Finance Act, 2001

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Taxation of certain savings in credit unions and other financial institutions.

57.—(1) The Principal Act is amended—

(a) in Part 8—

(i) in section 256(1)—

(I) by the substitution for paragraph (a) of the definition of “appropriate tax” of the following:

“(a) in the case of interest paid in respect of a relevant deposit or relevant deposits held in—

(i) a special savings account, or

(ii) a special term account,

at the rate of 20 per cent,”,

(II) by the insertion after the definition of “building society” of the following:

“‘credit union’ means a society registered under the Credit Union Act, 1997 , including a society deemed to be so registered under section 5(3) of that Act;”,

(III) by the insertion after the definition of “interest” of the following:

“‘long term account’ means an account opened by an individual with a relevant deposit taker on terms under which the individual has agreed that each relevant deposit held in the account is to be held in the account for a period of not less than 5 years;

‘medium term account’ means an account opened by an individual with a relevant deposit taker on terms under which the individual has agreed that each relevant deposit held in the account is to be held in the account for a period of not less than 3 years;”,

(IV) by the insertion in the definition of “relevant deposit taker” after paragraph (c) of the following:

“(ca) a credit union,”,

(V) by the substitution for the definition of “relevant interest” of the following:

“‘relevant interest’ means, subject to section 261A, interest paid in respect of a relevant deposit;”,

(VI) by the substitution in paragraph (b) of the definition of “special savings account” of “deposit taker;” for “deposit taker.”, and

(VII) by the insertion after the definition of “special savings account” of the following:

“‘special term account’ means—

(a) a medium term account, or

(b) a long term account,

being an account in which a relevant deposit or relevant deposits made by an individual is or are held and in respect of which—

(i) the conditions specified in section 264A(1) are satisfied, and

(ii) a declaration of the kind mentioned in section 264A(2) has been made to the relevant deposit taker.”,

(ii) by the insertion after section 261 of the following:

“Taxation of interest on special term accounts.

261A.—(1) Where interest is paid by a relevant deposit taker in respect of a relevant deposit held in a special term account, such interest shall be relevant interest for the purposes of this Chapter only to the extent provided for in this section.

(2) Interest paid in a year of assessment in respect of a relevant deposit held in a medium term account shall be relevant interest only to the extent that such interest exceeds £278.

(3) Interest paid in a year of assessment in respect of a relevant deposit held in a long term account shall be relevant interest only to the extent that such interest exceeds £370.

(4) Where an individual opens a medium term account, the individual may subsequently make an election in writing to the relevant deposit taker to have the account converted to a long term account.

(5) Where an election is made in accordance with subsection (4), interest paid in a year of assessment which commences on or after the date the election is made shall be relevant interest only to the extent that such interest exceeds £370.

(6) Subject to subsection (8), section 261 shall apply in relation to any relevant interest paid in respect of a relevant deposit held in a special term account, as if the following paragraph were substituted for paragraph (c) of that section:

‘(c) the amount of any payment of relevant interest paid in respect of any relevant deposit held in a special term account shall not, except for the purposes of a claim to repayment under section 267(3) in respect of the appropriate tax deducted from such relevant interest, be reckoned in computing total income for the purposes of the Income Tax Acts;’.

(7) An account shall cease to be a special term account if any of the conditions specified in section 264A(1) cease to be satisfied, and where that occurs—

(a) all interest paid on or after the occurrence in respect of relevant deposits held in the account shall be relevant interest,

(b) all interest (in this paragraph referred to as ‘past interest’) paid prior to the occurrence, in respect of relevant deposits held in the account, shall be treated by the relevant deposit taker as relevant interest to the extent that such interest has not already been treated as relevant interest, and—

(i) the provisions of section 257(1) shall apply as if the payment of past interest was being made on the date of the occurrence, and

(ii) where on that date the past interest has already been withdrawn from the account—

(I) the relevant deposit taker shall deduct from the relevant deposits held in the account on that date, an amount equal to the amount of the appropriate tax which would have been deducted from the past interest under subparagraph (i), but for the withdrawal, and such amount shall be treated as appropriate tax, and

(II) the provisions of paragraphs (b) and (c) of section 257(1) shall apply to such deduction as they apply to a deduction from relevant interest.

