and a recommittal is necessary in respect of it since it involves new matter of substance which does not effectively arise out of Committee proceedings. Amendment No. 21 is a related amendment. Amendments Nos. 20 and 21, by agreement, will be taken together.
Bill recommitted in respect of amendment No. 20.
I move amendment No. 20:
In page 34, in line 35, after "purchaser", to insert "or mortgagee".
A person might gratuitously promise another a sum of money and give him a mortgage over lands to secure the sum. Such a mortgage would not be for full consideration in money or money's worth. Accordingly this subsection is being amended to make the condition as to full consideration apply to the mortgagee as well as to the purchaser. This amendment brings this subsection into line with the references to purchasers and mortgagees in section 35 (2) (a) and (b), section 47 (3), as amended, and section 64 (2).
Did I urge this on the Minister on Committee Stage? If I did not, I did it in relation to another section.
This follows from an earlier section.
They are related.
In other words, the effect is to have the words "bona fide” qualify mortgagee as well?
Yes.
You would not require the same bona fides from a mortgagee as you would from a purchaser if we did not put in this amendment. Is that roughly the position?
Yes.
There would be a very large loophole if this were not done.
That is true.
Amendment agreed to.
Amendment reported.
Bill recommitted in respect of amendment No. 21.
I move amendment No. 21:
In page 34, in line 36, to delete "or a mortgagee,".
Amendment agreed to.
Amendment reported.
I move amendment No. 22:
In page 34, after line 39, to insert the following subsection:
"(3) Tax shall not be a charge on property under subsection (1) as against a bona fide purchaser or mortgagee of such property for full consideration in money or money's worth without notice, or a person deriving title from or under such a purchaser or mortgagee.”
This amendment seeks to add a new subsection (3) to section 47 to free a purchaser or mortgagee from the charge if he takes the property for full consideration and without notice. A person purchasing property or accepting a mortgage of property will need to ensure that the property is not subject to a charge for outstanding tax. If he does not see to this, he may have to pay the tax himself. However, it is not considered desirable that every purchaser or mortgagee should have to seek out liabilities for tax. The purpose of this amendment is to make the purchaser or mortgagee liable only if the fact that there is an outstanding charge for tax would have come to his attention if he had made the ordinary inquiries that purchasers and mortgagees usually make. Thus, a man buying a house would usually have the title examined for some years back to make sure the person from whom he is buying has the right to sell and that there is no lien held by anybody else on the property. It is proposed to make the purchaser in such a case liable for outstanding tax only if the fact that such tax could be payable would appear from the examination of the title.
In the case of personal property such as stocks and shares a purchaser would not normally have notice of a transaction giving rise to a liability for tax and so he would be relieved by the amendment now proposed. I might add that this amendment is in substitution for Committee Stage amendment No. 46 which appeared on the Order Paper but was not moved. It differs from the Committee Stage version however in that it covers the case of the mortgagee and it inserts full consideration so bringing it into line with the other sections to which I have referred.
First, to take the ordinary conveyance of a house or similar property where an investigation is being carried out: will this make any difference either to the requisitions on title which are required or the replies to requisitions required as a result of this amendment? Can the Minister foresee that there will be any adjustment in that regard? Second, in relation to a different type of contract or sale, possibly of securities or incorporeal assets, sometimes you have inquiries whether there are debts or encumbrances of various sorts on the property. Will the effect of this amendment and the section as amended be to require the formal requisitions being made as something in the same way as is customary in the case of realty?
It is extraordinary how rusty one becomes when one is even a few years away from actual solicitor's practice.
I am 25 years away, so do not worry.
Recalling from my experience the standard requisitions, there does not seem to me that there would be a need to make any significant change in requisitions. Heretofore, say in the case of death duties, one would ask in requisitions on title if there was a death on the title, whether death duties had been discharged and would require evidence of their discharge, or as an alternative, adequate undertaking that they be duly paid. In relation to this tax, liability to tax could arise in the event of death and also in the event of a person on the title having received property for less than the full value. These are cases that are quite within the normal experience of examiners of title and I would not think it would call for any remarkable departure, but obviously one has to look to the title and see whether or not there should be any cause giving rise to the tax and ask an appropriate requisition. No doubt, as Deputy de Valera is aware, some requisitions are so widely drawn that even if the requisitioner had not alerted himself or herself to a particular issue the reply might identify the liability to tax.
