First Previous (CHAPTER 7 Special measures on discontinuance of, and change of basis of computation of profits or gains of, a trade or profession) Next (CHAPTER 9 Miscellaneous provisions)

39 1997

TAXES CONSOLIDATION ACT, 1997

CHAPTER 8

Taxation of rents and certain other payments

Interpretation ( Chapter 8 ).

[ITA67 s80(1), (2), (4) and (5) and s81(1) (definition of “the person chargeable”); FA69 s27; FA75 s19 and Sch2 PtI par1 and 2]

96. —(1) In this Chapter, except where the context otherwise requires—

easement” includes any right, privilege or benefit in, over or derived from premises;

lease” includes an agreement for a lease and any tenancy, but does not include a mortgage, and “lessee” and “lessor” shall be construed accordingly, and “lessee” and “lessor” include respectively the successors in title of a lessee or a lessor;

the person chargeable” means the person entitled to the profits or gains arising from—

(a) any rent in respect of any premises, and

(b) any receipts in respect of any easement;

premises” means any lands, tenements or hereditaments in the State;

premium” includes any like sum, whether payable to the immediate or a superior lessor or to a person connected with the immediate or superior lessor;

rent” includes—

(a) any rentcharge, fee farm rent and any payment in the nature of rent, notwithstanding that the payment may relate partly to premises and partly to goods or services, and

(b) any payment made by the lessee to defray the cost of work of maintenance of or repairs to the premises, not being work required by the lease to be carried out by the lessee.

(2) (a) In ascertaining for the purposes of this Chapter the duration of a lease, the following provisions shall apply:

(i) where any of the terms of the lease (whether relating to forfeiture or to any other matter) or any other circumstances render it unlikely that the lease will continue beyond a date falling before the expiration of the term of the lease and the premium was not substantially greater than it would have been (on the assumptions required by paragraph (b)) if the term had been one expiring on that date, the lease shall not be treated as having been granted for a term longer than one ending on that date;

(ii) where the terms of the lease include provision for the extension of the lease beyond a particular date by notice given by the lessee, account may be taken of any circumstances making it likely that the lease will be so extended;

(iii) where the lessee or a person connected with the lessee is or may become entitled to a further lease or the grant of a further lease (whenever commencing) of the same premises or of premises including the whole or part of the same premises, the term of the lease may be treated as not expiring before the term of the further lease.

(b) Paragraph (a) shall be applied by reference to the facts which were known or ascertainable at the time of the grant of the lease or, in relation to tax under section 98 (4), at the time when the contract providing for a variation or waiver of a kind referred to in section 98 (4) is entered into, and in applying paragraph (a)

(i) it shall be assumed that all parties concerned, whatever their relationship, act as they would act if they were at arm's length, and

(ii) if by the lease or in connection with the granting of it—

(I) benefits were conferred other than vacant possession and beneficial occupation of the premises or the right to receive rent at a reasonable commercial rate in respect of the premises, or

(II) payments were made which would not be expected to be made by parties so acting if no other benefits had been so conferred,

it shall be further assumed, unless it is shown that the benefits were not conferred or the payments were not made for the purpose of securing a tax advantage in the application of this Chapter, that the benefits would not have been conferred nor the payments made had the lease been for a term ending on the date mentioned in paragraph (a).

(3) Where the estate or interest of any lessor of any premises is the subject of a mortgage and either the mortgagee is in possession or the rents and profits are being received by a receiver appointed by or on the application of the mortgagee, that estate or interest shall be deemed for the purposes of this Chapter to be vested in the mortgagee, and references to a lessor shall be construed accordingly; but the amount of the liability to tax of any such mortgagee shall be computed as if the mortgagor was still in possession or, as the case may be, no receiver had been appointed and as if it were the amount of the liability of the mortgagor that was being computed.

(4) Where an inspector has reason to believe that a person has information relevant to the ascertainment of the duration of a lease in accordance with subsection (2), the inspector may by notice in writing require such person to give, within 21 days after the date of the notice or such longer period as the inspector may allow, such information relevant to the ascertainment of the duration of the lease on the matters specified in the notice as is in such person's possession.

Computational rules and allowable deductions.

