This appeal to the Tax Appeals Commission (TAC) asked the question – is the taxpayer entitled to a credit for capital gains tax (CGT) paid against additional capital acquisitions tax (CAT) arising from the clawback of agricultural relief ?

Background in brief

The taxpayer inherited agricultural property valued at €1.7 million on the death of his uncle in 2011. He claimed agricultural relief (section 89 CATCA 2003) and the CAT payable in respect of the inheritance after the relief was correctly paid.

Within six years of the date of the inheritance the taxpayer sold a portion of the agricultural property, land, and a clawback of the agricultural relief was applied (section 89(4) CATCA 2003). The taxpayer also incurred CGT on the sale and claimed a same ‘event’ credit (section 104 CATCA 2003) for the CGT on the disposal of the land, against the additional CAT arising from the clawback of the agricultural relief.

Revenue disallowed the same ‘event’ credit and raised an assessment which the taxpayer appealed.

The taxpayer claimed that the clawback of the agricultural relief and the CGT payable on the disposal arose on the same ‘event’ and at the same time. Therefore, under section 104 CATCA 2003 the CGT payable on the disposal of the land should be allowed as a credit against the CAT payable on the clawback of the agricultural relief.

Revenue’s position was that no credit was available as the CGT and CAT liabilities did not arise on the same ‘event’.

Basis of appeal

The taxpayer claimed that the ‘event’ arose on the disposal of agricultural land because the disposal of the land triggered the clawback and thus the disposal of the land generated exposure to CAT and CGT on the same ‘event’ (section 104 CATCA 2003). Revenue’s position is that a clawback of relief was not an ‘event’ but related to the inheritance. The ‘event’ was the inheritance of the land upon which agricultural relief was claimed. CAT did not arise on the same ‘event’, although a clawback arose, it was a clawback of agricultural relief which applied in respect of an inheritance.

Considering the ordinary and natural meaning, “the word ‘event’ should be interpreted to mean; an occurrence or a transaction or something that happens” the taxpayer claimed. In response Revenue submitted the word ‘event’ should be interpreted in its context in the legislation ‘a word or expression in a given statute must be given meaning and scope according to its immediate context, in line with the scheme and purpose of the particular statutory pattern as a whole…’[1].

The Commissioner was satisfied that there is no inherent ambiguity in the statutory wording used and accepted both the taxpayers and Revenue’s claims that the words should be afforded their ordinary and natural meaning.

The taxpayer claimed that the clawback provision (section 89(4) CATCA 2003) was a separate charging provision and separate to that which charged the CAT on the initial inheritance. Revenue disagreed; the clawback provision is a mechanism to withdraw relief where the conditions of the relief are not satisfied. The liability arising on foot of the clawback did not give rise to a charge to CAT in itself but that it related back to the CAT charged in respect of the inheritance. The clawback was a withdrawal of agricultural relief that was granted in respect of that inheritance.

The onus of proof was with the taxpayer to show that the legislation clearly conferred a right of offset to CGT on the disposal of the land, against the CAT arising due to the clawback of agricultural relief. The taxpayer had to prove on the balance of probabilities that the Revenue assessments are incorrect.

Determination

The Commissioner accepted Revenue’s position that the clawback provision (section 89(4) CATCA 2003) does not create a separate charge to tax. The CAT arising on foot of the clawback relates back to the inheritance. It does not relate to the disposal of the land.

The Commissioner, agreeing with Revenue, determined that the clawback is not an ‘event’ nor can it be said that the clawback and the capital gain (in respect of the disposal of land arose in respect of the ‘same event’ (section 104 CATCA 2003). The clawback was the consequence of an event, that event being the inheritance of the property.

You can read the full determinations on the Tax Appeals Commission’s website www.taxappeals.ie.

1Henchy J. in the Inspector of Taxes v Kiernan [1982] ILRM 13