Forgot to CG50 clearance

mozattack

Did some work for a farmer transferring land to a nephew for €700k but I never did the CG50 application.

It was a gift, no consideration.

Bit worried... anyone do the same mistake and how to get out of it?

Mr. Incognito

Did the nephew pay the CAT on it?

If the tax is paid just file it late.

Marcusm

The CG50 is the nephew's problem - i.e. he should not have paid over the gross sales proceeds without it.

Mr. Incognito

??

What. He is advising both parties.

And there were no proceeds paid.

Marcusm

I read the for 700k rather than the second line; they are contradictory. Surely where there is no actual consideration, a CG50 should never have been in point - the obligation to withhold arises from actual consideration (whether money or in kind). Am I wrong?

No mention in his post that he's advising both parties. In fact a literal construction would indicate he was advising the vendor.

And no, in relation to your redacted comment, I am not an advisor! I was one in a former life but turned to the dark side - being a client, one of the worst kind of clients in fact.

Mr. Incognito

I read the for 700k rather than the second line; they are contradictory. Surely where there is no actual consideration, a CG50 should never have been in point - the obligation to withhold arises from actual consideration (whether money or in kind). Am I wrong?

Yes. Look- just educate yourself if you don't know
www.revenue.ie/en/tax/cgt/forms/cg50-explanatory-notes.pdf

No mention in his post that he's advising both parties. In fact a literal construction would indicate he was advising the vendor.

Do you have practical experience? This is a family transaction - do you think two farmers are sitting around with a team of advisors on both sides? Common sense dude.

And no, in relation to your redacted comment, I am not an advisor! I was one in a former life but turned to the dark side - being a client, one of the worst kind of clients in fact.

QFT

Marcusm

Mr. Incognito wrote: »

I read the for 700k rather than the second line; they are contradictory. Surely where there is no actual consideration, a CG50 should never have been in point - the obligation to withhold arises from actual consideration (whether money or in kind). Am I wrong?

Yes. Look- just educate yourself if you don't know
www.revenue.ie/en/tax/cgt/forms/cg50-explanatory-notes.pdf

No mention in his post that he's advising both parties. In fact a literal construction would indicate he was advising the vendor.

Do you have practical experience? This is a family transaction - do you think two farmers are sitting around with a team of advisors on both sides? Common sense dude.

And no, in relation to your redacted comment, I am not an advisor! I was one in a former life but turned to the dark side - being a client, one of the worst kind of clients in fact.

QFT

Thanks for including the guidance notes; I had read s.980 which makes it clear that no clearance is required where's there's no actual consideration!

Practical experience? I guess my last CG50 application was around 1994, experience amounted to 12 years in the tax department of a major firm in Dublin and London followed by 10 years other relevant experience. My mistake was in not reading his initial question correctly.

Not sure what QFT means.

Can you tell me what requirement exists for a CG50 application in this instance?

Mr. Incognito

QFT Means Quoted for truth.

Did you read the explanatory memorandum? At all?

If the consideration is of a kind from
which the deduction cannot be made, e.g. where one asset is exchanged for another, the acquirer
is obliged to notify the Revenue Commissioners of particulars of the acquisition and to pay to the
Collector-General within seven days of the acquisition an amount equal to 15% of the market value of
the consideration

So, the nephew would be oblidged to pay 15% of the Market Value over the Revenue in absence of a prior CG50 being provided.

If the Nephew paid CAT this would satisfy the provisions even though it would not be paid within 7 days. If the Nephew did Not pay CAT then there may be an issue which is the first question I asked.

EDITED- MOD BEING A DICK

I could for example ask if the farmer paid any CGT on the disposal nothwithstanding there was not consideration passing, if CAT relief such as farmers relief applied, if Retirement relief applies, if a CAT / CGT set off applied.

Thanks for including the guidance notes; I had read s.980 which makes it clear that no clearance is required where's there's no actual consideration!