(8) Subsection (6) shall not apply to any interest in respect of any relevant deposit held in the account which is paid, or by virtue of subsection (7) treated as paid, on or after the date on which the account ceases to be a special term account.”,

(iii) in section 261A (as inserted by subparagraph (ii)), as respects the year of assessment 2002 and subsequent years of assessment, by the substitution—

(I) in subsection (2) of “€480” for “£278”, and

(II) in subsections (3) and (5) of “€635” for “£370”,

(iv) by the insertion after section 264 of the following:

“Conditions and declarations relating to special term accounts.

264A.—(1) The following are the conditions referred to in subparagraph (i) of the definition of ‘special term account’ in section 256(1):

(a) the account shall be opened and designated by the relevant deposit taker as a medium term account or, as the case may be, a long term account;

(b) the account shall not be denominated in a foreign currency;

(c) the account shall not be connected with any other account held by the account holder or any other person; and for this purpose an account shall be connected with another account if—

(i) (I) either account was opened with reference to the other account, or with a view to enabling the other account to be opened on particular terms, or with a view to facilitating the opening of the other account on particular terms, and

(II) the terms on which either account was opened would have been significantly less favourable to the account holder if the other account had not been opened,

(ii) the terms on which either account is operated are altered or affected in any way whatever because of the existence of the other account;

(d) all relevant deposits held in the account shall be subject to the same terms;

(e) there shall not be any agreement, arrangement or understanding in existence, whether express or implied, which influences or determines, or could influence or determine, the rate (other than an unspecified and variable rate) of interest which is paid or payable, in respect of the relevant deposit or relevant deposits held in the account, in or in respect of any period which is more than 12 months;

(f) interest paid or payable in respect of the relevant deposit or relevant deposits held in the account shall not directly or indirectly be linked to or determined by any change in the price or value of any shares, stocks, debentures or securities listed on a stock exchange or dealt in on an unlisted securities market;

(g) the account shall not be opened by or held in the name of an individual who is under 16 years of age;

(h) the account shall be opened by and held in the name of the individual beneficially entitled to the relevant interest payable in respect of the relevant deposit or relevant deposits held in the account;

(i) the account may be held jointly by not more than 2 individuals;

(j) subject to paragraph (k), an individual shall not simultaneously hold, whether solely or jointly, another special term account;

(k) where the account is held jointly by individuals who are married to each other they may simultaneously hold one other such account jointly;

(l) subject to paragraphs (m) and (n), the amount of a deposit or the aggregate amount of deposits which may be made to an account in any one month shall not exceed £500;

(m) at the time an individual opens an account with a relevant deposit taker, a deposit consisting of all or part of the relevant deposits of the individual which are at that time held by the same relevant deposit taker, may be transferred to the account;

(n) otherwise than by way of a transfer under paragraph (m), a deposit of not more than £6,000 may be made by an individual once and only once to an account during the period in which the account is a special term account;

(o) any interest credited to the account by the relevant deposit taker shall not be treated as a deposit for the purposes of paragraph (l) or (p), but such interest may not be withdrawn from the account, otherwise than in accordance with paragraph (q), unless the withdrawal is made within the period of 12 months from the date it was so credited;

(p) subject to paragraph (q), a deposit may not be withdrawn from an account held by an individual within—

(i) 3 years from the date the deposit was made, in the case of a medium term account, and

(ii) 5 years from the date the deposit was made, in the case of a long term account,

otherwise than on the death of the individual or, where the account is an account held jointly by 2 individuals, on the death of one of them;

(q) one and only one withdrawal may be made from an account by an individual who is 60 years of age or over on the date of the withdrawal, provided that the account was opened when the individual was under that age.

(2) The declaration referred to in subparagraph (ii) of the definition of ‘special term account’ in section 256(1) shall be a declaration in writing to a relevant deposit taker which—

(a) is made by the individual (in this subsection referred to as ‘the declarer’) who holds the account in respect of which the declaration is made is payable,

(b) is signed by the declarer,

(d) declares that at the time when the declaration is made the conditions referred to in paragraphs (g), (h), (j) and (k) of subsection (1) are satisfied in relation to the account in respect of which the declaration is made,

(e) contains the full name and address of the declarer,

(f) contains an undertaking by the declarer that, if the conditions referred to in paragraphs (g), (h), (j) and (k) of subsection (1) cease to be satisfied in respect of the account in respect of which the declaration is made, the declarer will notify the relevant deposit taker accordingly, and

(g) contains such other information as the Revenue Commissioners may reasonably require for the purposes of this Chapter.