[ITA67 s81(4), (5), (6), (7) and (8); FA69 s22; FA97 s146(1) and Sch9 PtI par1(6)]

97. —(1) Subject to this Chapter, the amount of the profits or gains arising in any year shall for the purposes of Case V of Schedule D be computed as follows:

(a) the amount of any rent shall be taken to be the gross amount of that rent before any deduction for income tax;

(b) the amount of the profits or gains arising in any year shall be the aggregate of the surpluses computed in accordance with paragraph (c), reduced by the aggregate of the deficiencies as so computed;

(c) the amount of the surplus or deficiency in respect of each rent or in respect of the total receipts from easements shall be computed by making the deductions authorised by subsection (2) from the rent or total receipts from easements, as the case may be, to which the person chargeable becomes entitled in any year.

(2) The deductions authorised by this subsection shall be deductions by reference to any or all of the following matters—

(a) the amount of any rent payable by the person chargeable in respect of the premises or in respect of a part of the premises;

(b) any sums borne by the person chargeable—

(i) in the case of a rent under a lease, in accordance with the conditions of the lease, and

(ii) in any other case, relating to and constituting an expense of the transaction or transactions under which the rents or receipts were received,

in respect of any rate levied by a local authority, whether such sums are by law chargeable on such person or on some other person;

(c) the cost to the person chargeable of any services rendered or goods provided by such person, otherwise than as maintenance or repairs, being services or goods which—

(i) in the case of a rent under a lease, such person is legally bound under the lease to render or provide but in respect of which such person receives no separate consideration, and

(ii) in any other case, relate to and constitute an expense of the transaction or transactions under which the rents or receipts were received, not being an expense of a capital nature;

(d) the cost of maintenance, repairs, insurance and management of the premises borne by the person chargeable and relating to and constituting an expense of the transaction or transactions under which the rents or receipts were received, not being an expense of a capital nature;

(e) interest on borrowed money employed in the purchase, improvement or repair of the premises.

(3) (a) The amount of the deductions authorised by subsection (2) shall be the amount which would be deducted in computing profits or gains under the provisions applicable to Case I of Schedule D if the receipt of rent were deemed to be a trade carried on by the person chargeable—

(i) in the case of a rent under a lease, during the currency of the lease, and

(ii) in the case of a rent not under a lease, during the period during which the person chargeable was entitled to the rent,

and the premises comprised in the lease or to which the rent relates were deemed to be occupied for the purpose of that trade.

(b) For the purpose of this subsection, the currency of a lease shall be deemed to include a period immediately following its termination, during which the lessor immediately before the termination was not in occupation of the premises or any part of the premises, but was entitled to possession of the premises, if at the end of that period the premises have become subject to another lease granted by the lessor.

(4) (a) Where the person chargeable is entitled in respect of any premises (in this subsection referred to as “the relevant premises”) to a rent or to receipts from any easement and a sum by reference to which a deduction is authorised to be made by subsection (2) is payable by such person in respect of premises which comprise the whole or a part of the relevant premises and other premises, the inspector shall make, according to the best of his or her knowledge and judgment, any appropriate apportionment of the sum in determining the amount of any deduction under that subsection.

(b) Where the person chargeable retains possession of a part of any premises and that part is used in common by persons respectively occupying other parts of the premises, paragraph (a) shall apply as if a payment made in respect of the part used in common had been made in respect of those other parts.

(5) Any amount or part of an amount shall not be deducted under subsection (2) if it has otherwise been allowed as a deduction in computing the income of any person for the purposes of tax.

Treatment of premiums, etc. as rent.

[ITA67 s83; FA69 s33(1) and Sch4 PtI; FA75 s20 and Sch2 PtI pars1 and 2; CTA76 s140(1) and Sch2 PtI par3]

98. —(1) Where the payment of any premium is required under a lease or otherwise under the terms subject to which a lease is granted and the duration of the lease does not exceed 50 years, the lessor shall be treated for the purposes of section 75 as becoming entitled when the lease is granted to an amount as rent (in addition to any actual rent) equal to the amount of the premium reduced by 2 per cent of that amount for each complete period of 12 months, other than the first, comprised in the term of the lease.

