Will tracker refund and compensation be taxable?

Sarenco

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There you have it Sarenco, look likes the banks are taking any hit in this regard, you got your answer and I got mine, that being that you are not man enough to admit revenue can interpret the TCA and apply same and that we are not hamstrung by legislation as you contend.
No, unfortunately I didn't get answers to either of my specific questions. :(

In case you misinterpreted my questions, I simply asked whether you knew (given your position) whether Revenue had taken a position on any potential income tax liability on redress payments from AIB or whether they would seek to recover any TRS overpayments.

You very clearly don't know the answer to either of my questions. Again, that's obviously fine.

Of course Revenue can form their own view on the correct interpretation of any legislative provision. So can everybody else! However, only the Courts can give a definitive interpretation. The idea that Revenue can simply ignore legislation is risible.

All we know is that PTSB told affected borrowers that they were in discussions with Revenue. Did Revenue agree not to pursue any tax liabilities that would arise as a result of the redress scheme? Did PTSB agree to meet any such tax liabilities? I've no idea and I strongly suspect you don't either.
 
T

Toledo

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No, unfortunately I didn't get answers to either of my specific questions. :(

In case you misinterpreted my questions, I simply asked whether you knew (given your position) whether Revenue had taken a position on any potential income tax liability on redress payments from AIB or whether they would seek to recover any TRS overpayments.

You very clearly don't know the answer to either of my questions. Again, that's obviously fine.

Of course Revenue can form their own view on the correct interpretation of any legislative provision. So can everybody else! However, only the Courts can give a definitive interpretation. The idea that Revenue can simply ignore legislation is risible.

All we know is that PTSB told affected borrowers that they were in discussions with Revenue. Did Revenue agree not to pursue any tax liabilities that would arise as a result of the redress scheme? Did PTSB agree to meet any such tax liabilities? I've no idea and I strongly suspect you don't either.

Sarenco,

I never said revenue can ignore legislation, be very careful what you say in this regard as one might take up the matter in the wrong way. You need to read back over the previous posts, I have changed my mind about you, you are not a clever man at all, but you think you are. What revenue discusses with financial institutions is confidential and, how shall I say it, is absolutely none of your business. I will give you some credit however, you are a master at attempting to twist what people have said ( A true sophist so as to speak, well done, that is the only honour I will bestow upon you )
 

Sarenco

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Toledo

I asked you two very simple questions. You either can't or won't answer those questions.

You said that Revenue are not "hamstrung" by legislation. I assumed you meant that Revenue could therefore simply ignore legislation but perhaps not.

In any event, what specific legislative provisions do you believe Revenue are "interpreting" in these circumstances?

I will ignore the abusive remarks.
 

Sophrosyne

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As he will know, I don’t often agree with Sarenco.

In this instance however, I agree with him in that the PTSB redress letter does not clarify the situation for borrowers entitled to compensation.

Since so many people are affected, I am also surprised that Revenue has not published on its website details of how it will treat compensation payments and excess mortgage interest relief.

The redress letter states that PTSB have had discussions with Revenue and that they (PTSB) are addressing any tax issues.

What, precisely, does that mean?

What are the tax issues and how are PTSB addressing them?
 

Sarenco

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Since so many people are affected, I am also surprised that Revenue has not published on its website details of how it will treat compensation payments and excess mortgage interest relief.
Absolutely agree.

This has been a "live" issue now for over 18 months - Revenue should really clarify their proposed approach as a matter of some urgency.
 
J

Jon Stark

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Common sense would suggest the only practical way the thing can be addressed is by the financial institutions settling whatever aggregate tax liabilities are estimated to arise - the alternative, from Revenue's perspective (chasing thousands of people for relatively small amounts of money) doesn't seem at all appealing...
 

Sarenco

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Yes, I certainly agree that it would make sense from an administrative perspective for the financial institutions concerned to make any refunds of excessive interest payments net of any TRS overpayments and to remit same directly to Revenue.

Obviously that doesn't address the taxation of the compensation element of any redress payments (ie any redress payments over and above the refunding of excessive interest payments, net of TRS deductions).
 

Sarenco

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It's certainly possible that the relevant financial institutions will agree to "gross up" any compensation payments to address any TRS overpayments and will remit same directly to Revenue.

However, that could prove a pyrrhic victory for a borrower if the amount of the compensation payment (over and above the refunded interest) is itself taxable at the borrower's marginal tax rate.

