The Finance (No. 2) Act 2023 contains new provisions which impose a new reporting obligation in respect of certain loans which come within the scope of a “specified loan” from a “close relative”.

A “close relative” includes the following:

• a parent of the person,
  
• the civil partner of a parent of the person,
  
• a lineal ancestor of the person,
  
• a lineal descendant of the person,
  
• a brother or sister of the person,
  
• a brother or sister of a parent of the person, or
  
• a brother or sister of the civil partner of a parent of the person.

Due to the provisions in the CATCA 2003 which provide for a “look-through” in respect to loans by or to private companies – loans paid to or from companies can come within the scope of the new reporting rules.

What loans come within the scope of the reporting requirements?

A “specified loan” is –

• A loan made directly or indirectly between close relatives (which includes loans coming within scope by virtue of the CAT ‘look-through’ provisions), and
  
• There is no interest paid on the loan or the interest being paid is below the market rate of interest, and
  
• There has been no interest payment within 6 months of the end of the relevant period, and
  
• The total balance outstanding on the loan exceeds €335,000 on at least 1 day in the relevant period.

As per Section 40(1) CATCA 2003, the relevant period referred to above is 1 January to 31 December in the preceding year.

In respect of determining whether the €335,000 threshold is exceeded – all “specified loan” aretaken into account. The threshold would need to be reviewed for each calendar year.

In determining what is the market rate of interest– it is taken to be the best available deposit rate reasonably expected if the funds were to be invested into a deposit account.

What are the reporting obligations?

Where a loan is considered a “specified loan” – the following must be reported by way of a CAT IT38 return:

• The name, address and tax reference number of the person who has made the loan.
  
• The balance amount which is outstanding on the loan.
  
• Certain other information which the Revenue Commissioners may reasonably require.

Timelines for reporting

The new legislation applies from 01 January 2024. In respect of loans coming within the scope of the new reporting requirements the deemed gift arises on 31 December in the relevant year and no interest on the loan has been paid by 30 June in the following year.

Therefore, where for example an individual receives an interest-free loan from a parent on 01 January 2024 and does not pay any interest on this loan by 30 June 2025, a gift in respect of the interest not charged is deemed to arise on 31 December 2024. The CAT return in respect of this loan is due by 31 October 2025.

A CAT IT38 return must be filed to report the loan regardless of whether any CAT liability arises on the loan itself.

The first CAT returns in respect of the new rules will be due by 31 October 2025 (which is in relation to specified loans in the calendar year ending 31 December 2024).

How OmniPro Tax & Legal Can Help: 

At OmniPro Tax & Legal, we understand the complexities of family transactions, business succession planning and related party transactions. We can assist you and your clients in navigating these changes by: 

• Reviewing current loan arrangements: We can review current loan arrangements in place to assess whether they come within the remit of the new reporting requirements. We can advise on ways to ensure the existing loan arrangements fall outside the scope of the new legislation where desired.
  
• Review plans for new loan arrangements between close relatives or to and from private companies where the owner(s) and the lender or person receiving the loan are close relatives: We can analyse the structure of the funding of transactions to assess whether the new reporting obligations arise and advise on the filing requirements.

• Broader integrating CAT review: In circumstances where loans come within the scope of the new reporting requirements – there are likely to be other CAT implications irrespective of whether a CAT liability arises. For example, interest-free loans can utilise small gift exemptions and/or the relevant Group tax-free threshold of an individual. As such, we can provide a detailed review of the overall effect a transaction could have.

Next Steps: 

Where you have clients who have loans in place with close relatives (or certain companies) – we would recommend the above changes are seriously considered.

For a comprehensive review of any client’s financing plans/transactions which involve an element of loan finance – please contact OmniPro Tax and Legal today.

Where you have clients who are considering a business or farm disposal, in particular in respect to a disposal of a family business to a child, – we would recommend the upcoming changes to retirement relief from 01 January 2025 be seriously considered. 

For a comprehensive review of your client’s retirement or business transfer plans and how the changing landscape of Retirement Relief might impact them, please contact OmniPro Tax & Legal today. 

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.