CAT Consultation Document
Proposals to Simplify the Administration and Collection of Capital Acquisitions Tax
Introduction
- The purpose of this document is to the seek the views of tax practitioners and other interested parties on a number of proposals aimed at simplifying and streamlining the administration and collection of Capital Acquisitions Tax1 (CAT).
- Many of the existing processes around the administration of CAT are out of line with self-assessment principles and involve what are now considered to be excessive certification and clearances having regard to the risks involved and the alternatives available to Revenue for managing those risks.
- In summary, this consultation document proposes the abolition of most of these certifications and clearances as well as changing over to a fixed date in the tax year for filing returns and paying tax. Revenue also intends (subject to available resources) to enhance the computerisation of CAT and the development of further on-line facilities once the legislative framework for a new, more streamlined system of administration and collection is in place.
- Further simplifications (for example, including CAT as part of annual Form 11 filing) and e-services (for example, incorporating the Form CA 24 into ROS and providing seamless electronic interaction with both Revenue and the Probate Office) will be considered at a later stage – depending on the outcome of the Phase 1 simplification and available resources – and will be the subject of separate consultation in due course.
Proposal 1: Remove requirement for Revenue certification of Inland Revenue Affidavit
- Currently, where a personal representative wishes to apply for probate or administration of a deceased's estate, an Inland Revenue Affidavit (on Form CA 24) must in the first instance be submitted to Revenue for certification that (a) Revenue have in fact received the Affidavit and (b) that Revenue either do not require a payment on account of Inheritance Tax at that stage or that an adequate payment has been made, as the case may be.
- In practice, more than three-quarters of all Forms CA 24 received by Revenue indicate that there is no liability to Inheritance Tax. And for those cases where a liability to Inheritance Tax does appear to arise (about 5,500 per annum), Revenue will only in a small minority of cases, usually involving non-resident beneficiaries, require an up front payment on account (amounting to just 4% of the CAT yield in 2007).
- The proposal is that the Form CA 24 will in future be submitted directly to the Probate Office – bypassing Revenue at that stage. Revenue will receive the relevant details by electronic data exchange with the Probate Office to allow them to pursue liability where a self-assessment Inheritance Tax return is not submitted in due course (where one would be expected based on the Form CA 24 data).
- The Form CA 24 will be revised to make it suitable for electronic scanning.
Proposal 2: Fixed Filing and Payment Deadline for Inheritance/Gift Tax Returns (Form IT 38)
- Currently, an Inheritance Tax return and payment is due within four months of the “valuation date” (normally the date the beneficiary becomes entitled to the inherited property); and a Gift Tax return and payment is due within four months of the date of the gift.
- In the context of a self-assessment tax, fixed deadlines in the calendar have an advantage over variable due dates – particularly where they coincide with other tax deadlines: there is an increased awareness of liabilities needing to be reviewed at that time and compliance is therefore likely to be greater.
- The proposal is that the fixed date will be 31 October – to align with the Income Tax pay and file deadline – with some added time being given (the same as for Income Tax) to payments/returns made via Revenue's On-line Service (ROS).
- In order to ensure that there is no exchequer loss in the year of change and that the gap between the valuation date and the pay & file date is reasonable, it is proposed that: where the valuation date arises between 1 January and 31 August, the pay & file deadline would be 31 October in that year; and where the valuation date arises between 1 September and 31 December, the pay & file deadline would be 31 October in the following year.
Examples:
Valuation date 21 February 2010: File IT 38 and pay tax by 31 October 2010
Valuation date 6 November 2010: File IT 38 and pay tax by 31 October 2011 - While the Inheritance/Gift Tax return will still be made on Form IT 38, it is proposed that the Income Tax Return Forms 11 and 12 would contain specific questions about any inheritances or gifts received (where the valuation date arose during the relevant income tax year).