May I say to the Minister through the Chair that if there was any question of having to inquire about a simple debt, a direction or instruction from the Revenue Commissioners as to what they would require—these general things that are sometimes sent out—would perhaps help. I know it is Report Stage and I do not want to open the debate.
There is an organisation known as the Land Registry and I notice the words "without notice" used there. There are two sections which provide for dealing with charges. So far as I know, under the Registration of Titles Act there is no provision for any charge under this Act as affecting registered land. I think it is fairly specific and is in section 72, I think, where a solicitor usually asks the vendor's solicitor for a declaration that the charges in that section do not affect the land. I do not know how it is proposed to deal with this but, as Deputy de Valera quite rightly says, it would be a help to vendors and purchasers if there was some vade mecum or guide dealing with this matter. There may be some provision in the Bill dealing with this, deeming it to be one of the charges under section 72 of the Registration of Titles Act.
Section 68 (2) on page 48 will, I think, satisfy the Deputy.
I had it at the back of my mind that it had been covered in this Bill. The Minister said when proposing the amendment that the situation envisaged was that if a purchaser made normal inquiries and did not as a result receive notice of the charge then he was not bound by it. I take it what the Minister meant by that was, say in the case of the purchase of land or house property, the normal inquiries would be the normal requisitions on title and it is not envisaged that in addition the purchaser would have to make specific inquiries of the Revenue Commissioners?
It is not so envisaged. It strikes me that the Revenue Commissioners could not answer such a question if directed by a third party to them—it would be a breach of confidentiality.
I do not know about that on title matters.
Even on title matters, the application for discharge of death duties would tend to come from the party having an interest or liability in relation to payment of duties on the property in question, not from the purchaser from the vendor. Rather it is the vendor who approaches the Revenue Commissioners.
I do not know if that is quite right. I think you can have situations in which, perhaps, there are no duties payable. A subsequent purchaser who had nothing to do with the debt at all may have to get the certificate and produce it to show that no duty was payable at the time.
I think Deputy Colley is correct in that, particularly under this Bill where tax is to be a charge on property—you are entitled to get a certificate from the Revenue Commissioners, anybody who has an interest in the property is entitled to get a certificate. I think that has always been the case in relation to both succession duty and estate duty.
Yes. I was talking about addressing a query relating to the tax liability of another person or persons. Certainly, it would be appropriate for a certificate to issue in relation to a property as distinct from an individual.
It is the same thing.
I agree that in some cases it might be tantamount to it.
The Minister is not adding any other qualification to what he said?
No.
Amendment agreed to.
Bill recommitted in respect of Amendment No. 23.
I move amendment No. 23:
In page 35, to delete lines 3 to 9, and to substitute the following proviso:
"Provided that a certificate purporting to be a discharge of the whole tax payable in respect of any property included in the certificate in respect of a gift or inheritance shall exonerate from liability for such tax a bona fide purchaser or mortgagee for full consideration in money or money's worth without notice of such fraud or failure and a person deriving title from or under such a purchaser or mortgagee.”.
The proviso to subsection (4) is for the protection of a bona fide purchaser who had no knowledge of any fraud or concealment of material facts leading to the issue of a certificate discharging the property from tax. Other accountable persons remain liable for the tax. The proviso is being amended to extend protection to a mortgagee, to insert “full” before “consideration” and to use a better formula to cover the person deriving title from or under such a purchaser or mortgagee. The new wording is in line with the wording of other sections to which I have already referred.
I think the Minister is aware that there has been some difficulty in the past in relation to death duty certificates and getting a clearance. You get a conditional one if it is the case of a personal representative and if there are any further transactions with the property within six years or within a certain period you may have to get a fresh one; you do not get a final certificate. If there were to be a certificate as contemplated under this, will it be a final certificate or will there be a provision whereby one has to go again because the certificate is only a provisional one?
The situation will not change; the practice will not change dramatically from the practice described by the Deputy. The section as drawn is wide enough to allow either a final or provisional certificate to be issued.
Therefore, when a provisional certificate is issued one cannot really act on it? If you are a purchaser you are put on notice immediately to look for the clear certificate.
