This is the seventh tax.point article summarising the published decisions of the Tax Appeals Commission (TAC) and deals with the final 48 decisions of TAC during 2019 save for decisions in respect of Vehicle Registration Tax (VRT).

Judgment No 23/2019 – Income tax – Residence

The appellant was assessed to income tax for the years 1999 to 2015 and appealed said assessments on the basis that he was resident abroad for the said years managing a Europe-wide tarmacadam business. At the hearing, the appellant had difficulty establishing by way of documentation his movements over that time or establishing significant financial proof of his earnings. The TAC accepted that, in most years, the appellant returned home for 4 weeks at Christmas, for St. Patrick’s Day and for the Ballinasloe Horse Fair and in those circumstances the TAC found that the appellant was not resident in Ireland. The appellant’s evidence included that, when home for those events, he closed deals for the sale of cars, horses etc. and the Commissioner assessed the appellant on those earnings, on the basis of 4/52 (4 weeks out of 52) of the earnings sought to be assessed by Revenue, for each of the years in question. Revenue have asked for the case to be submitted to the High Court for further argument.

Judgment No 24/2019 – Income tax – badges of trade

The appellant was a self-employed bread distribution agent who failed to apply VAT on his invoices over a significant period. Also, he failed to apply PAYE/PRSI on his employee’s earnings. The evidence not being significantly in question, the assessments in respect of these matters stood. The appellant’s argument that no loss occurred to Revenue as a result of the foregoing errors was dismissed on the basis that the “no loss to Revenue” argument is a non-statutory concession and the TAC does not exercise jurisdiction over the grant/withholding of the said concession. Revenue also assessed the appellant to income tax of €30,000 in respect of the sale of a Toyota motor vehicle which the appellant had remodelled to resemble a Ferrari. In applying the badges of trade to the issue, the TAC concluded that a one-time remodelling of a car did not constitute a trade and the appellant accordingly succeeded on that part of the appeal.

Judgment No 25/2019 – Income tax – Split Year Assessment

The taxpayer had to go abroad because his spouse obtained a diplomatic job in the USA. The couple intended to remain abroad for over 3 years but instead had to return to Ireland the following year because of a change in the diplomatic posting. The taxpayer applied for split year relief on his return, claiming that his USA income for 2014 was non-taxable in Ireland. One of the statutory conditions for split year treatment in the year of return is that the taxpayer was non-resident in the previous tax year. As the taxpayer left in 2013 and arrived back in 2014, the taxpayer was in fact resident in Ireland in 2013. The taxpayer, having no statutory ground for claiming the relief, argued that the concessionary basis for split year relief set out in Tax Briefing No. 17 ought to apply. The TAC does not have jurisdiction over the granting/withholding of non-statutory concessions operated by Revenue. The taxpayer’s appeal failed.

Judgment No 26/2019 – Stamp Duty

Two people bought a property together in 2005 and the stamp duty was duly paid on the purchase price of €850,000. In 2008, one owner sold his interest to the other owner for €250,000 together with the assumption of the then debt of €470,000. Stamp duty was paid on the €250,000 transfer but Revenue assessed the taxpayer to stamp duty on the debt taken over as well, contending that same formed part of the consideration paid by the taxpayer. It was found that section 41 of the Stamp Duty legislation is clear in that it captures, as part of the sales consideration, the taking over of obligations to discharge debt.

Judgment No 28/2019 – CGT – Retirement Relief

This appeal was the pathfinder appeal connected with 15 other appeals where the appellants had each sold shares in Newmarket Cooperative Creameries Ltd. The Appellants claimed that the shares constituted chargeable business assets used by them in their farming activities and so CGT retirement relief should be available pursuant to section 598(2) TCA 1997. The appellants were suppliers of milk to the creamery. Although aged over 55 and holding the asset for over 10 years, at issue in the appeal was whether the shares in the creamery constituted “shares or securities or other assets held as investments” and thus excluded from the relief. Also, to qualify for the relief, the shares must have been used “for the purposes of farming”. The taxpayer (and the other connected 15 appellants) lost because the shares in question did not qualify as chargeable business assets and nor were the shares in use for the purpose of farming. The case is an excellent one from the point of view of considering the law governing the interpretation of tax statutes.

Judgment No 29/2019 – Income tax – Gift or income?

The appellant was a senior executive in a company. The shareholders in that company made a ‘gift’ of €2.3 million to the appellant following a successful IPO. Revenue’s contention, however, was that the payments constituted income from an employment instead of a gift. The appellant gave evidence to the TAC to the effect that the monies were received by him from the shareholders for reasons of gratitude, admiration, respect and appreciation. The TAC was not satisfied, however, that the payments were not instead captured by the wide definition set out at section 112 TCA 1997 which captures for income tax purposes monies received ‘…in respect of all salaries, fees, wages, perquisites or profits whatever therefrom…’. The taxpayer lost the case but the case is headed for further argument in the High Court.