(2) (a) Where the terms subject to which a lease of any premises is granted impose on the lessee an obligation to carry out any work on the premises, the lease shall be deemed for the purposes of this section to have required the payment of a premium to the lessor (in addition to any other premium) of an amount equal to the amount by which the value of the lessor's estate or interest immediately after the commencement of the lease falls short of what its then value would have been if the work had been carried out, but otherwise than at the expense of the lessee, and the rent were increased accordingly.

(b) Notwithstanding paragraph (a), this subsection shall not apply in so far as the obligation requires the carrying out of work payment for which, if the lessor and not the lessee were obliged to carry it out, would be deductible from the rent under section 97 (2).

(3) Where under the terms subject to which a lease is granted a sum becomes payable by the lessee in place of the whole or a part of the rent for any period, or as consideration for the surrender of the lease, the lease shall be deemed for the purposes of this section to have required the payment of a premium to the lessor (in addition to any other premium) of the amount of that sum; but—

(a) in computing tax chargeable by virtue of this subsection in respect of a sum payable in place of rent, the term of the lease shall be treated as not including any period other than that in relation to which the sum is payable, and

(b) notwithstanding subsection (1), rent treated as arising by virtue of this subsection shall be deemed to become due when the sum in question becomes payable by the lessee.

(4) Where as consideration for the variation or waiver of any of the terms of a lease a sum becomes payable by the lessee otherwise than as rent, the lease shall be deemed for the purposes of this section to have required the payment of a premium to the lessor (in addition to any other premium) of the amount of that sum; but—

(a) in computing tax chargeable by virtue of this subsection, the term of the lease shall be treated as not including any period which precedes the time at which the variation or waiver takes effect or falls after the time at which the variation or waiver ceases to have effect, and

(b) notwithstanding subsection (1), rent treated as arising by virtue of this subsection shall be deemed to become due when the contract providing for the variation or waiver is entered into.

(5) Where a payment mentioned in subsection (1), (3) or (4) is due to a person other than the lessor, subsection (1), (3) or (4), as the case may be, shall not apply in relation to that payment, but any amount which would have been treated as rent if the payment had been due to the lessor shall be treated as an annual profit or gain of that other person and chargeable to tax under Case IV of Schedule D; but, where the amount relates to a payment within subsection (4), it shall not be so treated unless the payment is due to a person connected with the lessor.

(6) For the purposes of this section, any sum other than rent paid on or in connection with the granting of a lease shall be presumed to have been paid by means of a premium except in so far as other sufficient consideration for the payment is shown to have been given.

(7) Where subparagraph (iii) of section 96 (2)(a) applies, the premium, or an appropriate part of the premium, payable for or in connection with any lease mentioned in that subparagraph may be treated as having been required under any other lease.

(8) Where an amount by reference to which a person is chargeable to income tax or corporation tax by virtue of this section is payable by instalments, the tax chargeable may, if the person chargeable satisfies the Revenue Commissioners that such person would otherwise suffer undue hardship, be paid at such person's option by such instalments as the Revenue Commissioners may allow over a period not exceeding 8 years and ending not later than the time at which the last of the first-mentioned instalments is payable.

(9) Reference in this section to a sum shall be construed as including the value of any consideration, and references to a sum paid or payable or to the payment of a sum shall be construed accordingly.

Charge on assignment of lease granted at undervalue.

[ITA67 s84; FA69 s33(1) and Sch4]

99. —(1) Where the terms subject to which a lease of a duration not exceeding 50 years was granted are such that the lessor, having regard to values prevailing at the time the lease was granted, and on the assumption that the negotiations for the lease were at arm's length, could have required the payment of an additional sum (in this section referred to as “the amount forgone”) by means of a premium or an additional premium for the grant of the lease, then, on any assignment of the lease for a consideration—

(a) where the lease has not previously been assigned, exceeding the premium (if any) for which it was granted, or

(b) where the lease has been previously assigned, exceeding the consideration for which it was last assigned,

the amount of the excess, in so far as it is not greater than the amount forgone reduced by the amount of any such excess arising on a previous assignment of the lease, shall, in the same proportion as the amount forgone would under section 98 (1) have been treated as rent if it had been a premium under a lease, be treated as profits or gains of the assignor chargeable to the tax under Case IV of Schedule D.

