# Will tracker refund and compensation be taxable?



## joestrand (11 Nov 2016)

Is compensation that will be paid by AIB considered liable for taxation by Revenue

Similarly is any interest that will be paid by AIB on overpayments c


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## Sarenco (11 Nov 2016)

Toledo said:


> Remember what I said in a previous post about whiplash, the same applies here!



Hi Toledo

I believe you told us on another thread that you work for Revenue.

I wonder could you tell us what position Revenue is taking on (what may turn out to be) TRS overpayments or whether any compensation payments will be subject to income tax?

Many thanks.


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## Toledo (11 Nov 2016)

In general, court award damages for breach of contract/overpayments are not subject to tax. This is because awards of court-based damages are computed net of tax liability. This means that a contract breaker does not normally pay the gross amount, of, for example, loss of earnings. This rule has arose as a result of caselaw and has not arisen from statute or legislation.

This is however, dependant on the proceeds not being in respect of something which would then be taxable subsequently. This would occur where, for example, compensation payments are made by a financial institution into a payments policy which subsequently matures. The amount of the policy would be subject to tax upon maturity. However, the amount of damages received would not be taxable.


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## Toledo (11 Nov 2016)

In relation to compensation settlements outside the court arena, be careful when signing the agreement that the bank do not put in a clause in the settlement agreement were the financial institution waives all responsibility regarding any tax liability. Presently, Revenue's position is that it will not be making compensation awarded in this regard, subject to income tax.


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## Sarenco (11 Nov 2016)

Many thanks Toledo.

Can you point me to the specific statutory provision that allows Revenue to determine that any extra-judicial redress/compensation payments in this respect are not subject to income tax?

I am aware that there are specific statutory provisions that exempt certain specific extra-judicial redress payments from income tax and I am curious what legislative authority Revenue has for exempting these particular payments from income tax.

I'm confused as to how or why the relevant financial institution making the redress payment could have any possible tax liability for the payment.  Perhaps you could clarify this point?

Also, could you address the issue in relation to possible TRS overpayments as this is undoubtedly a key concern for many impacted borrowers?

Thanks again.


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## Sarenco (11 Nov 2016)

Well, the interpretation of our laws (including tax laws) is actually a function of the Courts under our constitution.

Anyway, I've obviously taken up enough of your time on a Friday evening but I'm sure your input on these issues would be greatly appreciated by affected borrowers given your position so perhaps you could come back to us when you do have some time.


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## Toledo (12 Nov 2016)

Sarenco, just to clarify what I meant in my last post. The interpretation of the T.C.A. is a function of revenue vis a vis the filer of the return and revenue. Revenues interpretation of the Acts towards the filer is the stated position. The filer is of course, within their right to challenge this position through the courts and on instances has won in this regard. I hope this clarifies my last post.

In relation to your query on Tax Relief at Source, the following link from PTSB is quite comprehensive and should answer your questions-  [broken link removed] If, in the unlikely event that it does not, then I suggest you contact trsadmin@revenue.ie as I operate within another area of revenue.


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## Sarenco (12 Nov 2016)

Thanks Toledo but that doesn't really address either of my questions.

Again, the interpretation of our laws (including TCA) rests with our Courts.  Revenue cannot simply decide that a payment is, or is not, taxable - it must have a legislative foundation.  If you don't know the answer that's obviously fine.

The link to the PTSB site doesn't appear to address the question as to what happens where an interest rate is subsequently adjusted such that it transpires that a borrowers has received an overpayment of MIR.  Again, if you don't know the answer to the question that's obviously fine.


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## Toledo (12 Nov 2016)

Ok Sarenco, let us look at a section 110 company structure which has been in the spotlight recently.

Section 110 companies are allowed to calculate profits according to the old Irish generally accepted accounting principles (GAAP 2004) instead of the new Irish GAAP or International Financial Reporting Standards (IFRS). [broken link removed] law firm, which advises Ireland’s National Asset Management Agency and Lone Star, among others, says the legislation was amended after industry successfully lobbied Revenue over concerns that International Accounting Standards “could compromise the profit neutrality of an SPV”.
The 2010 transfer pricing rules do not apply to Section 110 companies.

Total return swaps, where the SPV swaps all of its receipts with another company in its group in return for enough funds to discharge liabilities, should be liable to tax but apparently are not in practice and are used as a profit-extracting mechanism.  “There is  a technical liability to Irish income tax for recipients (i.e. the swap counterparty) who are not resident in a country with which Ireland has a double tax treaty but, in practice, this liability is not enforced by the Irish tax authorities.”

There is an example of revenue using their discretion as to how to apply the TCA, not everything in revenue is black and white. Revenue can and does interpret the TCA.


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## Sarenco (12 Nov 2016)

Sorry Toledo but I'm even more confused now.

Are you saying that Revenue has decided not to pursue any income tax liability that may be due on any redress payment and will not seek to recover any MIR overpayment?  Has this decision been published anywhere?

Hopefully you will appreciate why impacted borrowers are seeking clarity on these matters.


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## Toledo (12 Nov 2016)

No read my post again, you appear to be a clever person. What I am saying is that Revenue interpret the TCA and can amend their application of same, that is all. Phone revenue on Monday and get a definitive answer in relation to your TRS question as I reiterate this is not my area of expertise.


