Effective January 1, 2024, a new mandatory reporting obligation under Capital Acquisitions Tax (CAT) is enforced on individuals who receive specific loans from close relatives. This requirement mandates recipients to file necessary documentation regarding these loans. This obligation aims to enhance transparency and compliance within familial financial transactions, ensuring proper tax reporting and adherence to regulatory standards. By implementing this measure, authorities seek to monitor and regulate interfamily loans, contributing to a more robust taxation framework and equitable distribution of tax liabilities.
A Capital Acquisition Tax return must be filed by a person who is deemed to have taken a gift in respect of the use and enjoyment of a specified loan made by a close relative.
According to the Companies Act, close relative loans involve family members serving as guarantors, including parents, children, spouses, siblings, and their respective spouses, step relatives, and in-law relatives.
Look through provisions will be applied to loans made by or to private companies to determine if the loan is ultimately being made to a recipient by a close relative.
The holding of any shares in a private company is sufficient for the look through provisions to apply.
A loan is any loan, advance or form of credit and need not be in writing.
All specified loans must be aggregated from various close relatives to determine if the threshold amount of €335,000 has been exceeded. If interest has been paid on any of the loans they need not be included.
The recipient must file a return if:
- he/she is deemed to have taken an annual gift in accordance with Section 40(2) CATCA 2003
- no interest has been paid on the loan within 6 months of the end of the relevant period in which the gift is deemed to have been taken and
- the balance outstanding on the specified loan(s) exceeds €335,000 on at least 1 day.
The Section does not specify any minimum amount of interest to be paid and not just accrued. Interest should be paid in each relevant period, and not just on a once off basis, for a loan not to be reported in respect of that period.