(2) In computing the profits or gains of a trade of dealing in land, any trading receipts within this section shall be treated as reduced by the amount on which tax is chargeable by virtue of this section.

Charge on sale of land with right to reconveyance.

[ITA67 s85]

100. —(1) Where the terms subject to which an estate or interest in land is sold provide that it shall be, or may be required to be, reconveyed at a future date to the vendor or a person connected with the vendor, the vendor shall be chargeable to tax under Case IV of Schedule D on any amount by which the price at which the estate or interest is sold exceeds the price at which it is to be reconveyed or, if the earliest date at which in accordance with those terms it would fall to be reconveyed is a date 2 years or more after the sale, on that excess reduced by 2 per cent of that excess for each complete year (other than the first) in the period between the sale and that date.

(2) Where under the terms of the sale the date of the reconveyance is not fixed, then—

(a) if the price on reconveyance varies with the date, the price shall be taken for the purposes of this section to be the lowest possible under the terms of the sale;

(b) the vendor may, before the expiration of 6 years after the date on which the reconveyance takes place, claim repayment of any amount by which tax assessed on such vendor by virtue of this section exceeded the amount which would have been so assessed if that date had been treated for the purposes of this section as the date fixed by the terms of the sale.

(3) Where the terms of the sale provide for the grant of a lease directly or indirectly out of the estate or interest to the vendor or a person connected with the vendor, this section shall apply as if the grant of the lease were a reconveyance of the estate or interest at a price equal to the sum of the amount of the premium (if any) for the lease and the value at the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run; but this subsection shall not apply if the lease is granted, and begins to run, within one month after the sale.

(4) In computing the profits or gains of a trade of dealing in land, any trading receipts within this section shall be treated as reduced by the amount on which tax is chargeable by virtue of this section; but where, on a claim being made under subsection (2)(b), the amount on which tax is chargeable by virtue of this section is treated as reduced, this subsection shall be deemed to have applied to the amount as reduced, and such adjustment of liability to tax shall be made (for all relevant years of assessment), whether by means of an additional assessment or otherwise, as may be necessary.

Relief for amount not received.

[ITA67 s90; FA69 s28]

101. —Where on a claim in that behalf the person chargeable proves—

(a) that such person has not received an amount to which such person is entitled and which is to be taken into account in computing the profits or gains on which such person is chargeable by virtue of this Chapter under Case IV or V of Schedule D, and

(b) (i) if the non-receipt of the amount was attributable to the default of the person by whom it was payable, that the amount is irrecoverable, or

(ii) if the person chargeable has waived payment of the amount, that the waiver was made without consideration and was reasonably made in order to avoid hardship,

then, the person chargeable shall be treated for tax purposes for all relevant years of assessment as if such person had not been entitled to receive the amount, and such adjustment shall be made by repayment or otherwise, as the case may require; but, if all or any part of the amount is subsequently received, such person's liability to tax for all relevant years of assessment shall be appropriately readjusted by additional assessment or otherwise.

Deduction by reference to premium, etc. paid in computation of profits for purposes of Schedule D, Cases I and II.

[ITA67 s91; FA75 s22(3) and Sch 2 PtIII]

102.— (1) In this section, “the relevant period” means—

(a) where the amount chargeable arose under section 98 , the period treated in computing that amount as being the duration of the lease;

(b) where the amount chargeable arose under section 99 , the period treated in computing that amount as being the duration of the lease remaining at the date of the assignment;

(c) where the amount chargeable arose under section 100 , the period beginning with the sale and ending on the date fixed under the terms of the sale as the date of the reconveyance or grant, or, if that date is not so fixed, ending with the earliest date at which the reconveyance or grant could take place in accordance with the terms of the sale.

(2) Where in relation to any premises an amount (in this section referred to as “the amount chargeable”)—

(a) has become chargeable to tax under subsection (1), (2), (3), (4) or (5) of section 98 or under section 99 or 100 , or

(b) would have become so chargeable but for section 103 (3) or any exemption from tax,

and during any part of the relevant period the premises are wholly or partly occupied by the person for the time being entitled to the lease, estate or interest as respects which the amount chargeable arose for the purposes of a trade or profession carried on by such person, such person shall be treated, for the purpose of computing the profits or gains of the trade or profession for assessment under Case I or II of Schedule D, as paying in respect of the premises rent for any part of the relevant period during which the premises are occupied by such person (in addition to any rent actually paid) of an amount which bears to the amount chargeable the same proportion as that part of the relevant period bears to the whole, and such rent shall be taken as accruing from day to day.