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## Sarenco (12 Nov 2016)

Ok.  So you don't know the answer to either of my questions.  Is that fair?


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## Toledo (12 Nov 2016)

Sarenco said:


> Ok.  So you don't know the answer to either of my questions.  Is that fair?


I have already stated I cannot give you a definitive answer on your questions re TRS  and that maybe you should contact trsadmin@revenue.ie as this is not my area of expertise. However I assert again that revenue can interpret the TCA and amend how they apply them, are we in agreement in this regard ?


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## PadKiss (12 Nov 2016)

Hi all 
In regards to the Revenue questions being raised the following is from the PTSB Redress letter and should be the same for the other lenders 
*"We have been in discussions with the Revenue Commissioners and any tax issues arising are being addressed directly by us. Accordingly, you do not need to take any action in this regard"
*
Hope that clarifies it for people affected Padraic


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## Sarenco (12 Nov 2016)

Toledo

With respect, I didn't ask you whether Revenue could interpret legislation - I asked if you knew whether Revenue had a position on two very specific issues.

At this stage I assume you don't know the answer to either question.  That's obviously fine.


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## Sarenco (12 Nov 2016)

PadKiss said:


> *"We have been in discussions with the Revenue Commissioners and any tax issues arising are being addressed directly by us. Accordingly, you do not need to take any action in this regard"
> *
> Hope that clarifies it for people affected Padraic



Hi Padraic

Could you elaborate on why you think that letter from PTSB clarifies the tax position?  Do we know what position Revenue adopted in their discussions with PTSB and whether any such position is of broader application?

Many thanks.


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## Toledo (12 Nov 2016)

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. Please do not contact me further on this site as refusal to answer posts often offends. The original post was "AIB to pay 15% compensation" and you managed to drag this post well off subject matter much to the annoyance of Brendan Burgess.


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## Toledo (12 Nov 2016)

PadKiss said:


> Hi all
> In regards to the Revenue questions being raised the following is from the PTSB Redress letter and should be the same for the other lenders
> *"We have been in discussions with the Revenue Commissioners and any tax issues arising are being addressed directly by us. Accordingly, you do not need to take any action in this regard"
> *
> Hope that clarifies it for people affected Padraic



Padkiss,

Thank you for the clarification I hope that poster Sarenco can now sleep soundly tonight. ( He is probably not even affected by the subject matter of this thread )


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## Sarenco (12 Nov 2016)

Toledo said:


> 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.


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## Toledo (12 Nov 2016)

Sarenco said:


> 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.
> 
> ...




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 )


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## Sarenco (12 Nov 2016)

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.


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## Toledo (12 Nov 2016)

Just as I will ignore you.


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## Sophrosyne (13 Nov 2016)

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?


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## Sarenco (13 Nov 2016)

Sophrosyne said:


> 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.


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## Jon Stark (13 Nov 2016)

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...


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## Sarenco (14 Nov 2016)

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).


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## Sarenco (15 Nov 2016)

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 (15 Nov 2016)

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 (16 Nov 2016)

Toledo said:


> 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 (16 Nov 2016)

geri said:


> 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.


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## Jon Stark (17 Nov 2016)

Sarenco said:


> 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...


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## Sarenco (17 Nov 2016)

Jon Stark said:


> 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.


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## Sarenco (30 Nov 2016)

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.


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## blured (14 Nov 2017)

Sarenco said:


> 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?



Has there been any discussion on this at all? I'm in this boat, have had my tracker restored, just waiting on redress. If they just apply the over charged interest to the mortgage balance and I have to revise my tax returns for over claimed interest, I'll have to come up with the cash to pay revenue


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## elacsaplau (20 Sep 2018)

Does anyone know the tax treatment where a bank refunded over-charged interest to an individual who was not formally part of the redress scheme?
Alternatively, the name of any tax consultant who specialises in this area?


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## elacsaplau (22 Sep 2018)

Just bumping this on the off chance that someone knows something!


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## WizardDr (22 Sep 2018)

1. What was treatment of previous interest paid as in was it fully / partially / none allowed for tax?

2. Revenue wont reopen previous years.

3. Say Fully allowable: If you get refund say €5k this year - and you have €7k allowable this year then this will be reduced by €5k

Depends on facts.


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## Shakespeare (16 Jan 2019)

Hi
Slightly different bent on this compensation question but I cannot seem to get a proper feel for what's going on here:
Situation:
Customer made complaint about not being allowed lodge funds to a savings account, long story short, bank has agreed to pay the amount of interest that should have been earned on that money over an almost 2 year period. The bank are clear that they are going to pay the net amount that the customer would have received, ie net of the DIRT that would have been paid had the money been in the account earning interest. Fair enough. However, the Bank are adamant that this payment is being called compensation (not refund, not payment of interest etc) and I am concerned that their use of this terminology is deliberate:
1. It may leave me open to a tax claim inspite of it effectively being only a repayment of what should have been earned and net of the DIRT that would have been paid and 
2. It seems that by calling it compensation rather than anything else, that though I get the net amount, there isn't actually anyone ie Revenue getting the DIRT that would have been paid on it earned correctly so this really suits the bank but still may leave me exposed by virtue of the terminology being used

I need to revert to the bank (indirectly) on this and I am concerned about accepting what they are proposing

Can anyone shed any light on this?
Thanks for reading
S


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