Really? Please show me that. Here is the secton. I'd be delighted to know that the section that is specifically designed to transfer the CGT burden from the disponer to the disponee where the disponer doesn't pay says that you are exempt from tax by being avoiding or defaulting on your tax obligations.

This is new.

http://www.irishstatutebook.ie/1997/en/act/pub/0039/sec0980.html

Marcusm

Perhaps I should stop posting in this forum as I seem to be unnecessarily riling you.

However, I cannot allow the latent logical fallacy in your last post to subsist. A CG50 is irrelevant in the context of a gift as the obligation to withhold arises on the Payor of the consideration, ie the transferee of the asset. With a gift there is no consideration (not in money, not in money's worth). You tacitly agree this by specifying the amount of tax to be deducted at 15% of the consideration but make the leap to assuming that this must be the value of the asset transferred. This is not the case.

I'm sorry not to have read the initial post correctly as I could have stated that then.

It might be that I have irritated you but I think using phrases such as "spoon feed" and charging me for your time are a bit aggressive (especially so in the context).

I had hoped to contribute to this sub forum as on more complex tax matters I have some expertise although I will admit to having pulled the trigger too quickly in my initial post.

I have chosen not to quote your response so if you wish to redact it, please feel free.

Mr. Incognito

Marcusm wrote: »

Perhaps I should stop posting in this forum as I seem to be unnecessarily riling you.

However, I cannot allow the latent logical fallacy in your last post to subsist. A CG50 is irrelevant in the context of a gift as the obligation to withhold arises on the Payor of the consideration, ie the transferee of the asset. With a gift there is no consideration (not in money, not in money's worth). You tacitly agree this by specifying the amount of tax to be deducted at 15% of the consideration but make the leap to assuming that this must be the value of the asset transferred. This is not the case.

I'm sorry not to have read the initial post correctly as I could have stated that then.

It might be that I have irritated you but I think using phrases such as "spoon feed" and charging me for your time are a bit aggressive (especially so in the context).

I had hoped to contribute to this sub forum as on more complex tax matters I have some expertise although I will admit to having pulled the trigger too quickly in my initial post.

I have chosen not to quote your response so if you wish to redact it, please feel free.

If you think I am being agressive I apologise,


Just because something is given as a gift or free does not mean no tax arises.

Capital gains tax arises on the gain between the base cost and disposal. If you don't get anything for the disposal - tough- you can still pay tax on the deemed gain. The CGT Still arises on the Market Value irregardless that no money changes hands.

You need to read S 980 in conjuntion with S547

http://www.irishstatutebook.ie/1997/en/act/pub/0039/sec0547.html

The Guide to CGT says it well

2. Acquisition or disposal not at arm’s length
When an asset is acquired, or disposed of, otherwise than by way of a bargain made at arm’s length, e.g. gift, it is
treated as an acquisition or a disposal of the asset for a consideration equal to its market value at that time.
This means that where a person disposes of an asset either by sale or by gift for an amount less than its market value
they will be liable to Capital Gains Tax on the deemed gain.
Instances where CGT is due on a “deemed” gain would usually involve “connected persons”, for example a parent
who transfers assets to their children for little or no payment. The recipient of these assets themselves may,
depending on the circumstances, have a liability to Capital Acquisitions Tax (Gift Tax) and/or Stamp Duty.,

You are misreading section 3 which states:

This section shall not apply where the amount or value of the consideration in money or money's worth on a disposal does not exceed the sum of £100,000;

That DOES NOT mean that if there is no money the section does not apply. If is merely the threshold below which the CG50 doesn't need to be sought.

Capital acquisitions or gift tax applies where you do not pay anything for the gift. If the CGT is paid, your CAT is reduced by the CGT paid.

Once again

If the consideration is of a kind from
which the deduction cannot be made, e.g. where one asset is exchanged for another, the acquirer
is obliged to notify the Revenue Commissioners of particulars of the acquisition and to pay to the
Collector-General within seven days of the acquisition an amount equal to 15% of the market value of
the consideration

The market value of the consideration. Not the actual consideration which is nil but the market value of the land.


