A number of Revenue Guidance Documents have been introduced following Finance Act 2014 being signed into law on 23rd December 2014.
4. Guide to the Capital Acquisitions Tax Treatment of receipts by children from their parents for their support, maintenance or education – eBrief no. 109/14 (24th December 2014).
As you are all aware, Capital Acquisitions Tax is the tax levied on gifts and inheritances received by individuals where the value of the gift/inheritance exceeds that individual’s lifetime tax free threshold amount.
Section 82(2) of the Capital Acquisitions Tax Consolidation Act exempts from tax “normal and reasonable” payments (in money or monies worth) made by the disponer during his/her lifetime for the support, maintenance or education of his/her
• Children or
• Civil Partner’s children or
• A person to whom the individual stands in loco parentis or
• A dependent relative of the disponer
While carrying out compliance programmes, the Revenue Commissioners identified ways in which this exemption was being abused. As a result, Section 81 Finance Act 2014 amended Section 82 Taxes Consolidation Act 1997 to ensure that where there is a need to provide for the support, maintenance and education of children the exemption is confined to the following:
• A minor child of the disponer or of the civil partner of the disponer or
• A child of the disponer or of the civil partner of the disponer who is under twenty five years of age and is in full time education or
• A child, regardless of age, who is permanently incapacitate by reason of physical or mental infirmity from maintaining himself/herself.
So what do we mean by “normal and reasonable” payments?
Revenue’s view is that “normal” refers to the nature of the payment or expenditure. Examples include the payment of fees and accommodation costs for a dependant child attending college.
“Reasonable” refers to the financial circumstances of the disponer. Even though there is no ceiling on the value of what can be provided by way of maintenance or support, the exemption will not apply if the disponer makes payments which are disproportionate to his/her means.
Back to the eBrief
Section 82(2) does not cover all payments by a parent to a child. Revenue does not accept that gifts to a child who is financially independent are exempt from Capital Acquisitions Tax nor does it accept that gifts of a capital nature are tax exempt.
Examples of non-exempt benefits/gifts/payments are as follows:
1. House purchase
2. Free use of a house
3. The deposit on a house in excess of €3,000
4. money if in excess of €3,000 per annum
So what benefits/gifts/payments are tax exempt?
1. The non exclusive occupation of the family home by a child who is a family member.
2. Free use of a house by a child attending university who is not more than twenty five years old providing the support and maintenance falls within the “normal and reasonable” provision.
3. The cost of family functions paid by a parent. For example, a wedding paid by a parent.
4. Payments to cover the child’s normal costs associated with attending college including rent, food, clothing, educational material, tuition fees, transport costs, pocket money, etc. to a child under the age of twenty five years.
Next: Part V – 5. – Relevant Contract Tax – Revised Penalties from 1st January 2015 for the failure of a Principal Contractor to operate R.C.T. correctly on relevant payments to a contractor – eBrief no. 110/14 (24th December 2014)