Revenue E-Brief Issue 29/2007, 13th June 2007
Approved Retirement Funds (ARF)
Imputed Distributions
Section 14, Finance Act 2006, introduced an imputed 3% distribution on the market value of ARF assets on 31 December each year. The 3% rate is being phased in with 1% applying in 2007, 2% in 2008 and 3% in 2009 and following years. Qualifying Fund Managers (QFMs) will need to review all ARFs under management to ascertain if an imputed distribution arises.
When does an Imputed Distribution arise?
This new regime only applies where the ARF owner is 60 years of age or over for the whole of the tax year and where an ARF is set up after 6 April 2000. It does not apply to Approved Minimum Retirement Funds (AMRFs).
How is the imputed distribution, if any, calculated?
The imputed distribution is calculated as a percentage of the market value of assets in an ARF on 31 December each year. In the case of buildings, where a valuation is not readily obtainable as at 31 December, it is acceptable to use a valuation of the property carried out at any date within 3 months prior to 31 December.
Actual distributions made during the year from an ARF or AMRF, set up on or after 6 April 2000, may be deducted from the ‘imputed distribution’ to arrive at a ‘net’ imputed distribution (if any).
However, any amounts treated as distributions arising from certain transactions (Section 784A (1B) TCA 1997), are not deducted for the purposes of the calculation.
The amount to be treated as an imputed distribution is calculated by using the formula:
(A × B) minus C |
100 |
where |
A = the value of the assets in the ARF at 31 December |
B = the relevant percentage rate for the year of assessment |
C = any actual distributions made in the year |
Examples:
1. Joe has an ARF valued at €600,000 at 31/12/2008. During the year, he received actual distributions of €10,000.
€600,000 × 2 = €12,000. |
100 |
€12,000 minus €10,000 = €2,000
Imputed distribution is €2,000.
2. Joan has an ARF valued at €400,000 and an AMRF valued at €40,000 at 31/12/2009. During the year she received distributions of €2,000 from the AMRF and €4,000 from the ARF. On 30/06/2009 the ARF bought a holiday home for her personal use at a cost of €300,000.
€400,000 × 3 = €12,000. |
100 |
Actual distributions: €6,000 (€2,000 plus € 4,000)
The cost of the holiday home is treated as a distribution but cannot be included in the calculation.
Imputed distribution is €6,000 (€12,000 minus €6,000).
Where the ARF owner has more than one ARF, all of which are not managed by the same QFM, the ARF owner may nominate one of the QFM's for the purposes of operating the new provisions and for accounting for any tax due on any overall imputed distribution. This arrangement is optional and there is no obligation on a QFM to accept such a nomination. Where a QFM agrees to act as the ‘nominee QFM’, the ARF owner must advise all the other QFMs involved of the name and address of the ‘nominee’, and the ‘other QFMs’ must provide the ‘nominee QFM’ with a certificate for the relevant year of assessment detailing the ARF asset values and actual distributions made by them. The ‘nominee QFM’ must then calculate the imputed distribution as if the nominee had managed all of the ARFs and made all of the actual distributions.
Procedure for Payment of Tax:
The imputed distribution is to be regarded as a distribution made not later than February in the year following that in which the ARF assets were valued. The QFM must deduct tax from the imputed distribution in accordance with the provisions of Section 784A (3), TCA, 1997. Tax deducted must be included in the QFM's P30 return remitted to Revenue not later than 14 March of that year. For example - in respect of an imputed distribution calculated for 2007, the tax must be paid by 14 March 2008. Details of the tax deducted should also be included in the annual P35 return due in February 2009.
All payments of tax should be forwarded to:
Office of the Collector General
Revenue Commissioners
Sarsfield House
Limerick