Revenue Tax Briefing

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Revenue Tax Briefing Issue 43, April 2001

Finance Act 2001 - Taxation of Credit Unions Dividends and Interest

Section 57 amends the TCA 1997 in order to provide for the measures announced in the 2001 Budget in relation to the tax treatment of credit union dividends and interest and in relation to tax exemptions for certain medium and long-term accounts held in credit unions and other financial institutions.

Under existing arrangements, there are two types of account in credit unions - regular share accounts and deposit accounts. The Budget measures provide for the creation of two additional types of account - a special share account and a special term share account. The present tax treatment of regular share accounts - liability of credit union members to declare dividends to the Revenue Commissioners and pay tax thereon at one’s marginal rate of tax - will remain the same under the new measures; the existing similar liability for deposit account interest will be replaced however by the automatic deduction of Retention tax. As regards the new special share and special term share accounts, the tax treatment of which is set out below, these are being created solely for the purposes of giving effect to the taxation provisions and do not create any new rights for the purposes of the Credit Union Act 1997. While one of the conditions attaching to the special term share account is that no more than ₤500 per month can be deposited in such an account, there will be no restriction on a credit union member depositing any amount in excess of this sum in any of the other accounts i.e. a deposit account, regular share account or special share account.

The section provides that a credit union member:

  1. will be liable to pay DIRT on deposit interest at the standard rate of tax
  2. may opt to hold shares in a special share account, the dividends from which will be liable to DIRT at 20%, and
  3. where the member is an individual, may opt to hold shares in a special term share account for a term of either 3 or 5 years. A tax exemption will apply for the first ₤375 p.a. of dividends received where the funds are invested for a minimum of three years and for the first ₤500 p.a. of dividends received where the funds are invested for five years. These amounts are reflected as ₤278 and ₤370 respectively for the short tax “year” 2001 and as €480 and €635 respectively for subsequent tax years. Any dividends received in excess of these amounts will be liable to DIRT at 20%. The section further provides that equivalent tax exemptions will apply in relation to interest on deposits held in special 3 and 5 year term accounts with other relevant deposit-taking financial institutions. Annual returns, with details of new special term account holders, must be made by the credit unions and the financial institutions to the Revenue Commissioners.

The provisions of this section will commence by way of an Order to be made by the Minister for Finance.