Judgment No 30/2019 – Income tax – Increased contributory pension

The appellant and his wife were jointly assessed. The appellant was in receipt of a contributory pension part of which was due to his wife’s own entitlement. His claim to a schedule E tax credit for his wife and that the taxation of the pension amount referable to his wife be taxed at 20% was refused by Revenue. Based on statutory interpretation, however, the taxpayer’s claim to the additional tax benefits for his wife was upheld as she was the person beneficially entitled to the increased contributory pension. The same finding was made in decision no 31/2019.

Judgment No 32/2019 – CAT – Section 84 relief

The appellant inherited some €156,000 by will from his aunt. The appellant’s children suffer from a medical condition which substantially reduces mobility. The inheritance was spent on the purchase and modification of the property to make it suitable for wheelchair/walker use. As the monies were used to fund the needs and medical care of his children, the Appellant claimed relief against inheritance tax pursuant to section 84 of CATCA 2003 which exempts an inheritance “taken exclusively for the purpose of discharging qualifying expenses of an individual who is permanently incapacitated…”. The TAC found that the key word in the exemption is the word “taken”. The purpose of the disposition does not have to be in the mind of the disponer. Instead it is the intention of the recipient of the disposition and the actual use to which the monies are put that are the relevant aspects.

Judgment No 33/2019 – Income Tax Loss Relief

The Appellant was employed in a shop but also had a small farming trade which produced annual losses. The losses were disallowed by Revenue for relief against the taxpayer’s employment income. Section 662 TCA 1997 disallows farming losses where the farming trade is not being run on a commercial basis and, also, where in the 3 previous years the trade also showed a loss. The appellant’s farming trade was loss making from 2007 to 2014. Section 662 (d) provides, however, that notwithstanding losses in the previous 3 years if the losses were undertaken with a view to subsequently making the business profitable, relief may be exceptionally allowed. As the land was in a poor state when the appellant started working on it therefore requiring a significant period of time to make the trade profitable, the losses were allowed by the TAC.

Judgment No 35/2019 – Income Tax – Profits from an unknown source

The appellant was charged to income tax by the Criminal Assets Bureau (CAB) on €601,000 of ‘miscellaneous income’ pursuant to section 58 TCA 1997 which provides for the taxation of income from unknown sources. The appellant’s businesses included dealings in cars, animals, property and plant and machinery. The appellant decided not to admit financial statements or bank statements or call witnesses in support of his case thus frustrating his appeal. It was judged that the appellant failed to meet the evidential burden of proving that CAB’s tax assessments were excessive. The TAC determined that the assessments stood.

Judgment No 36/2019 – Income Tax – Double Tax Agreement

The appellant drew down funds from an Approved Retirement Fund (ARF) in 2012. €270,000 was withheld in PAYE taxes. The appellant claimed a repayment of the PAYE paid on the basis of being tax resident in Malta. The taxpayer was tax resident in both jurisdictions and, therefore, the tie breaker clause in the Ireland/Malta DTA was consulted. On the basis of leasing a property in Malta and having transferred his Irish home to a family trust (where his daughter continued to live) the taxpayer claimed to have a permanent home in Malta and none in Ireland. However, the TAC found that the taxpayer had a permanent home available to him both in Ireland and Malta. Therefore, under the next part of the tie-breaker clause in the DTA it fell to be decided as to where the taxpayer’s “centre of vital interests” lay. Based on the appellant’s family, assets, businesses, directorships, friends and club memberships being in Ireland, he was found to be tax resident in Ireland and so the capital distribution from the ARF was taxable in Ireland.

Judgment No 37/2019 – Income Tax – Mandatory Electronic Filings

The taxpayer ran a small business and applied to be exempt from the requirement to file P30 and P45 forms online and, instead, to continue to submit them manually. The appellant claimed that her “internet is not good” and that “she is not good on computers”. The appeal failed because it was not shown the taxpayer was “prevented by reason of age or infirmity from complying with the mandatory filing regulations” as per the statutory test.

Judgment No 38/2019 – Income Tax – Relief for pension contributions

The Appellant made a once-off pension contribution in the amount of €23,000 on 10 October 2017 in respect of the 2016 tax year. His application for pensions contribution relief was refused by Revenue because his 2016 tax return was filed late i.e. in December 2017. Section 787(7) TCA 1997 is clear in that, for a pension payment to be treated as applicable to the prior year, the prior year election needs to be made before the due date for the tax return. The appeal failed.