Yes, you would be.
Will there be a time limit for which the provisional certificate remains provisional as is the present practice?
Yes, six years.
It gives rise to a lot of difficulties that it would be well to avoid if possible.
It would be easy to avoid this if the full position were known at the time when the certificate were being sought, but when it is not known a provisional certificate is better than none.
You cannot act on it.
I agree that there are risks, possibly, in acting on it but there are other ways of securing one's position by means of undertakings and so on. It is a matter for people to decide whether they wish to proceed on the basis of a provisional certificate or wait.
Building societies will not accept the title if the certificate is only provisional.
I think they are precluded by law from accepting——
I know.
I do not know if this discussion is complete——
It is complete so far as the Minister is concerned. I do not know if Deputy Esmonde is entirely happy. We are not changing the practice.
Apart from the point already raised there are some interesting changes of wording in this amendment compared with the section. The first part says: "... provided that a certificate purporting to be a discharge of the whole tax payable in respect of any property included in the certificate in respect of a gift or inheritance shall exonerate from liability for such tax a bona fide...” So far the wording is identical, but where in the original subsection, which we passed on Committee Stage it is stated “for consideration” we have now changed to “or mortgagee for full consideration”. That is a substantial change.
In regard to the point already made, there is an implication about the finality of the certificate that Deputy Esmonde referred to. The word "full" may be of some import here because a certificate might be issued and there might be a reopening. I take it that the word "full" did not just slip in there by accident.
We had it on an amendment before Deputy de Valera came in.
I am not making any point beyond spelling out what is in the section. I am only making it in relation to a possible implication on the point raised by Deputy Esmonde. This may have been raised before I came into the House. The amendment states later on: "... a person deriving title from or under such a purchaser or mortgagee". That seems to be wider than "...claiming in right of the purchaser or on his behalf". That is another change in wording because in the original it reads: "...claiming in right of the purchaser or on his behalf".
In fairness to the Minister, I objected to that wording on the Committee Stage.
I wish to commend the Minister on doing this but I do not think there is any harm in adverting to what has happened. I do not object to these changes. Does the word "full" in any way affect the finality of a certificate or would there be grounds for reopening the matter on the change of wording from "claiming in right of the purchaser or on his behalf" to "a person deriving title from or under such a purchaser or mortgagee". I completely agree that the Minister has covered what he has intended to cover better than he covered it in the original Bill. I am not approaching this in a purely critical spirit, but at the same time I want to say that the Minister has substantially amended the section, and beneficially so, subject to the point made by Deputy Esmonde.
I wish to explain briefly to Deputy de Valera how the word "full" is now in a number of sections it was not in before. We are providing here an exoneration for people who are bona fide purchasers for full value without notice. If they are not for full value there could be an element of gift involved and that is why the word “full” is inserted.
The aspect I was interested in was the possibility of uncertainty where the Revenue Commissioners might be in difficulty and this would lead to uncertainty in the title or possible revision of the certificate.
Amendment agreed to.
I move amendment No. 24:
In page 36, line 8, after "aggrieved by" to delete "the amount of".
It is intended that grounds for appeal may be based on factors connected with an assessment such as a denial by a person that he is an accountable person. On Committee Stage it was suggested that the words "the amount of the assessment" might restrict the grounds on which the appeal might be taken. To remove any doubt, it is proposed to delete the words "the amount of". I might add that this new version is similar to the Wealth Tax Act, section 24 (2).
I raised this point on Committee Stage, if I recollect the matter correctly, and whether I did or not, certainly this is an improvement.
Deputy Colley should agree to it.
We do.
Amendment agreed to.
Bill recommitted in respect of amendment No. 25.
I move amendment No. 25:
In page 40, lines 1 to 7, to delete subsection (4).
The amendment proposes the deletion of subsection (4) of section 56. The section in general deals with benefits taken on retirement or pensions and lump sums payable on the death of an employee. In the section as initiated subsection 4 was inserted to exempt payments made by employers in respect of their contributions to superannuation funds or additional funds added by employers to top up such schemes where inflation had eroded the value of the funded benefits. It was felt also that the subsection would pinpoint the fact that payments in the nature of salary, bonus, sick pay and casual unfunded pensions were not taxable.
