Revenue has issued an eBrief on the CAT treatment of the release or forfeiture/surrender or abandonment of a debt. Under Section 5 CATA 2003 a charge to CAT can arise on such “dispositions” in certain situations. Obviously, to prevent persons granting loans and then writing them off as a means of avoiding gift tax, existing anti-avoidance provision already caught this type of conduct. There had been concern in certain quarters that Revenue might seek to tax bank debt write down or write offs as being gifts under Capital Acquisitions Tax.
Revenue has clarified that “where for bona fide commercial reasons, a financial institution enters into a debt restructuring, forgiveness or write-off arrangement with a customer, Revenue’s approach, subject to being satisfied as to the bona fides of the arrangement (which may be subject to Revenue audit or enquiry) is that the financial institution is not intent on making a gift of any sort to the mortgagor/debtor – and accordingly the mortgagor/debtor would not be subject to a CAT charge in respect of any such debt restructuring, forgiveness or write-off arrangement.”
They note that should any debt restructuring, forgiveness or write-off arrangement be undertaken for the purposes of the avoidance of tax, the treatment outlined above would not apply.