(3) Where the amount chargeable arose under section 98 (2) by reason of an obligation which included the incurring of expenditure in respect of which any allowance has been or will be made under Part 9 , this section shall apply as if the obligation had not included the incurring of that expenditure and the amount chargeable had been calculated accordingly.

(4) Where the amount chargeable arose under section 100 and the reconveyance or grant in question takes place at a price different from that taken in calculating that amount or on a date different from that taken in determining the relevant period, subsections (1) to (3) shall be deemed to have applied (for all relevant years of assessment) as they would have applied if the actual price or date had been so taken and such adjustments of liability to tax shall be made, by means of additional assessment or otherwise, as may be necessary.

Deduction by reference to premiums, etc. paid in computation of profits for purposes of this Chapter.

[ITA67 s92; FA69 s33(1) and Sch4 PtI; FA75 s22 and Sch2 PtIII]

103. —(1) In this section, “the relevant period” means, in relation to any amount—

(a) where the amount arose under section 98 , the period treated in computing that amount as being the duration of the lease;

(b) where the amount arose under section 99 , the period treated in computing that amount as being the duration of the lease remaining at the date of the assignment;

(c) where the amount arose under section 100 , the period beginning with the sale and ending on the date fixed under the terms of the sale as the date of the reconveyance or grant, or, if that date is not so fixed, ending with the earliest date at which the reconveyance or grant could take place in accordance with the terms of the sale.

(2) Where in relation to any premises an amount has become or would have become chargeable to tax as mentioned in section 102 (2) by reference to a lease, estate or interest, the person for the time being entitled to that lease, estate or interest shall, subject to this section, be treated for the purposes of section 97 (2) as paying rent accruing from day to day in respect of the premises (in addition to any rent actually paid) during any part of the relevant period in relation to the amount for which such person is entitled to the lease, estate or interest and in all bearing to that amount the same proportion as that part of the relevant period bears to the whole.

(3) Where in relation to any premises an amount has become or would have become chargeable to tax as mentioned in section 102 (2), and by reference to a lease granted out of, or a disposition of, the lease, estate or interest by reference to which the amount (in this section referred to as “the prior chargeable amount”) so became or would have so become chargeable, a person would apart from this subsection be chargeable under section 98 , 99 or 100 on any amount (in this section referred to as “the later chargeable amount”), the amount on which the person is so chargeable shall be the excess, if any, of the later chargeable amount over the appropriate fraction of the prior chargeable amount or, where the lease or disposition by reference to which the person would be so chargeable extends to a part only of that premises, the excess, if any, of the later chargeable amount over so much of the appropriate fraction of the prior chargeable amount as on a just apportionment is attributable to that part of the premises.

(4) (a) In a case in which subsection (3) operates to reduce the amount on which apart from that subsection a person would be chargeable by reference to a lease or disposition, subsection (2) shall apply for the relevant period in relation to the later chargeable amount only if the appropriate fraction of the prior chargeable amount exceeds the later chargeable amount and shall then apply as if the prior chargeable amount were reduced in the proportion which the excess bears to that appropriate fraction.

(b) Notwithstanding paragraph (a). where the lease or disposition extends to a part only of the premises mentioned in subsection (3), subsection (2) and this subsection shall be applied separately in relation to that part and to the remainder of the premises, but as if for any reference to the prior chargeable amount there were substituted a reference to that amount proportionately adjusted.

(5) For the purposes of subsections (3) and (4), the appropriate fraction of the prior chargeable amount shall be the sum which bears to that amount the same proportion as the length of the relevant period in relation to the later chargeable amount bears to the length of the relevant period in relation to the prior chargeable amount.

