Revenue confirmed that where a financial institution forgives, writes off or otherwise restructures a debt which write off etc. may be considered to be a gift for CAT purposes, provided it is done as a bona fide commercial arrangement where there is no intention on the part of the financial institution to make a gift, then it is not a taxable gift, see eBrief No. 12/2013. There is also a caveat that if it is done for the purposes of tax avoidance, this relaxation of their treatment would not arise.
It is important to take care in relation to non commercial write offs of loans where there may be deemed to be a gift arising even if from a practical point of view the person who cannot afford to pay back the loan is also as much likely to have difficulty paying the tax on such a write off. The Revenue are of the opinion that a bona fide commercial write off could in circumstances be considered a gift. What is a commercial transaction on the part of the lender also be a commercial transaction on the part of the borrower and the restructuring is therefore not automatically conferring a benefit for CAT purposes however this has not been considered by Revenue.
It is important to note that write offs of loans by non financial institutions, even if done on a commercial basis in respect of loans made by unconnected parties, may result in CAT arising on a deemed gift.