On reconsideration it is considered that the subsection is not required for the purposes mentioned because there is adequate protection in the rest of the Bill for those purposes. For instance, employers' payments to superannuation would not be taxable as such because no person takes a beneficial interest in possession until actual benefits flow from the fund. Such benefits so paid out will be adequately covered by subsection (1) as to the employee and subsection (5) as to dependants of the employee.
Bona fide payments in respect of salary, bonus and so forth would not normally be taxable because the employee by his service will have given full consideration in money or money's worth. Additional benefits such as the use of a company house or car would normally be part of an employee's emoluments if shown to arise out of the bona fide contract of service between the employer and employee and would also be received for full consideration.
In addition to the subsection being unnecessary, it is also desirable to delete it on the grounds that it might exclude a claim for tax under subsection (5), as proposed to be extended by the next amendment. Any payment on the death of a person under any arrangement for superannuation is taxable as an inheritance derived from the deceased person whose services were the real basis for the benefits to his dependants. Subsection (4) could jeopardise such a claim by being construed as an exemption of payments made by the employer where the pension was paid directly out of profits each year and not out of a separate fund.
There is also a possibility that the subsection could be relied on to claim exemption where a gift or inheritance consists of the proceeds of an insurance policy, on the grounds that the payment of the proceeds was a payment made by the insurance company in the carrying on of its trade. For all these reasons therefore the amendment is not only desirable but essential.
I was trying to concentrate on what the Minister said. He said rather a lot so I did not get the whole gist of it. I believe I am correct in saying that the Minister gave a number of reasons why what was sought to be carried out in this subsection is in fact covered in other provisions of the Bill. He then went on to indicate two, if not more, reasons why leaving the subsection in could cause difficulty. One of the cases he mentioned was the insurance company. Would the Minister briefly outline those points again, not the area in which he said the points are already covered but the actual, positive dangers that could arise by leaving in the subsection?
There are a number of dangers, depending on which way one looks at them, whether it is in relief of the taxpayer or leaving in possibilities which I am sure the legislators do not intend. I said that employers' payments to superannuation schemes would not be taxable as such because no person takes the beneficial interest in possession until the actual benefits flow from the superannuation fund. Bona fide payments in respect of salary, bonus and so on, would not normally be payable because the employee, by his service, gives valuable consideration for money's worth. Additional benefits, such as a company house or car, would normally be part of an employee's emoluments and would be in return for the full consideration of his service.
Therefore, in addition to the subsection being unnecessary on those accounts, it is desirable to delete it on the grounds that it might exclude a claim for tax under subsection (5), as we hope to extend this by the next amendment. Any payment on the death of a person under any arrangement for superannuation is taxable as an inheritance derived from the deceased person whose services were the real basis for the benefits to his dependants, that is, the services of the deceased person which give rise to the payment to the dependants. Subsection (4) could jeopardise such a claim if it were construed as an exemption of payments made by an employer where the pension was paid directly out of profits each year and not out of a separate fund.
Would the Minister mind giving me that point again? I have a feeling this is the kernel of the whole thing.
If an employer were to make payments to the orphan children of a former employee out of his profits, and not out of a superannuation fund, we believe difficulty could arise if we were not to make this deletion.
What kind of difficulty does the Minister envisage? Difficulty for the Revenue Commissioners or for the employer who is paying?
What we are doing in the next amendment is providing that, where benefit arises in such cases, if there is a liability to tax, the liability will arise out of the benefit being received from the deceased and not from the employer. This should operate, in most cases, to the benefit of the beneficiaries, because the likelihood is that they would be in closer relationship with the deceased than they would be to the employer.
In the case the Minister mentioned where the benefits were being paid by the employer out of his profits, would the consequences be in the light of subsection (5) as the Minister proposes to amend it?
It is difficult to take amendment No. 25 in isolation. Perhaps we could move forward for a moment, Sir, with your permission. In amendment No. 26 we are providing that "superannuation scheme" includes any arrangement in connection with employment for the provision of a benefit on or in connection with the retirement or death of an employee. This extends superannuation schemes beyond the normal understanding of that term. Such an extension includes what I have been describing: a case where a former employer might be paying out of current profits to the dependants of the deceased employee. If we had not that extension of "superannuation scheme", such payments could not be regarded as tantamount to superannuation benefits.
