439 Effect of release, etc of debt in respect of loan under section 438

Summary

This section provides that where a company which has been assessed to income tax under section 438 releases or writes off the whole or part of the debt created by the loan or advance, the person benefiting by that release is regarded as having received at the time of the release income of an amount which after deduction of income tax at the standard rate is equal to the amount written off or released. For example, if the amount of the debt written off is €8,000 and the standard rate is 20 per cent, the amount to be treated as income of the person who benefits will be —

The section, however, provides that the income tax so attributed is not repayable and that the amount treated as income is not charged to income tax at the standard rate but is included in total income chargeable to tax at the higher rate, subject to a credit for the tax at the standard rate. The amount released is not available to relieve the recipient of any obligation to account for tax on any annual payments made by him/her.

Details

(1)(a) Where a company, which has been or is liable to be assessed under section 438 in respect of a loan or advance, releases or writes off the whole or part of the debt thus created, the person to whom the loan or advance was made is regarded, for the purposes of computing his/her total income, as having received at that time income of an amount which after deduction of income tax at the standard rate is equal to the amount released or written off.

(1)(b) The income tax notionally deducted under this procedure is not repayable.

(1)(c) The income tax so notionally deducted is not available to relieve the recipient of any obligation to account for tax on annual payments made by him/her.

(1)(d) In respect of any part of the amount released which is charged at less than the standard rate of income tax the tax credit is not to exceed the amount of tax charged, and in respect of any part of the amount released which is charged at standard rate or higher rate the tax credit is equal to tax at the standard rate on the amount so charged.

(2) Where a loan to which section 438 applies was made to a person who has died or to the trustees of a trust which has terminated, and all or part of the loan is written off, the deemed income represented by the debt released is regarded as income of the estate or the beneficiary, as the case may be, at that time. Where the loan is written off to the benefit of the estate of a deceased person which is under administration, the income is treated as chargeable to income tax at the higher rate.

(3) This section and section 438 are to be construed together.

Relevant Date: Finance Act 2021