Judgment No 41/2019 – Excise Duty and VAT

In excise cases Revenue have a statutory right, where dealers in mineral oils (especially where marked or ‘green’ diesel is involved) do not comply with certain regulations concerning the purchase, holding or sale of the oils, to assess the dealer to the difference in excise duty as between the road-fuel (‘white’ diesel) rate and agricultural-fuel rates of excise. In this case, 2.7 million litres of green diesel were sold by the appellant to a customer which had 16 square feet of office space and no oil storage facilities and over 1 million litres of road fuel were bought by the appellant from a supplier with, according to Revenue, similar space limitations. As the appellant was found to have breached the mineral oil regulations, it fell to the appellant under law to prove that the transactions did not, effectively, form part of a scheme for the sale of laundered diesel and, the appellant being unable to so do, the assessments stood. A similar issue arose in decision no. 59/2019.

Judgment No 47/2009 – Income Tax – Anti Avoidance

The appellant (one of 31 appellants involved in similar transactions) invested monies in a property fund. The monies were borrowed in Turkish Lira and then invested in Euro. A series of complex financial arrangements put in place by the scheme promoter effectively locked in a relatively modest financial gain from the transactions. Revenue contended the scheme only made financial sense if the appellant was in a position to claim an interest deduction pursuant to Section 248 TCA 1997 on the Turkish Lira borrowings done at an interest rate of 16% per annum. For a taxpayer to be entitled to claim a section 248 interest deduction against other income, the taxpayer must be, at least, a part time director of the company. In fact, the taxpayer was appointed a non-executive director of the investment vehicle but he didn’t attend meetings for some years. The articles of the company provided that persons absent from meetings for 6 months would vacate their offices automatically meaning that the relief was not available to the taxpayer on that ground alone. The TAC also considered that the scheme contravened the anti-avoidance rules set forth at Section 817A TCA 1997 on the basis that, without the availability of the relief, the investment would have made no sense. This case is headed for further argument in the High Court.

Judgment No 48/2009 Income Tax – Timing of employment income receipts.

An employee was paid, in January 2019, for work done in 2018. The appellant applied for the sums to be taxed as 2018 income because she was on a career break for most of 2018 and would have had spare 2018 credits to cover the income. However, section 112 TCA 1997 is clear that (as from 2018), employment income falls to be taxed in the year of receipt. The appeal failed.

Judgment No 49/2009 USC

An employee was paid, in 2015, for work done in 2014. She applied for a refund of USC paid in 2015 on the basis that, if the wages had been paid to her in 2014 as it should have been, she would have been exempt from USC on that income. As the law on the matter is clear i.e. payments fall to be taxed in the year of receipt, the appeal accordingly failed.

Judgment No 54/2019 – Income tax – Nursing home fees

The appellant had claimed income tax relief on the costs of nursing home care (c. €16,000 for years 2017 and 2018) for his father. A Revenue audit showed that the payments to the nursing home were, however, made from the joint bank account of the taxpayer’s parents. The appellant had paid just €3,000 into his parents’ bank account and this was the only sum allowed by Revenue as a relief. At the appeal, the taxpayer alleged that the balance (c. €13,000) of his claim was composed of cash payments made to his mother. The TAC did not, on evidential grounds, accept the taxpayer’s argument, except where (in the rare case) ATM withdrawals from the appellant’s bank account tallied with lodgements to the parents’ bank account. The appeal was, therefore, substantially lost.

Judgment No 55/2019 – Income tax – Mortgage interest relief

The appellant had claimed mortgage interest relief for 2013 – at a time when the relief had been withdrawn but still existed in a transitional form so long as the appellant met the transitional provisions. In this case, the facts pointed to the appellant not meeting the requirements set forth in the transitional provisions and the appeal therefore failed.

Judgment No 56/2019 – Income tax – Burden of proof

The appellant had claimed loss relief for property partnership losses as against other income. €700,000 was claimed to have been invested by the appellant in the property investment vehicle. At the appeal hearing, the appellant was not in a position to produce evidence of an exact amount of funds allocated to an exact investment i.e. to prove his interest in the property partnership. As the burden of proof fell on the appellant to evidence the investment as part of his case, and such evidence was not offered by the appellant, the appeal failed.

Judgment No 69/2019

This decision relates to a claim for a tax repayment made outside the 4-year period provided for by section 865 TCA 1997. As with many other decisions on this point, the TAC found that Revenue are precluded from processing such claims in the circumstances. Similar issues arose in decision no 70/2019.

The TAC continues to produce new decisions on a regular basis dealing with a wide and diverse range of tax disputes. The full decisions are available on the body’s website www.taxappeals.ie.

Eoin O’Shea Barrister at Law

Email: eoshea@lawlibrary.ie