That is a basic concept of tax. It comes up again and again and again in CGT and CAT and Stamp Duty and Shares and Corp tax that are transferred for undervalue or no value.

Otherwise people would be able to avoid tax wholesale by transferring assets at nil value.

This forum is for discussion of tax.

I have no problem discussing tax. I get it wrong sometimes.

namenotavailablE

Hi MarcusM- I think a key point that would override your "gift = no consideration=> 15% of zero is payable" position is that gifts are DEEMED to be exchanged at market value by Revenue.
Thus I reckon that it's correct to state that it's 15% of the €700K that the nephew should have paid under s.980 if nothing else (CGT/CAT) had been paid.

BTW, I'd encourage you to keep posting- your experience in other areas may well be of assistance down the road.

Marcusm

namenotavailabl wrote: »

Hi MarcusM- I think a key point that would override your "gift = no consideration=> 15% of zero is payable" position is that gifts are DEEMED to be exchanged at market value by Revenue.
Thus I reckon that it's correct to state that it's 15% of the €700K that the nephew should have paid under s.980 if nothing else (CGT/CAT) had been paid.

BTW, I'd encourage you to keep posting- your experience in other areas may well be of assistance down the road.

You are correct vis a vis the calculation of the liability but the positive obligation for the transferee to withhold is very specifically related to the consideration with some adjustments where the transaction is divided into parts to come under the threshold.

From a policy perspective, I am also on the right side as with gifts there is no need for an involvement of the transferee and he/she might not even have notice of the gift within the relevant period. For example, I could transfer lits f shares into your name and never tell you.

Mr. Incognito

Marcusm wrote: »

You are correct vis a vis the calculation of the liability but the positive obligation for the transferee to withhold is very specifically related to the consideration with some adjustments where the transaction is divided into parts to come under the threshold.

From a policy perspective, I am also on the right side as with gifts there is no need for an involvement of the transferee and he/she might not even have notice of the gift within the relevant period. For example, I could transfer lits f shares into your name and never tell you.

I had to read that a few times.

Are you saying for the purposes of S 980 that the obligation to withhold the 15% does not apply on the recipient on the basis that they may not be on Notice of the gift as there is no monetary considereation exchanged?

Thus the CGT would apply to the Donor, the CAT Applies to the Donee and the 15% withholding does not apply.

Have I read you correctly here?

edit.

I think I can see where you are coming from now.

980 applies in that the 15% must be deducted from the payment. If there is no payment as it is a gift there is nothing to deduct the 15% from.

We on the same page now?

(i) the person by or through whom any such payment is made shall deduct from that payment a sum representing an amount of capital gains tax equal to 15 per cent of that payment,

Marcusm

Nope, I am not saying that it is because of the lack of notice.

What I am saying is that I believe that "consideration" in the context of section 980 needs to be construed as the consideration actually given. In any event, it is always the case that the liability for capital gains tax arises in respect of the transferor (or disponer, if you prefer). The mechanic through which in many circumstances the transferee must deduct 15% (or such reduced amount as he might be told) out of the consideration is not to transfer the CGT liability to the transferee but to put him in an analogous position to other unpaid tax collectors (i.e. employers in respect of PAYE, relevant deposit takers in respect of DIRT, custodians in respect of encashment tax in the old days).

My comment vis a vis notice is merely to point out that as a matter of policy, it is unlikley that Revenue/DoF would seek to legislate to impose a liability to deduct on a recipient by way of gift for administrative reasons.

You seem to have revised your post of 22:34 twice; firstly to say "bear with me" and secondly to return much of the initial post and to revise it. It makes a mockery of my subsequent post and in the context of your prior "quoted for truth" is truly strange behaviour.

