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39 1997

TAXES CONSOLIDATION ACT, 1997

CHAPTER 2

Settlements on children generally

Interpretation and application ( Chapter 2 ).

[ITA67 s443(2), (3) and (5), s445 and s447; FA95 s12(1)(a)(ii) and (c)(i) and (ii)]

794. —(1) In this Chapter—

income” (except where in sections 795 (1), 796 (2)(b) and subsections (4) and (5) of section 797 it is immediately preceded by “as” or “that person's” and except also in section 798 ) includes any income chargeable to income tax by deduction or otherwise and any income which would have been so chargeable if it had been received in the State by a person resident or ordinarily resident in the State;

settlement” includes any disposition, trust, covenant, agreement or arrangement, and any transfer of money or other property or of any right to money or other property.

(2) This Chapter shall apply to every settlement wherever and whenever made or entered into.

(3) This Chapter shall not apply in relation to any income arising under a settlement in any year of assessment for which the settlor is not chargeable to income tax as a resident in the State, and references in this Chapter to income shall be construed accordingly.

(4) This Chapter shall not apply to any income which, by virtue or in consequence of a settlement and during the life of the settlor, is in any year of assessment paid to or for the benefit of a minor, not being a child of the settlor, if such minor is permanently incapacitated by reason of mental or physical infirmity.

(5) For the purposes of this Chapter, the following provisions shall apply in relation to the construction of “irrevocable instrument”:

(a) an instrument shall not be an irrevocable instrument if the trusts of the instrument provide for all or any one or more of the following matters—

(i) the payment or application to or for the settlor for the settlor's own benefit of any capital or income or accumulations of income in any circumstances whatever during the life of a person (in this paragraph referred to as a “beneficiary”) to or for the benefit of whom any income or accumulations of income is or are or may be payable or applicable under the trusts of the instrument,

(ii) the payment or application during the life of the settlor to or for the husband or wife of the settlor for his own or her own benefit of any capital or income or accumulations of income in any circumstances whatever during the life of any beneficiary,

(iii) the termination of the trusts of the instrument by the act or on the default of any person, and

(iv) the payment by the settlor of a penalty in the event of the settlor failing to comply with the instrument;

(b) an instrument shall not be prevented from being an irrevocable instrument by reason only that the trusts of the instrument include any one or more of the following provisions—

(i) a provision under which any capital or income or accumulations of income will or may become payable to or applicable for the benefit of the settlor or the husband or wife of the settlor, on the bankruptcy of a person (in this paragraph referred to as a “beneficiary”) to or for the benefit of whom any income or accumulations of income is or are or may be payable or applicable under the trusts of the instrument,

(ii) a provision under which any capital or income or accumulations of income will or may become payable to or applicable for the benefit of the settlor or the husband or wife of the settlor, in the event of any beneficiary making an assignment of or charge on such capital or income or accumulations of income, and

(iii) a provision for the termination of the trusts of the instrument in such circumstances or manner that such termination would not, during the life of any beneficiary, benefit any person other than that beneficiary or that beneficiary's husband, wife or issue;

(c) “irrevocable instrument” includes instruments whenever made.

Income settled on children.

[ITA67 s443(1); FA95 s12(1)(a)(i) and (c)]

795. —(1) Where, by virtue or in consequence of a settlement and during the life of the settlor, any income is in any year of assessment paid to or for the benefit of a person, such income shall, if at the time of payment such person is a minor, be treated for the purposes of the Income Tax Acts as income of the settlor for that year and not as income of any other person.

(2) For the purposes of this Chapter, but subject to section 796

(a) income which, by virtue or in consequence of a settlement to which this Chapter applies, is so dealt with that it or assets representing it will or may become payable or applicable to or for the benefit of a person in the future (whether on the fulfilment of a condition, or on the happening of a contingency, or as the result of the exercise of a power or discretion conferred on any person, or otherwise) shall be deemed to be paid to or for the benefit of that person, and

(b) any income dealt with in the manner referred to in paragraph (a) which is not required by the settlement to be allocated, at the time when it is so dealt with, to any particular person or persons shall be deemed to be paid in equal shares to or for the benefit of each of the persons to or for the benefit of whom or any of whom the income or assets representing it will or may become payable or applicable.

Irrevocable instruments.

[ITA67 s444 and s447; FA71 s16(2) and (3); FA95 s12(1)(b)]

796. —(1) In this section, “property” does not include any annual or other periodical payment secured by the covenant of the settlor, or by a charge made by the settlor on the whole or any part of the settlor's property or the whole or any part of the settlor's future income, or by both such covenant and such charge.