Proposal 3: Abolish the concept of Inheritance/Gift Tax remaining as a charge on property
- Currently, any tax due in respect of a gift or inheritance remains a charge on the property – unless Revenue issues a certificate of discharge or (generally) 12 years have passed since the date of the inheritance or gift.
- The maintenance of a charge on property inherited/gifted – and the consequent need for certificates of discharge – is not consistent with modern, self-assessment tax administration and generates a lot of additional processing and compliance costs; indeed Inheritance/Gift Taxes are unique in this regard when compared to all of the other taxes administered by Revenue.
- The proposal is that section 60 of the CAT Consolidation Act 2003 – and the related certificate of discharge sub-sections in section 61 – would be deleted. It is felt that the risks of non-payment or underpayment of Inheritance/Gift Tax can be adequately addressed by applying the same audit/enforcement powers and compliance risk management techniques (including computerised risk scoring based on information matching and other risk identifiers) that Revenue applies to all other taxes.
Proposal 4: Limit accountability for Payment of Inheritance/Gift Tax to successor/donee
- Currently, the CAT legislation extends secondary accountability to a number of other parties (e.g., the personal representatives or the donor in the case of a gift) where the person primarily accountable (the successor or donee) fails to pay the tax due. This secondary liability gives rise to a number of requests for certificates of personal discharge by those otherwise potentially liable in the event of default by the person primarily liable.
- The proposal is that, subject to the exception in paragraph 19, secondary accountability would be abolished. Again, it is felt that the risks of non-payment or underpayment of Inheritance/Gift Tax can be adequately addressed by using the Revenue enforcement powers and risk management techniques that apply to all other taxes (where secondary accountability is not normally a feature). This will eliminate a lot of processing and compliance cost relating to certificates of personal discharge.
- One particular area of risk that does need to be addressed is in relation to non-resident persons with primary accountability. The proposal is that a person not resident in the State would be assessable and chargeable to Inheritance/Gift Tax in the name of any agent, trustee etc: that the provisions of section 1034 of the Taxes Consolidation Act 1997 (assessment of non-residents to Income Tax) would apply, subject to necessary modifications, to Inheritance/Gift Tax-in the same way that those provisions also apply to Capital Gains Tax – with appropriate payment on account provisions, if necessary. Where both the personal representatives and the beneficiaries are non-resident, there will be a requirement to appoint an agent in the State before the estate can be administered.
Impact of proposals
- These proposals would bring the administration and collection of CAT into line with mainstream taxes – applying self-assessment principles. They would eliminate a large element of “paper-chasing” certification/clearance around the Inland Revenue Affidavit, the charge on inherited/gifted property and secondary accountability. The introduction of a fixed pay and file date would ensure that Inheritance/Gift Tax potential liability is more likely to be actively considered coming up to the fixed deadline, thereby increasing compliance.
- Inheritance/Gift Tax returns will, of course, continue to be audited by Revenue – subject to the normal “Audit Code of Practice” procedures and time limits applying to the audit of all other self-assessment taxes. Revenue intends to enhance its risk management techniques for Inheritance/Gift Tax to ensure as far as possible that there is no reduction in compliance in these taxes after the changes take effect.
- As part of these simplification proposals, Revenue also intends (subject to available resources) to modernise its CAT assessing and collection computer system and to provide additional on-line facilities.
Comments on these proposals
- Revenue would welcome comments on these proposals from tax practitioners and other interested parties. These should be addressed to Kevin Cashell before 1 September 2009. Where possible, these should be emailed to CATReview@revenue.ie. While electronic format is strongly encouraged, persons who wish to make a submission but who are not in a position to do so by email may make their submission in writing to:
Kevin Cashell
Income and Capital Taxes Division
Revenue Commissioners
Dublin Castle
Dublin 2
(01) 6748217 - All submissions received will be subject to the Freedom of Information Acts.
1. While the term Capital Acquisition Tax encompasses three separate but related taxes: Inheritance Tax, Gift Tax and Discretionary Trust Tax, the focus of these proposals is on Inheritance Tax and Gift Tax.