That DOES NOT mean that if there is no money the section does not apply. If is merely the threshold below which the CG50 doesn't need to be sought./

I think that you'll find that the language used in s980(3) is identical to other sections where scope restrictions are included and the absence of consideration is exactly what precludes the section from applying. It should be noted that the purpose of the section is not to make arrangements for the filing of a CG50 form but actually to provide for the deduction of tax and the mechanics for assessing and recovering same from a person who is not liable for the tax as principal.

I would argue, I believe successfully, that s.980(3) should be construed literally ("man should be taxed on clear words not intendment" remaining of persuasive precedence in Ireland). You seem to believe that you can read "market value of the asset" where the provision clearly refers to "market value of the consideration in money or money's worth". You cannot simply substitute one term for the other. Perhaps you assume that the nephew's increased affinity towards his uncle is non monetary consideration which needs valuing!!!

There is an argument which could be run that the extension of the meaning of consideration in s547 may apply for s980. Given the specificity of the provisions of section 980, I would not be confident of the Revenue succeeding.

In this case, I assume agricultural relief would have applied such that the actual transferor and transferee are unlikely to get an answer!

It's worthwhile that this is not "pseudo offended nonsense" and I think you'll find that I have set out some coherent reasoning based on the law fr the approach which I have taken.

All that being said, you are the moderator and are thus free to cast the epithets. If you'd rather I didn't post, please let me know.

Mr. Incognito

Excellent retort.

I'll have to attack that with a clearer head than at ten past midnight when i get up at seven but I think I can see where you are coming from on first reading.

I'll be back.

I welcome other comments

nompere

The legislation seems quite clear - "consideration in money or money's worth". That contrasts with the normal reference to "natural love and affection" seen in deeds of gift and similar.

The Irish Taxation Institute book on CGT, at p 1004 (21st edition) is in no doubt that in circumstances where notional consideration is concerned (as, for example, on a gift) that any deduction obligations apply only to the actual consideration. It uses an example of a sale between connected parties at an undervalue.

It's all more interesting when there isn't any monetary consideration, as for example on a swap of land, where the purchaser is required to pay the 15% tax (from other sources) in the absence of a clearance certificate.

smeharg

I had a read of section 980 last night after I'd logged off. In the meantime I think Mr I may have came to the same conclusion I have.

You (Mr I & Marcusm) have been concentrating on the meaning of consideration, and the extension of that meaning beyond money. That principle is well established and understood and I don't think it is what should be concentrated on.

980(3), is also not relevant in this case. While Marcusm may well be correct in his reliance on that subsection to not withhold tax where there is no consideration, I don't think it is necessary.

980(4) clearly states "on payment of the consideration" tax should be deducted of "15 per cent of that payment"

980(5) also refers to "the payment".

The relevant parts of the section refer to the physical act of the payment; there is no reference to "deemed payment" and I don't believe there is a specific definition relating to the section. If there is no "payment" then tax cannot be deducted. Therefore, to quote Marcusm's unreferenced quotation "man should be taxed on clear words not intendment".

Surely, if the legislators had intended the section to apply to zero consideration, a subsection to that effect would have been included, or subsequently inserted.

However, to confuse the issue further S978 provides for assessment of CGT on the donee where the disponer makes a gift and doesn't pay the CGT within 12 months.

Marcusm

smeharg wrote: »

Therefore, to quote Marcusm's unreferenced quotation "man should be taxed on clear words not intendment".

If I were to take the same approach as others, I should castigate you for providing tax services without knowing one of the most famous passages of tax case law - my (slight) misquote is of Wilberforce's decision in Ramsay but I think he was building on earlier views - perhaps Cape Brandy etc. I don't want to be too gruff, however, as the Supreme Court in McGrath declined to follow the decision in Ramsay although not the central tenet.

smeharg

Marcusm wrote: »

If I were to take the same approach as others, I should castigate you for providing tax services without knowing one of the most famous passages of tax case law - my (slight) misquote is of Wilberforce's decision in Ramsay but I think he was building on earlier views - perhaps Cape Brandy etc. I don't want to be too gruff, however, as the Supreme Court in McGrath declined to follow the decision in Ramsay although not the central tenet.