(3) Section 263(2) shall apply as respects declarations of the kind mentioned in this section as it applies as respects declarations of the kind mentioned in that section.

Returns of special term accounts by relevant deposit takers.

264B.—(1) In this section ‘appropriate inspector’ means—

(a) the inspector who has last given notice in writing to the relevant deposit taker that he or she is the inspector to whom the relevant deposit taker is required to deliver the return referred to in subsection (2), or

(b) where there is no such inspector as is referred to in paragraph (a), the inspector of returns specified in section 950.

(2) On or before 31 March in each year of assessment, every relevant deposit taker shall prepare and deliver to the appropriate inspector a return, in such form as may be prescribed or authorised by the Revenue Commissioners specifying—

(a) the name and address of the holder or holders, as the case may be, of each special term account which was opened during the previous year of assessment,

(b) whether such account is a medium term account or a long term account, and

(3) Sections 1052 and 1054 shall apply to a failure by a relevant deposit taker to deliver a return required by subsection (2) and to each and every such failure, as they apply to a failure to deliver a return referred to in section 1052.”,

(v) in section 264A(1) (inserted by subparagraph (iv)), as respects the year of assessment 2002 and subsequent years of assessment, by the substitution—

(I) in paragraph (l) of “€635” for “£500”, and

(II) in paragraph (n) of “€7,620” for “£6,000”,

(vi) by the insertion after Chapter 4 of the following:

“Chapter 5

Dividend Payments by Credit Unions

Interpretation (Chapter 5).

267A.—(1) In this Chapter—

‘appropriate tax’ has the same meaning as in section 256(1);

‘dividend’ means a dividend on shares declared by a credit union at an annual general meeting of that credit union;

‘long term share account’ means an account opened by a member (being an individual) with a credit union on terms under which the member has agreed that each share subscribed for by the member to be held in the account is to be held in the account for a period of not less than 5 years;

‘medium term share account’ means an account opened by a member (being an individual) with a credit union on terms under which the member has agreed that each share subscribed for by the member to be held in the account is to be held in the account for a period of not less than 3 years;

‘relevant deposit’ has the same meaning as in section 256(1);

‘relevant deposit taker’ has the same meaning as in section 256(1);

‘relevant interest’ has the same meaning as in section 256(1);

‘savings’ includes shares and deposits;

‘share’ has the same meaning as in section 2 (1) of the Credit Union Act, 1997 ;

‘special share account’ means an account in which shares subscribed for by a member are held by a credit union on terms under which the member has agreed with the credit union that for the purposes of Chapter 4 of this Part—

(a) the value of the shares held in the account at any time is to be treated as an amount of a relevant deposit held by the credit union at that time, and

(b) the value of any dividend paid on those shares at any time is to be treated as an amount of relevant interest paid in respect of such relevant deposit by the credit union at that time;

‘special term share account’ means—

(a) a medium term share account, or

(b) a long term share account,

being an account in which shares subscribed for by a member are held by a credit union and in respect of which—

(i) the conditions specified in section 267D(1) are satisfied, and

(ii) a declaration of the kind mentioned in section 267D(2) has been made to the credit union.

Election to open a special share account or a special term share account.

267B.—(1) A person, who is a member or is about to become a member of a credit union, may either or both—

(a) make an election in writing to the credit union to open an account which is a special share account, and

(b) where the person is an individual, make an election in writing to the credit union to open either a medium term share account or a long term share account.

(2) Where an election is made in accordance with subsection (1)(a), the credit union shall designate the account as a special share account and shall treat—

(a) the value of the shares held in the account at any time, as an amount of a relevant deposit held by it at that time, and

(b) the value of any dividend paid on those shares at any time, as an amount of relevant interest paid at that time in respect of such relevant deposit and the provisions of Chapter 4 of this Part shall apply to such relevant interest treated as paid by a credit union as they apply to relevant interest paid by a relevant deposit taker, and the appropriate tax in respect of such relevant interest shall be at a rate of 20 per cent.

(3) Where an election is made in accordance with subsection (1)(b), the credit union shall treat—

(a) the value of the shares held in the account at any time, as an amount of a relevant deposit held by it at that time, and

(b) subject to section 267C, the value of any dividend paid on those shares at any time, as an amount of relevant interest paid at that time in respect of such relevant deposit and the provisions of Chapter 4 of this Part shall apply to such relevant interest treated as paid by the credit union as they apply to relevant interest paid by a relevant deposit taker, and the appropriate tax in respect of such relevant interest shall be at a rate of 20 per cent.

