Tax Appeals Commission determination 115TACD2021 regarding Income Tax - CGT, 2021

• Administrative Decision Number: 115TACD2021
• Date: 28 July 2021
• Subject Matter: Income Tax - CGT
• Appellant: REVENUE COMMISSIONERS
• Respondent: Appellant

LAURENCE HANLEY

Appellant

V

REVENUE COMMISSIONERS

Respondent

DETERMINATION

Introduction

1. Following the execution of a Compromise Agreement and the termination of

employment with (the Firm), the Appellant became

entitled to settlement payment (Payment) of €180,000. It is the Respondent’s position

that the entire Payment be subject to income tax pursuant to Taxes Consolidation Act

1997 (TCA), section 123 as a payment received on the retirement or removal from an

office or employment.

2. The Appellant accepted that while some of the Payment could be liable to income tax

under TCA, section 123, he argued that a significant proportion of the Payment was

exempt from tax based on the following provisions:

(a) TCA, section 201(2)(a)(i)(II) as a payment received “on account of injury to or

disability of the holder of an office or employment”,

(b) TCA, section 192A as a payment made under relevant employment legislation

providing for the protection of employees, or

(c) TCA, section 613(1)(c) as “compensation or damages for any wrong or injury

suffered by an individual in his or her person or in his or her profession”

Legislation

3. Subject to the certain statutorily prescribed exemptions, TCA, section 123 imposes a

charge to tax under Schedule E in respect of, inter alia, compensation payments for

loss of office where those payments would otherwise escape tax under the general

115TACD2021

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charging provision, TCA, section 112. The relevant provisions of TCA, section 123

provides as follows:

(1) This section shall apply to any payment (not otherwise chargeable to income tax)

which is made, whether in pursuance of any legal obligation or not, either direc tly

or indirectly in consideration or in consequence of, or otherwise in connection

with, the termination of the holding of an office or employment or any change in

its functions or emoluments, including any payment in commutation of annual or

periodical payments (whether chargeable to tax or not) which would otherwise

have been so made.

(2) Subject to section 201, income tax shall be charged under Schedule E in respect of

any payment to which this section applies made to the holder or past holder of

any office or employment, or to his or her executors or administrators, whether

made by the person under whom he or she holds or held the office or

employment or by any other person.

4. The charge to tax in accordance with TCA, section 123 can be ameliorated by the

exemptions and reliefs contained within TCA, section 201 and Schedule 3.The

Appellant sought to be exempt from income in accordance with TCA, section 201(2)(a)

which states:

“Income tax shall not be charged by virtue of section 123 in respect of the following

payments:

(i) an amount not exceeding €200,000 of any payment made—

(I) in connection with the termination of t he holding of an office or

employment by the death of the holder, or

(II) on account of injury to or disability of the holder of an office or

employment”

5. Certain other payments are also exempt from tax in accordance with TCA, section 192A

where those payments are made, inter alia, to an employee by the employer or former

employer under a ‘relevant Act’ in respect of a recommendation, decision or

determination under that Act by a ‘relevant authority’. The exemption also extends to

a settlement arrived at under a mediation process provided for in a relevant Act.

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6. The definitions of ‘relevant Act’ and ‘relevant authority’ are contained in TCA, section

192A(1). A ‘relevant authority’ includes inter alia, employment based Commissions,

Tribunals and Courts, including the High Court. The following subsections set out the

type of payments that are exempt from tax:

(2) Subject to subsections (3) and (5), this section applies to a payment under a

relevant Act, to an employee or former employee by his or her employer or former

employer, as the case may be, which is made, on or after 4 February 2004, in

accordance with a recommendation, decision or a determination by a relevant

authority in accordance with the provisions of that Act.

(3) A payment made in accordance with a settlement arrived at under a mediation

process provided for in a relevant Act shall be treated as if it had been made in

accordance with a recommendation, decision or determination under that Act of

a relevant authority.

(4) (a)Subject to subsection (5) and without prejudice to any of the terms or

conditions of an agreement referred to in this subsection, this section shall apply

to a payment –

(i) made, on or after 4 February 2004, under an agreement evidenced in

writing, being an agreement between persons who are not connected with

each other (within the meaning of section 10), in settlement of a claim

which –

(I) had it been made to a relevant authority, would have been a bona

fide claim made under the provisions of a relevant Act,

(II) is evidenced in writing, and

(III) had the claim not been settled by the agreement, is likely to have

been the subject of a recommendation, decision or determination

under that Act by a relevant authority that a payment be made to the

person making the claim,

(ii) the amount of which does not exceed the maximum payment which, in

accordance with a decision or determination by a relevant authority (other

than the Circuit Court or the High Court) u nder the relevant Act, could

have been made under that Act in relation t o the claim, had the claim not

been settled by agreement, and

(iii) where –