Revenue Tax Briefing

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Revenue Tax Briefing Issue 57, October 2004

New Time Limits Section 17 FA 2003

Introduction

Tax Briefing Issue 56 contained a detailed article on the new scheme for claiming repayments and interest on repayments as provided for in Section 17 Finance Act 2003. This article deals with the changes introduced by this section to the time limits within which an assessment or an amended assessment can be made on a person. The section made a number of changes, which effectively provide for reductions in time limits to four years for the making of assessments and enquiries with effect from 1 January 2005.

Section 17 Finance Act 2003 takes effect by way of Commencement Order SI No. 598 of 2003, signed by the Minister of Finance on 31 October 2003.

Reduced time limits for raising assessments

10-year time limit reduced to 4 years

The 10-year time limit provided for in the following sections of the Taxes Consolidation Act 1997 is reduced to 4 years with effect from 1 January 2005 in relation to the making, on or after that day, of assessments:

401(6)

Change in ownership of company: disallowance of trading losses

504(3)

Assessments for withdrawing BES relief, Seed Capital Scheme made under Schedule D Case IV

599(4)(b)

Claw back of capital gains tax relief where assets transferred to “child” are disposed of by the “child” within 6 years.

611(1)(c)

Disposal of assets to public bodies and charities and their subsequent disposal giving rise to capital gains tax

919(5)(c)

Assessments to corporation tax

924(2)(b)

Additional assessments under Schedule D, E or F

955(2)(a)

Self assessment time limit for assessments to income tax (Applies to capital gains tax by virtue of Section 931 TCA, 1997).

Important Self Assessment time limit - 6 year time limit reduced to 4 years

One of the most significant time limit changes is the self assessment time limit contained in Section 955(2)(a) TCA, 1997.

Pre FA 2003 position

Under Section 955(2)(a) TCA, 1997 there was a 6 year time limit on Revenue’s right to make an assessment or to amend an assessment with a number of exceptions.

Post FA 2003 position

This 6 year time limit has now been reduced to 4 years in line with a taxpayer’s right to claim a repayment of tax within 4 years, (see article in Tax Briefing issue 56). This takes effect from 1 January 2005.

The time limit runs from the end of the year of assessment in which the return of income is delivered and accepted as a full and true disclosure necessary to make an assessment.

This means that with effect from 1 January 2005, no assessment or amendment to an assessment to income tax for any relevant chargeable period can be made any later than 4 years after the end of the chargeable period in which the chargeable person has made a full and true disclosure of all material facts necessary for the making of an assessment.

An important point to note is that if a chargeable person has not met the condition of making a full and true disclosure of all material facts, there is no time limit and an assessment can be made at any time in these circumstances.

However, if the original return has not met the full and true disclosure condition, e.g. by omitting to disclose certain income, the chargeable person may correct this by submitting full details in writing. Where this letter gives the necessary full and true disclosure, no assessment or amendment may be made later than 4 years after the end of the chargeable period to which the correction is filed.

Exceptions to 4 year time limit

There are also a number of exceptions to the time limit in which an amended assessment can be made at any time. These remain unchanged and are as follows:

  • Where (as already indicated) the return does not contain a full and true disclosure
  • In order to give effect to the outcome of an appeal against an assessment
  • To take account of a matter arising after the making of a return
  • To correct an error in calculation
  • To correct any mistake where the correction results in aligning the assessment with the position as disclosed by the chargeable person.

The right to make assessments at any time does not affect the time limits set down for the making of assessments in relation to the estates of deceased persons.

There is no time limit for the raising or amending of assessments in cases of fraud or neglect.

Practical significance

The significance of the reduced time limits is that as and from 1 January 2005 the earliest year Revenue will be able to raise an original assessment will be for the tax year 1999/2000, with the exception of fraud or neglect cases and cases that fall within the exceptions to the time limit outlined above. It should also be noted that the opportunity to raise such an assessment for 1999/2000 will be short lived as the 4 year time limit in relation to that year will expire on 5 April, 2005. From 6 April 2005 the earliest year in respect of which an assessment can be raised will be the tax year 2000/2001 and the authority to raise assessments for that year will remain in place until 31 December, 2006. The 4 year deadline for the making of assessments in respect of the short year 2001 will also expire on 31 December, 2006. This is because the end of the chargeable period in which the return is to be made is the same for the tax years 2000/2001 and 2001, namely, 31 December, 2002. From 1 January, 2007 the earliest year for which assessments can be raised will be the year 2002 and so on.

Practical Examples

Example 1

Full and true disclosure Post FA 2003

Ms Brown filed his tax return for the year 2004 on 31 July 2005 (before the return filing date for 2004). The return contained a full and true disclosure of all income and material facts for the making of an assessment to income tax for 2004 by Revenue. The latest date by which income tax assessments for 2004 or any amendment to an assessment may be made is as follows:

  • Income tax assessment for year of assessment 2004
  • Date when full and true return filed 31 July 2005
  • Delivered in chargeable period 2005
  • Latest date for assessment or amendment thereto: 31 December 2009

Example 2

Income omitted Post FA 2003

Mr Black filed his tax return for 2005 on 30 September 2006 (before the return filing date for 2005). Revenue made an assessment based on the return on 10 October 2006. However, through an oversight, Mr. Black forgot to disclose rental income amounting to €5,000 and wrote to Revenue on 31 January 2007 with a computation disclosing this income and confirming that he has no other undisclosed income. In accordance with paragraph 4, Tax Instruction 39.2.1, Section 16 Rules and Procedures Reference Book, Revenue agree to accept the letter and the original return as a full and true disclosure, but as one filed in the tax year 2007.