Taxation of dividends on special term share accounts.

267C.—(1) The value of the dividend paid in a year of assessment on shares held in a medium term share account, shall be treated as an amount of relevant interest paid in that year of assessment, only to the extent that such value exceeds £278.

(2) The value of the dividend paid in a year of assessment on shares held in a long term share account, shall be treated as an amount of relevant interest paid in that year of assessment, only to the extent that such value exceeds £370.

(3) Where an account is opened by a member as a medium term share account, the member may subsequently make an election in writing to the credit union to have the account converted to a long term share account.

(4) Where an election is made in accordance with subsection (3), the value of the dividend paid on shares in a year of assessment which commences on or after the date the election is made shall be treated as an amount of relevant interest paid for that year of assessment, only to the extent that such value exceeds £370.

(5) An account shall cease to be a special term share account if any of the conditions specified in subsection (1) of section 267D cease to be satisfied and where that occurs—

(a) the account shall be treated as a special share account from the time of the occurrence, and

(b) the value of all dividends (in this paragraph referred to as ‘past dividends’) paid prior to the occurrence, on shares held in the account, shall be treated by the credit union as an amount of relevant interest to the extent that the value of such dividends has not already been treated as an amount of relevant interest, and—

(i) the provisions of section 257(1) shall apply as if the payment of past dividends was being made on the date of the occurrence, and

(ii) where on that date the past dividends have already been withdrawn from the account—

(I) the credit union shall deduct from the value of the shares in the account on that date, an amount equal to the amount of the appropriate tax which would have been deducted from the past dividends under subparagraph (i), but for the withdrawal, and such amount shall be treated as appropriate tax, and

(II) the provisions of paragraphs (b) and (c) of section 257(1) shall apply to such deduction as they apply to a deduction from relevant interest.

Conditions and declarations relating to special term share accounts.

267D.—(1) The following are the conditions referred to in subparagraph (i) of the definition of ‘special term share account’ in section 267A(1):

(a) the account shall be opened and designated by the credit union as a medium term share account or, as the case may be, a long term share account;

(b) the account shall not be denominated in a foreign currency;

(c) the account shall not be connected with any other share account or deposit account held by the member or any other person; and for this purpose an account shall be connected with another account if—

(II) the terms on which either account was opened would have been significantly less favourable to the member if the other account had not been opened,

(ii) the terms on which either account is operated are altered or affected in any way whatever because of the existence of the other account;

(d) all shares held in the account shall be subject to the same terms;

(e) there shall not be any agreement, arrangement or understanding in existence, whether express or implied, which influences or determines, or could influence or determine, the rate (other than an unspecified and variable rate) of dividend which is paid or payable, in respect of the share or shares held in the account, in or in respect of any period which is more than 12 months;

(f) dividends paid or payable in respect of the share or shares held in the account shall not directly or indirectly be linked to or determined by any change in the price or value of any shares, stocks, debentures or securities listed on a stock exchange or dealt in on an unlisted securities market;

(g) the account shall not be opened by or held in the name of a member who is under 16 years of age;

(h) the account shall be opened by and held in the name of the member beneficially entitled to the dividend payable in respect of the share or shares held in the account;

(i) an account may be held jointly by not more than 2 individual members;

(j) subject to paragraph (k), a member shall not simultaneously hold, whether solely or jointly, another special term share account;

(k) where the account is held jointly by individuals who are married to each other they may simultaneously hold one other such account jointly;

(l) subject to paragraph (m) and (n) the amount of a subscription or aggregate amount of subscriptions for shares which may be added to an account in any one month shall not exceed £500;

(m) at the time a member opens an account with a credit union, a single subscription for shares consisting of all or part of the savings of the member which are already held by the same credit union, may be transferred to the account;

(n) otherwise than by way of a transfer under paragraph (m), shares at a cost of not more than £6,000 may be added by a member once and only once to an account during the period in which the account is a special term share account;

(o) any disbursement of the surplus funds of a credit union, in the form of dividends or rebate of loan interest, which is added to the account shall not be treated as a subscription for shares for the purposes of paragraph (l) or (p), but such dividend or rebate of loan interest may not be withdrawn from the account, otherwise than in accordance with paragraph (q), unless the withdrawal is made within the period of 12 months from the date it was so added;