For example, in the UK the compensation payments arising from the PPI scandal (over and above the refunded premiums) were taxable and the amounts involved were far from trivial. Perhaps the compensation payments in this case can be distinguished from the PPI compensation payments but it's not immediately obvious to me why this would be the case.

It's also worth noting that most statutory redress schemes (HepC, residential institutions, etc) specifically provide that redress payments under those schemes are not taxable. The statute establishing the scheme provides that any redress payments are treated in all respects as if it were a payment made following the institution, by or on behalf of the applicant to whom the payment is made, of a civil action for damages in respect of personal injury, which is not taxable. That is obviously not the case here.
 
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geri

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maybe this has been raised an answered alreday but what will happen to those people who would have used mortgage interest payments to off-set tax liability in rental income computations? and are now in line for refunds of interest overpayment
 
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Sophrosyne

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Looks like the financial institutions will take the tax liability hit, but some banks are dragging their heels on the issue, hence no formal instruction from revenue yet
Hi Toledo,

Even if they were willing to do so, as far as I am aware, there is nothing in the taxes acts which would permit a person (including a bank or any other entity) to be made liable for taxes correctly incurred by other persons or individuals (in this case, borrowers).

I think, therefore, that the only logical way that Revenue could deal with this would be to instruct lenders to reduce individual borrower compensation payments by tax due, if any, plus any excess mortgage interest relief.
 
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Sarenco

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maybe this has been raised an answered alreday but what will happen to those people who would have used mortgage interest payments to off-set tax liability in rental income computations? and are now in line for refunds of interest overpayment
That's a very good point. Would such borrowers have to submit amended tax returns? I'm afraid I've no idea.
 

PadKiss

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Hi Danika Yes and as I stated above last Saturday it appears that all lenders will have to treat affected customers the same as the customers in the PTSB Redress Process, some might look to take differing positions but the circumstance is already established with PTSB I should have more confirmation of this in the coming weeks Padraic
 
J

Jon Stark

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That's a very good point. Would such borrowers have to submit amended tax returns? I'm afraid I've no idea.
Revenue, under the care and management provisions of the Taxes acts, have very broad powers to do what is "necessary and expedient" in the raising and collecting of taxes. If they reach an agreement with the financial institutions as to how they (the banks) will deal with the global tax liabilities arising, then surely that would be the best all round...
 

Sarenco

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If they reach an agreement with the financial institutions as to how they (the banks) will deal with the global tax liabilities arising, then surely that would be the best all round...
Well, even if that was agreed in principle, the financial institutions obviously have no visibility on the tax position of their individual customers (and in many cases they won't even know whether a particular mortgaged property is a PDH or a rental). In other words, practically how do you arrive at even a ball park estimate the "global" tax position?

Also, is there not an issue of fairness if one borrower gets a greater tax benefit than another in terms of the treatment of the redress payments?

Just to be clear, I am not expressing any opinion on what ought to happen - I just think there should be transparency regarding the Revenue's position.
 

Brendan Burgess

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Michael McGrath has got the following answer in the Dáil



QUESTION NO: 75
DÁIL QUESTION addressed to the Minister for Finance (Deputy Michael Noonan)
by Deputy Michael McGrath
for WRITTEN ANSWER on 23/11/2016


To ask the Minister for Finance if he will address a taxation query (details supplied).

REPLY.



It is understood the matter referred to by the Deputy concerns a redress scheme for customers of a financial institution relating to access to tracker mortgages. Before determining the tax consequences on this matter the Revenue Commissioners have advised me that they would need to examine the detailed documentation. However, it is also understood that should a tax liability attach to any element of the redress scheme, the tax liability will be discharged by the relevant financial institution.
 

Sarenco

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Assuming the financial institution referenced in the response is PTSB, that answer doesn't really provide any additional clarity - it's very much a holding response.

We still don't know how (what subsequently turn out to be) excessive reliefs or deductions already claimed by borrowers will be handled by Revenue and/or the financial institutions concerned.
 

Brendan Burgess

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Sarenco

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That document is dated December 2015 and there is still zero clarity as to how the multiple tax issues arising from this mess are going to be addressed. Has the Central Bank asked the banks for an update on this matter following their discussions with Revenue?

Take the example of a borrower that was overcharged interest on a BTL mortgage and claimed the excess interest as a deduction on his income tax returns. How will that matter now be settled with Revenue?

Will there be some sort of an amnesty? If so, that means the value of the redress/compensation will be dependent on the tax position of the impacted borrower. Does that seem fair?
 
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