(6) Where the prior chargeable amount arose under section 98 (2) by reason of an obligation which included the incurring of expenditure in respect of which any allowance has been or will be made under Part 9 , this section shall apply as if the obligation had not included the incurring of that expenditure and the prior chargeable amount had been calculated accordingly

(7) Where the prior chargeable amount arose under section 100 and the reconveyance or grant in question takes place at a price different from that taken in calculating that amount or on a date different from that taken in determining the relevant period in relation to that amount, subsections (1) to (6) shall be deemed to have applied (for all relevant years of assessment) as they would have applied if the actual price or date had been so taken and such adjustments of liability to tax shall be made, by means of additional assessment or otherwise, as may be necessary.

Taxation of certain rents and other payments.

[ITA67 s93(1) and (2); FA69 s29]

104. —(1) (a) This section shall apply to the following payments—

(i) any rent payable in respect of any premises or easements where the premises or easements are used, occupied or enjoyed in connection with any of the concerns the profits or gains arising out of which are chargeable to tax under Case I(b) of Schedule D by virtue of section 18 (2), and

(ii) any yearly interest, annuity or other annual payment reserved in respect of, or charged on or issuing out of any premises, not being a rent or a payment in respect of an easement.

(b) In paragraph (a)(i), the reference to rent shall be deemed to include a reference to a toll, duty, royalty or annual or periodical payment in the nature of rent, whether payable in money, money's worth or otherwise.

(2) (a) Any payment to which this section applies shall—

(i) in so far as it is not within any other Case of Schedule D, be charged with tax under Case IV of that Schedule, and

(ii) be treated for the purposes of sections 81 (2)(m), 237 and 238 as if it were a royalty paid in respect of the user of a patent.

(b) Notwithstanding paragraph (a), where a rent mentioned in subsection (1)(a) is rendered in produce of the concern, this subsection shall apply as if paragraph (a)(ii) were deleted, and the value of the produce so rendered shall be taken to be the amount of profits or gains arising from that produce.

Taxation of rents: restriction in respect of certain rent and interest.

[FA74 s62(1) and (2)]

105. —(1) This section shall apply to—

(a) rent in respect of premises, or

(b) interest on borrowed money employed in the purchase, improvement or repair of premises,

payable by a person chargeable to tax in accordance with section 75 on the profits or gains arising from rent in respect of those premises for a period before the date on which the premises are first occupied by a lessee for the purpose of a trade or undertaking or for use as a residence.

(2) No deduction shall be allowed for any year of assessment under section 97 (2) in respect of rent or interest to which this section applies.

Tax treatment of receipts and outgoings on sale of premises.

[FA69 s26(1) to (4)]

106. —(1) Where by virtue of a contract for the sale of an estate or interest in premises there is to be apportioned between the parties a receipt or outgoing in respect of the estate or interest which becomes due after the making of the contract but before the time at which the apportionment is to be made, and a part of the receipt is therefore receivable by the vendor in trust for the purchaser or, as the case may be, a part of the outgoing is paid by the vendor as trustee for the purchaser, the purchaser shall be treated for the purposes of tax under Case V of Schedule D as if that part had become receivable or payable on the purchaser's behalf immediately after the time at which the apportionment is to be made.

(2) Where by virtue of such a contract there is to be apportioned between the parties a receipt or outgoing in respect of the estate or interest which became due before the making of the contract, the parties shall be treated for the purposes of tax under Case V of Schedule D as if the contract had been entered into before the receipt or outgoing became due, and subsection (1) shall apply accordingly.

(3) Where on the sale of an estate or interest in premises there is apportioned to the vendor a part of a receipt or outgoing in respect of the estate or interest which becomes receivable or is paid by the purchaser after the making of the apportionment, then, for the purposes of tax under Case V of Schedule D—

(a) when the receipt becomes due or, as the case may be, the outgoing is paid, the amount of the receipt or outgoing, as the case may be, shall be treated as reduced by so much of that amount as was apportioned to the vendor, and

(b) the part apportioned to the vendor shall be treated as if it were of the same nature as the receipt or outgoing and had become receivable, or had been paid, directly by the vendor and, where it is a part of an outgoing, had become due, immediately before the time at which the apportionment is made.

(4) Any reference in subsection (1) or (2) to a party to a contract shall include a person to whom the rights and obligations of that party under the contract have passed by assignment or otherwise.