Finance Act, 1982

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Restriction of relief in respect of interest paid on certain loans at a reduced rate.

8.—(1) (a) In this section—

“employee”, in relation to an employer, means an individual employed by the said employer in an employment to which Chapter III of Part V of the Income Tax Act, 1967 , applies including, in a case where the employer is a body corporate, a director, within the meaning of that Chapter, of the body corporate;

“employer”, in relation to an individual, means—

(i) a person of whom the individual or his spouse is an employee,

(ii) a person of whom the individual becomes an employee subsequent to the making of a loan by the person to the individual, and while any part of the loan, or of another loan replacing it, is outstanding,

(iii) a person connected with a person referred to in paragraph (i) or (ii);

“loan” includes any form of credit, and references to a loan include references to any other loan applied directly or indirectly towards the replacement of another loan;

“preferential loan” means a loan, in respect of which no interest is payable or interest is payable at a preferential rate, made directly or indirectly to an individual or his spouse by a person who in relation to the individual is an employer;

“preferential rate” means a rate less than the specified rate;

“the specified rate” means—

(i) subject to paragraph (ii) of this definition, the rate of 12 per cent. per annum or such other rate (if any) as stands prescribed by the Minister for Finance by regulations, or

(ii) in a case where—

(I) a preferential loan is made to an employee by an employer,

(II) the making of loans, for a stated term of years at a rate of interest which does not vary for the duration of the loan, forms part of the trade of the employer, and

(III) the rate of interest at which the employer in the course of his trade at the time the preferential loan is or was made makes or made loans at arm's length to persons, other than employees, for the purposes of purchasing a dwelling-house for occupation by the borrower as a residence is less than 12 per cent. per annum,

the first-mentioned rate in subparagraph (III).

(b) For the purposes of this section a person shall be regarded as connected with another person if he would be so regarded for the purposes of section 8 of the Finance Act, 1978 .

(c) In this section a reference to a loan being made by a person includes a reference to a person assuming the rights and liabilities of the person who originally made the loan and to a person arranging, guaranteeing or in any way facilitating a loan or the continuation of a loan already in existence.

(2) Where an individual has, at any time during a year of assessment, being the year 1982-83 or any subsequent year of assessment, a preferential loan or loans made directly or indirectly to him by a person who, at the time the loan is made, is, or at a time subsequent to the making of the loan, becomes, an employer in relation to the individual, the individual shall, subject to the provisions of subsection (4), be regarded for the purposes of section 110 of the Income Tax Act, 1967 , or, in a case where profits or gains from an employment with that person would be chargeable to tax under Case III of Schedule D, for the purposes of a charge to tax under the said Case III, as having received in that year of assessment as a perquisite of an office or employment with that person a sum equal to—

(a) if no interest is payable on the preferential loan or loans, the amount of interest which would have been payable in that year, if interest had been payable on the loan or loans at the specified rate, or

(b) if interest is paid or payable at a preferential rate or rates, the difference between the aggregate amount of interest paid or payable in that year and the amount of interest which would have been payable in that year, if interest had been payable on the loan or loans at the specified rate,

and the individual or, in the case of an individual who is a wife whose husband is chargeable to tax for the year of assessment in accordance with the provisions of section 194 of the Income Tax Act, 1967 , the husband of the individual, shall be charged to tax accordingly.

(3) Where an individual has a loan made to him directly or indirectly in the year 1982-83 or any subsequent year of assessment, by a person who, at the time the loan is made or at a time subsequent to the making of the loan, is or becomes an employer in relation to the individual and the loan or any interest payable on the loan is released or written off, in whole or in part, the individual shall be deemed for the purposes of section 110 of the Income Tax Act, 1967 , or in a case where profits or gains from an employment with that person would be chargeable to tax under Case III of Schedule D for the purposes of a charge to tax under the said Case III, to have received in the year of assessment in which the release or writing off took place as a perquisite of an office or employment with that person a sum equal to that which is released or written off and the individual or, in the case of an individual who is a wife whose husband is chargeable to tax for the year of assessment in accordance with the provisions of section 194 of the Income Tax Act, 1967 , the husband of the individual shall be charged to tax accordingly.

(4) Where for any year of assessment a sum is chargeable to tax under subsection (2) in respect of a preferential loan or loans or under subsection (3) in respect of an amount of interest written off or released, the individual to whom the loan or loans were made shall be deemed, for the purposes of sections 76 (1) and 496 of, and paragraph 1 (2) of Part III of Schedule 6 to, the Income Tax Act, 1967 , to have paid in the year of assessment an amount or additional amount of interest, as the case may be, on the loan or loans equal to the said sum or the individual by whom the interest written off or released was payable shall be deemed for the said purposes to have paid in the year of assessment the interest released or written off.

(5) This section shall not apply to a loan made by an employer, being an individual, and shown to have been made in the normal course of his domestic, family or personal relationships.

(6) Section 178 (1) of the Income Tax Act, 1967 , is hereby amended by the substitution for paragraph (aa) of the following paragraph—

“(aa) particulars of any preferential loan, within the meaning of section 8 of the Finance Act, 1982, which is made, released or written off by him, in whole or in part, and particulars of any interest released, written off or refunded by him in whole or in part and which was payable or paid on a preferential loan; and”.

(7) Any amount chargeable to tax by virtue of this section shall not be emoluments for the purpose of section 138B of the Income Tax Act, 1967 .

(8) Section 10 of the Finance Act, 1979 , shall not apply or have effect in relation to the year 1982-83 or any subsequent year of assessment.

(9) Every regulation made under this section shall be laid before Dáil Éireann as soon as may be after it is made and, if a resolution annulling the regulation is passed by Dáil Éireann within the next twenty-one days on which Dáil Éireann has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.