(Dublin Central): Payments after his death?
Yes.
Could not be regarded as tantamount to what, did the Minister say?
To payments out of a superannuation fund. They will be treated as tantamount to payments out of a separate fund.
The consequence of not regarding them as payments out of a superannuation fund would be what? To ensure that they did not become liable to inheritance tax? Would that be the consequence?
Yes, that would be the consequence.
(Dublin Central): I thought benefits from the fund were subject to inheritance tax.
They could be.
(Dublin Central): It is not exactly bringing them in then.
As I understand it, what the Minister is saying is that, in the absence of the amendment before us and the subsequent amendments he is proposing to move, payments to the dependants of former employees by an employer out of his profits would not be liable to inheritance tax, whereas payments out of an ordinary superannuation scheme would be liable to inheritance tax. The Minister wants to ensure that payments out of profits to dependants of former employees will be liable to tax in the same way as out of a superannuation scheme. Have I stated the position correctly?
Such payments are liable to tax, but the liability will be related to the relationship between the deceased person and his dependants, not the employer who will be paying out of his current trade profits. The liability is there for the tax.
Would the liability be there if we did not have these amendments?
No.
(Dublin Central): The type of cases the Minister has mentioned where they are paying out of profits would be exempt?
Yes.
(Dublin Central): In effect, by deleting this section the Minister will be bringing them within the ambit of the tax.
We will be making such payments similar to payments made from a superannuation fund. We are treating them in a similar way. The cases where liability to tax is likely to arise are very few and far between. These are not the kind of cases normally covered by a superannuation fund. If there is a liability, we must look at it. I am not making little of that. We are treating them in the same way.
(Dublin Central): I could visualise a situation where a long-standing employee died and left a widow and children, or orphans. He could have made provision in his will that certain payments should be made from his profits. Is that the type of situation we are envisaging here where there would be no relationship?
The definition of employment includes directors and there could be a wide open loophole there. This is the real danger.
(Dublin Central): I see the point.
They would be very generous payments before they would be likely to amount to £150,000 per head.
Can we take it that, if the payments are on an annual basis, they will be capitalised for the purpose of the assessment of tax?
Yes.
The effect of these amendments is not alone to bring within the ambit of the tax payments out of profits but, at the same time, to provide that such payments will be assessed on the basis of the relationship of the deceased to the recipients, not of the employer to the recipients.
That is right.
Subsection (4) provides that a payment made to any person in the carrying on of a trade, profession or vocation shall not be a gift, or an inheritance, and so on. It refers to gains from a trade, profession or vocation. Has the repeal of this section any effect on the privately employed or professional person? I am thinking of professional practitioners, doctors, lawyers and so on.
It is a levelling-off section to make it the same for everyone.
I know, but does it act to the detriment of the professional lawyer or doctor or self-employed?
No.
They still have the same allowance.
Amendment agreed to.
Amendment reported.
Bill recommitted in respect of amendment No. 26.
I move amendment No. 26:
In page 40, after line 16, to add the following subsection:
"(6) In this section— `superannuation scheme' includes any arrangement in connection with employment for the provision of a benefit on or in connection with the retirement or death of an employee;
`employment' includes employment as a director of a body corporate and cognate words shall be construed accordingly.".
We have referred to this already when discussing amendment No. 25. It simply defines what a superannuation scheme includes and it states what "employment" means.
(Dublin Central): Is this what we have discussed already with regard to the difference between a superannuation fund and a private individual paying from profits?
Yes.
In a sense it is. There are two definitions in the section. Does it in any way restrict the category beyond the discussion we had on the last amendment?
No. It simply covers the area we were discussing on the last amendment. The definitions used here are contained in section 24 of the Finance Act, 1965, which deals in broadly similar terms with the liability of payments on death under superannuation schemes for estate duty purposes.
The definition includes the employment of a director. I take it this is considered necessary? If that is so, it is conferring a benefit rather than the reverse, or is there a catch in it?
For whom? What we are providing for here is that where such benefits are received the liability to tax is examined in the light of the relationship between the deceased and the beneficiary. In this situation here it would appear that there is no catch, if I have the same understanding of that word as Deputy de Valera intended.
(Dublin Central): The fact is it was not there before until the Minister deleted the amendment.