The latest date by which income tax assessments for 2005 or any amendment to an assessment may be made is as follows:

  • Income tax assessment for year of assessment 2005
  • Delivered in chargeable period 2007
  • Latest date for assessment or amendment thereto: 31 December 2011.

Example 3

Genuine expression of doubt case

Where a person has a genuine doubt as to the tax treatment of any item to be included in the return and he/she includes the item but expresses doubt under Section 955(4) TCA, 1997 to Revenue over the treatment, then the person is treated as having made a full and true disclosure.

Ms White filed her tax return for 2006 on 30 September 2007 and expressed a doubt as to the tax treatment of a particular deduction being unsure as to whether it was a revenue expense. On receipt of the return Revenue considered the matter and concluded that the doubt expressed was genuine and that the deduction was indeed revenue expenditure and thus an allowable deduction. He then raised an assessment in accordance with Ms White’s interpretation on 20 January 2008. Ms White is treated as having made a full and true disclosure with her return filed on 30 September 2007. In this example the latest date by which an income tax assessment or amendment to an assessment for the tax year 2006 may be made is:

  • Income tax assessment for year of assessment 2006
  • Delivered and accepted as full and true disclosure in chargeable period 2007
  • Latest date for assessment or amendment thereto: 31 December 2011.

Example 4

Expression of doubt not genuine

Ms Greene filed her tax return for 2006 on 31 October 2007. She claimed a significant deduction for legal fees incurred in connection with a tax appeal for a previous tax year and expressed doubt as to the deductibility of this item in a short note in the tax computation which she submitted with her return of income. She did not draw Revenue’s attention to the expression of doubt by ticking the box on the front page of the return, nor did she put a covering note with the return highlighting the expression of doubt.

On receipt, the return was processed in accordance with Ms Greene’s figures submitted and an assessment for 2006 was made. Twelve months later while screening returns for audit it is noticed that there was an expression of doubt, which was not drawn to Revenue’s attention. On perusal of Ms Greene’s file, he notices that she had corresponded with her local Revenue office on this issue and had been advised that the legal fees incurred were not deductible. The advice was based on Revenue Published Precedent reference IT952564. Revenue now concluded that her doubt was not a genuine expression of doubt and that the return was not a full and true disclosure. There is no time limit in this case for the making of an additional assessment to disallow the legal expenditure as a deduction.

Example 5

To give effect to outcome of an appeal

Mr Blue an amateur sportsman filed his tax return for 2002 on 31 January 2003 and an assessment was made in accordance with the return. Mr Blue had failed to disclose income in respect of payments received from winnings in respect of sporting events as he considered this to be a hobby and did not think it was taxable. Revenue conducted an audit of his tax affairs for the tax year 2002 in August 2004 and decided that Mr Blue was indeed chargeable to tax on this income.

Revenue made an additional assessment in September 2004 to reflect the additional income. Mr Blue took the matter to appeal. The case did not come before the Appeal Commissioner until March 2009 due to unforeseen circumstances. The Appeal Commissioner ruled in Mr Blue’s favour as he did not consider on the facts of the case that Mr Blue was engaged in anything other than a hobby - he was not trading and the income was not a casual commission. Revenue did not express dissatisfaction with this determination of the Appeal Commissioner.

In this case there is no time limit restriction on amending the assessment in order to give effect to the outcome of Mr Blue’s appeal against the assessment.

Example 6

Fraud - no time limit

Mr Gray filed a tax return for 2001 in January 2002. In addition to share disposal gains declared on his return he disclosed that he had sold a house for €1million and claimed principal private residence relief on the sale. This had the effect that no capital gains tax liability arose on the sale. In 2007 Revenue discovered that Mr Gray had never lived in the house in question. He had another property in which he lived. Revenue concluded that Mr Gray fraudulently claimed principal private residence relief on the disposal. Revenue raised an additional assessment on Mr Gray for the capital gains tax liability arising on the €1million consideration for the disposal of the house. As the case involved fraud there is no time limit restriction on the raising of an assessment.

Revenue’s right to make enquiries and amend assessments Section 956(1)(c) reduced from 6 to 4 years

Under Section 956(1) TCA, 1997 a Revenue official may, in making or amending an assessment on a chargeable person, make such enquiries or take any other action which he/she thinks necessary, within his/her powers to check the accuracy or otherwise of the information given in the chargeable person’s tax return.

This right to make enquiries or take any actions to check the accuracy of information in a chargeable person’s return for a relevant chargeable period is currently subject to a 6 year time limit running from the end of the chargeable period in which the return is made. The 6 year time limit continues up to 31 December 2004. With effect from 1 January 2005, the time limit is reduced to 4 years from the end of the chargeable period in which the return is made.

There is no time limit in cases of fraud or neglect and enquiries can be made at any time in such cases.

Schedule E Assessments

Section 17 Finance Act, 2003 also amended the existing provisions - Section 997 TCA, 1997 in relation to time limits on:

  • Revenue’s right to raise an assessment under Schedule E, and
  • The taxpayers’ right to request an assessment under Schedule E

In the case of the Revenue’s right to raise an assessment under Section 997, the time limit has been reduced from 5 years from the end of the relevant year of assessment to 4 years in respect of any assessment made on or after 1 January 2005.

In effect this means that from 1 January 2005, the earliest year Revenue will be able to raise an assessment under Section 997 will be for 2000/2001 which would have to be raised on or before 5 April 2005) except of course in the case of fraud or neglect where there is no time limit involved.

In the case of the taxpayer requesting an assessment under Section 997 the time limit has been reduced from 5 years from the end of the relevant year of assessment to 4 years in respect of the year 2003 and subsequent years.

The 5-year time limit still remains in place in respect of years of assessment up to and including 2002.