(2) Where by virtue of an irrevocable instrument property is vested in or held by trustees on such trusts that in any year of assessment section 795 would but for this section apply to the income of such property, the following provisions shall apply:

(a) section 795 shall not apply—

(i) in respect of any part of such income which is in that year of assessment accumulated for the benefit of a person, or

(ii) in respect of income arising in that year of assessment from accumulations of income referred to in subparagraph (i);

(b) whenever in any year of assessment any sum whatever is paid under the trusts of such irrevocable instrument out of—

(i) such property,

(ii) the accumulations of the income of such property,

(iii) the income of such property, or

(iv) the income of those accumulations,

to or for the benefit of a person who at the time of payment is a minor, such sum shall, subject to the limitation in paragraph (c), be deemed for the purposes of this Chapter to be paid as income;

(c) paragraph (b) shall not apply to so much of such sum as is equal to the amount by which the aggregate of such sum and all other sums (if any) paid after the 5th day of April, 1937, under the trusts of such irrevocable instrument to or for the benefit of that person or any other person (being a person who at the time of payment was a minor) exceeds the aggregate amount of the income arising after the 5th day of April, 1937, from such property together with the income arising after that date from those accumulations;

(d) for the purposes of paragraph (c), the reference in that paragraph to another sum paid to or for the benefit of a person who at the time of payment was a minor shall be construed, in relation to a payment to which this paragraph applies of any such sum, as a reference to a sum so paid to or for the benefit of a person who at the beginning of the year of assessment in which such other sum was paid was a minor;

(e) paragraph (d) shall apply to any payment of any such sum—

(i) made before the 6th day of April, 1971, or

(ii) in the case of a payment to or for the benefit of a child born after the 6th day of April, 1971, and so made by virtue or in consequence of a settlement made before the 28th day of April, 1971, made in the year 1971-72;

(f) for the purposes of paragraphs (c) and (d), references in those paragraphs to a person being at a particular time a minor shall, where that time is before the 6th day of April, 1986, be construed as references to a person who at that time was under the age of 21 years and was not or had not been married.

Recovery of tax from trustee and payment to trustee of excess tax recoupment.

[ITA67 s446; F(MP)A68 s3(2) and Sch PtI; FA74 s86 and Sch2 PtI; FA97 s146(1) and Sch9 PtI par1(29)]

797. —(1) Where by virtue of this Chapter any income tax becomes chargeable on and is paid by a settlor, such settlor shall be entitled—

(a) to recover from any trustee or other person to whom the income is payable by virtue or in consequence of the settlement the amount of the tax so paid, and

(b) for that purpose to require the Revenue Commissioners to furnish to such settlor a certificate specifying the amount of the income in respect of which such settlor has so paid tax and the amount of the tax so paid, and every certificate so furnished shall be evidence until the contrary is proved of the matters of fact stated in the certificate.

(2) Where any person obtains in respect of any allowance or relief a repayment of income tax in excess of the amount of the repayment to which that person would but for this Chapter have been entitled, an amount equal to the excess shall be paid by that person to the trustee or other person to whom the income is payable by virtue or in consequence of the settlement and, where there are 2 or more such trustees or other persons, in such proportions as the circumstances may require.

(3) Where any question arises as to the amount of any payment or as to any apportionment to be made under subsection (2), that question shall be decided by the Appeal Commissioners whose decision on that question shall be final.

(4) Any income which by virtue of this Chapter is treated as income of any person shall be deemed to be the highest part of that person's income.

(5) No repayment shall be made under paragraph 21 of Schedule 32 on account of tax paid in respect of any income which has by virtue of this Chapter been treated as income of a settlor.

Transfer of interest in trade to children.

[ITA67 s448(1), (3) and (4)]

798. —(1) Where by any means whatever (including indirect means or means consisting of a series of operations and whenever adopted) a trade, which at any time before the adoption of such means was carried on by any person solely or in partnership, becomes a trade carried on by one or more than one child of such person or by means of a partnership in which such person and one or more than one child of such person are partners, the following provisions shall apply:

(a) such means shall for the purposes of this Chapter be deemed to constitute a settlement as respects which such person shall be deemed to be the settlor;

(b) the profits or gains arising from the trade after the adoption of such means, in so far as they arise to one or, as the case may be, more than one child of such person shall for the purposes of this Chapter be deemed to be the same income as would have arisen to such person had such means not been adopted;

(c) “income” where it first occurs in section 795 shall be deemed to include those profits or gains in so far as they arise to one or more than one child of such person.

(2) The amount of the income of a person from the profits or gains of a trade deemed by virtue of subsection (1) to be income of another person shall, if the first-mentioned person is engaged actively in the carrying on of the trade, be the full amount of that income reduced by a sum (in subsection (3) referred to as “the appropriate sum”) equal to the amount which would have been allowed in computing those profits or gains in respect of the first-mentioned person if that person, instead of being a person engaged in the carrying on of the trade, had been a person employed by a person or persons carrying on the trade.

(3) The appropriate sum shall be deemed to be profits or gains arising to the first-mentioned person referred to in subsection (2) from the exercise of an office or employment within the meaning of Schedule E.