(p) subject to paragraph (q), a share may not be withdrawn from an account held by a member within—

(i) 3 years from the date the share was subscribed for, in the case of a medium term share account, and

(ii) 5 years from the date the share was subscribed for, in the case of a long term share account,

otherwise than on the death of the member or, where the account is an account held jointly by 2 members, on the death of one of them;

(q) one and only one withdrawal may be made from an account by a member who is 60 years of age or over on the date of the withdrawal, provided that the account was opened when the member was under that age;

(r) a transfer of shares from an account by a credit union to reduce a balance outstanding on a loan from the credit union to a member shall not be treated as a withdrawal from the account for the purposes of paragraph (p) where—

(i) such shares were pledged as security for the loan at the time the loan was granted,

(ii) a default (whether of interest or otherwise) in the terms of the repayment of the loan of not less than 6 months has occurred, and

(iii) the credit union has followed its standard procedures in seeking to recover the loan.

(2) The declaration referred to in subparagraph (ii) of the definition of ‘special term share account’ in section 267A(1) shall be a declaration in writing to the credit union which—

(a) is made by the member (in this subsection referred to as ‘the declarer’) who holds the account in respect of which the declaration is made is payable,

(b) is signed by the declarer,

(e) contains the full name and address of the declarer,

(g) contains such other information as the Revenue Commissioners may reasonably require for the purposes of this Chapter.

(3) Section 263(2) shall apply as respects declarations of the kind mentioned in this section as it applies as respects declarations of the kind mentioned in that section.

Returns of special term share accounts by credit unions.

267E.—(1) In this section ‘appropriate inspector’ means—

(a) the inspector who has last given notice in writing to the credit union that he or she is the inspector to whom the credit union is required to deliver the return required under subsection (2), or

(b) where there is no such inspector as is referred to in paragraph (a), the inspector of returns specified in section 950.

(2) On or before 31 March in each year of assessment, every credit union shall prepare and deliver to the appropriate inspector a return, in such form as may be prescribed or authorised by the Revenue Commissioners specifying—

(a) the name and address of the holder or holders, as the case may be, of each special term share account which was opened during the previous year of assessment,

(b) whether the account is a medium term share account or a long term share account, and

(3) Sections 1052 and 1054 shall apply to a failure by a credit union to deliver a return required by subsection (2) and to each and every such failure, as they apply to a failure to deliver a return referred to in section 1052.

Supplementary provisions (Chapter 5).

267F.—(1) The provisions of section 904A shall apply to a credit union, treated under this Chapter as paying relevant interest, as they apply to a relevant deposit taker paying relevant interest.

(2) In applying Chapter 4 of this Part for the purposes of this Chapter, section 258(4) shall not apply.

(3) Section 261 shall apply in relation to any dividend paid on shares held in a special share account or a special term share account which under section 267B is treated in whole or in part as relevant interest paid in respect of a relevant deposit, as if the following paragraph were substituted for paragraph (c) of that section:

(c) the amount of any payment of relevant interest paid in respect of a relevant deposit shall not, except for the purposes of a claim to repayment under section 267(3) in respect of the appropriate tax deducted from such relevant interest, be reckoned in computing total income for the purposes of the Income Tax Acts;'.”,

(vii) in section 267C (inserted by subparagraph (vi)), as respects the year of assessment 2002 and subsequent years of assessment, by the substitution—

(I) in subsection (1) of “€480” for “£278”, and

(II) in subsections (2) and (4) of “€635” for “£370”,

and

(viii) in section 267D(1) (inserted by subparagraph (vi)), as respects the year of assessment 2002 and subsequent years of assessment, by the substitution—

(I) in paragraph (i) of “€635” for “£500”, and

(II) in paragraph (n) of “€7,620” for “£6,000”,

(b) in section 700(1) by the insertion after “Notwithstanding anything in the Tax Acts,” of “other than Chapter 5 of Part 8,”, and

(i) in column 2 after “section 258(2)” of:

“section 264B

section 267E”,

and

(ii) in column 3 of “section 267B” after “section 257(1)”.

(2) This section shall come into operation on such day or days as the Minister for Finance may by order or orders appoint either generally or with reference to any particular purpose or provision and different days may be so appointed for different purposes or different provisions.

Finance Act, 2001 Permanent Page URL

Finance Act, 2001

Permanent Page URL