267C Taxation of dividends on special term share accounts

Summary

The term “special term share accounts” refers to certain Credit Union share accounts that could be opened in the period 1 January 2002 to 15 October 2013.

This section provides for the annual exemptions in relation to dividends arising on special term share accounts held in a Credit Union i.e. €480 per tax year in relation to a 3 year account and €635 per tax year in relation to a 5 year account.

The section allows a member to elect in writing to convert a 3 year account to a 5 year account. Where this happens the increased exemption applies for any tax year which commences on or after the date of the election.

The section also provides that an account ceases to be a special term share account if any of the conditions in relation to the account are broken. Where this happens the account is then treated as a special share account (i.e. DIRT is payable on all dividends and the €480 or €635 exemption does not apply).

If the breach of conditions occurs on or after 1 January 2017, DIRT at the rate of 39% will be deducted from all dividends previously paid gross (i.e. without the deduction of DIRT). The dividends are liable to DIRT at the 39% rate irrespective of the DIRT rate that was in force when the dividends were originally paid or credited.

Details

Exemptions for dividends paid on special term share accounts

(1) & (2) Dividends on a medium term share account are treated as relevant interest for DIRT purposes only to the extent that they exceed €480 in a tax year.

Dividends on a long term share account are treated as relevant interest only to the extent that they exceed €635 in a tax year.

Additionally, the first €480 or €635, as the case may be, is exempt from income tax and is not taken into account in computing total income.

(3) & (4) An individual may elect in writing to convert a medium term share account to a long term share account. Where such an election is made, dividends paid in a tax year which starts on or after the date of the election will be relevant interest only to the extent that they exceed €635 and the first €635 is, as outlined above, totally exempt from income tax.

(5) An account ceases to be a special term share account if any of the conditions in section 267D(1) cease to be satisfied. Where that happens the account is treated as a special share account (i.e. the exemptions above do not apply and the account is liable to DIRT on all dividends) from the date the conditions failed to be satisfied.

Also, all past dividends paid gross (i.e. without the deduction of DIRT) will be treated as relevant interest and DIRT must be deducted from these dividends or, if the dividends have already been withdrawn, the DIRT due must be deducted from the shares in the account.

Section 23 of the Finance Act (No 2) 2013 provided that no new special term share account could be opened on or after 16 October. Therefore, with effect from that date, the tax treatment outlined above applies only to the following accounts:

• special medium term share accounts that have not reached the third anniversary of the opening of the account by 15 October 2013,
• special long term share accounts that have not reached the fifth anniversary of the opening of the account by 15 October 2013 and
• special long term share accounts that were originally opened as special medium term share accounts and that have not reached the fifth anniversary of the opening of the account by 15 October 2013.

Relevant Date: Finance Act 2019