And if I were also to take that approach I would castigate you for assuming I didn't know it, rather than not retaining the name of the case etc...

Is it not a well established principle and one on which a lot of aggressive avoidance schemes would rely?

Marcusm

smeharg wrote: »

And if I were also to take that approach I would castigate you for assuming I didn't know it, rather than not retaining the name of the case etc...

Is it not a well established principle and one on which a lot of aggressive avoidance schemes would rely?

If we were back pre 2000, you'd find a lot of books and articles referring to the Ramsay Principle etc. Since Lenny Hoffman's decision in McNiven, a lesser weight is given to it as a separate principle and merely to being a restatement of a fundamental point of statutory construction, read the words as they appear in context and seek to apply them. That being said, many would be of the view that these are merely attempts at judicial one upmanship!!

What is tax avoidance and even more so, what is aggressive tax avoidance is in the eye of the beholder. All taxpayers and advisers benefit from law being capable of being understood and applied clearly. Those engaged in ensuring that tax advantages are obtained, no more so than others;)

In relation to the point at hand, I was pondering the position of the nephew in the case at hand. If s980 does apply, he would be required to account for money to the Revenue without having any consideration from which to deduct it. That would be an additional cost to receiving the gift and not a tax on his own income, his gift etc. The uncle might well be entitled to obtain a credit for that tax or a refund if no gain arose. However, he could not give the money back to the nephew without creating a further CAT liability, tax arising on tax!

For the uncle to seek to retain the money might be regarded as an unjust enrichment and he might not even be able to do so. A farcical position which even if supported by the law (which I do not believe it is), would be hard to be defended by Revenue on policy grounds.

mozattack

Geez this post got legs.

I didnt read half of it cos the replies are too long.

I concluded seperate to this that no CG50 clearance is needed in the case of a gift.

Is that the answer?

fergpie

The below is taken from the AITI's own manuals....

The WHT procedure is extended ( s. 980(2)(e) ) to include the following assets:
1. Shares acquired by way of share for share relief ( s. 584 ), and
2. The disposal of other assets which do not involve the person paying the capital sum on acquiring an asset.

Where there is no consideration from which 15% tax may be withheld and the vendor has not produced a CGT clearance certificate, the purchaser must supply details of the transaction to the Revenue within 7 days of the date of acquisition and pay over 15% of the market value of the actual consideration given, estimated to the best of that person’s knowledge and belief [ s. 980(9) ].
The details to be supplied are:

The asset acquired.

The consideration for the asset.

The estimated market value of the consideration, and

The name and address of the person making the disposal.

The 15% CGT is payable almost immediately, i.e. within seven days of acquisition, without the need for an assessment to the raised by the Inspector of Taxes. The purchaser is entitled to recover the tax from the vendor.
The above treatment does not apply to gifts ( s. 980(9)(a)(i) ).

mozattack

Fair play, thanks to you on this.

Mr. Incognito

fergpie wrote: »

The below is taken from the AITI's own manuals....

The WHT procedure is extended ( s. 980(2)(e) ) to include the following assets:
1. Shares acquired by way of share for share relief ( s. 584 ), and
2. The disposal of other assets which do not involve the person paying the capital sum on acquiring an asset.

Where there is no consideration from which 15% tax may be withheld and the vendor has not produced a CGT clearance certificate, the purchaser must supply details of the transaction to the Revenue within 7 days of the date of acquisition and pay over 15% of the market value of the actual consideration given, estimated to the best of that person’s knowledge and belief [ s. 980(9) ].
The details to be supplied are:

The asset acquired.

The consideration for the asset.

The estimated market value of the consideration, and

The name and address of the person making the disposal.

The 15% CGT is payable almost immediately, i.e. within seven days of acquisition, without the need for an assessment to the raised by the Inspector of Taxes. The purchaser is entitled to recover the tax from the vendor.
The above treatment does not apply to gifts ( s. 980(9)(a)(i) ).

Thank you.

I stand corrected and apologise.