In other words, there was a loophole for payments that would not be captured by the scheme of relationships——
It could work to the disadvantage of beneficiaries because there would still be a gift but it could be from the employer who is a stranger.
There would not have been any liability at all.
This definition to capture directors is specifically because the most likely area where these extraordinary provisions would be made were possibly considered to be in relation to directors. Am I correct in this?
Yes.
The Deputy was aware of it in 1965 also. It has a long history.
It is no harm that we should know what we are doing and that the public should know also.
Amendment agreed to.
Amendment reported.
I move amendment No. 27:
In page 42, after line 3, to insert the following subsections:
"(2) Where, at the date of the gift, two companies are associated in the manner described in subsection (3), a gift taken by one of them under a disposition made by the other shall be deemed to be a gift to which subsection (1) applies.
(3) For the purposes of subsection (2), two companies shall be regarded as associated if—
(a) one company would be beneficially entitled to not less than 90 per cent. of any assets of the other company available for distribution to the owners of its shares and entitlements of the kind referred to in section 34 (1) on a winding up; or
(b) a third company would be beneficially entitled to not less than 90 per cent. of any assets of each of them available as in paragraph (a).
(4) In this section, `company' means a body corporate (wherever incorporated), other than a private company within the meaning of section 16 (2).".
Before the Minister speaks on this amendment perhaps he would tell the House if the reference is correct with regard to this amendment? It is on page 42, after line 3. The reason I ask is that the Minister will see that it goes on to refer to subsection (3), subsection (1) and so on, whereas the section itself has just a few lines in it with no subsections. Will the Minister state which section is being amended?
Section 59 is the first three lines of that page and the three lines now there will become subsection (1). It is a consequential editorial amendment which will be made. We are now adding two or three new subsections to section 59.
I understand.
With regard to amendment No. 27, holding companies sometimes transfer assets to their subsidiary companies and they do this for good commercial reasons. Normally when this is done section 34 will prevent tax being payable on the transaction. However, if the companies involved do not include a company to which section 34 applies by reason of having at some time issued shares as a result of a public invitation to subscribe to the shares, it is desirable to make the provision proposed by the present amendment to secure that tax will not be payable on the transaction.
It has been recognised for some time that transactions of this type should not be taxed because what is happening is that the owners of the assets are taking them out of one pocket and putting them into another and there is really no gift involved. An analogous relief of stamp duty is given by section 19 of the Finance Act, 1952. An example of the kind of transaction affected would be where a parent company transfers assets to a subsidiary company for the purposes of trade of the subsidiary company. A parent company could also make an interest-free loan to its subsidiary. Cases have occurred where parent companies forgave debts due to them by their subsidiaries. Also, there may be transactions which may not be at arm's length and commercial transactions may take place between two companies in a group, each of which is owned by a holding company. As Deputies are aware, we have been discussing this in relation to the Corporation Tax Bill and generally we are treating these transfers in the same way. It could be called a form of group relief.
The idea behind the amendment is acceptable. Clearly, the liability which could arise on transactions of this kind between closely associated companies would be unreasonable unless some such provision were made. The only question I want to put to the Minister about this is on the definition in subsection (3), that is, the definition of companies being associated. Does that correspond with similar provisions in other legislation? I think the Minister mentioned the Finance Act, 1952. Is it definite, and where does this definition correspond with any of the group relief provisions in more recent legislation?
I would not like to give an encyclopaedic answer.
Is this definition based on some existing situation or just thought up in relation to this Bill?
It is similar to the Finance Act, 1952, or the stamp duty provisions of that Act.
Amendment agreed to.
That disposes of the amendments. When is it proposed to take the Fifth Stage?
Would the House be agreeable to now?
The solicitors and legal profession want it very badly at the moment so can we facilitate them?
They do, but it has to go to the other House.
I have had representations from solicitors. As Deputy Esmonde says some administrations are held up with the passing of legislation. While I certainly do not wish to push things in taking the decision, I would say that the popular will would be best satisfied by taking it now.
I am aware of that. The Minister will recall my strong views that this should be the first of the various capital measures called, but it was not. However, in view of the case the Minister makes I will not oppose it. Any other points to be raised can be raised in the other House.
Bill, as amended, received for final consideration.