Understanding Tax Exemptions for Employment Law Payments: Section 192A, Taxes Act 1997, Schemes and Mind Maps of Law

Download Understanding Tax Exemptions for Employment Law Payments: Section 192A, Taxes Act 1997 and more Schemes and Mind Maps Law in PDF only on Docsity! Tax and Duty Manual Part 07-01-27 The information in this document is provided as a guide only and is not professional advice, including legal advice. It should not be assumed that the guidance is comprehensive or that it provides a definitive answer in every case. 1 Exemption from Income Tax in respect of Certain Payments made under Employment Law Part 07-01-27 This document should be read in conjunction with section 192A Taxes Consolidation Act 1997 Document last updated May 2021 Tax and Duty Manual Part 07-01-27 2 Table of Contents 1. Introduction ............................................................................................................3 2. Definition - Relevant Act and Relevant Authority ...................................................4 3. Recommendations/Decisions/Determinations.......................................................6 4. Out of Court Settlements........................................................................................7 5. Payments not covered by section 192A TCA 1997..................................................9 6. Tax Treatment of Legal Fees .................................................................................10 Appendix 1 – section 10 TCA 1997 ...................................................................................11 Appendix 2 – Examples.....................................................................................................14 Tax and Duty Manual Part 07-01-27 5 Relevant authority A “relevant authority” means any of the following: - a Rights Commissioner; - the Director of the Equality Tribunal; - an adjudication officer of the Workplace Relations Commission; - the Workplace Relations Commission; - the District Court; - an Employment Appeals Tribunal; - the Labour Court; - the Circuit Court; or - the High Court. Tax and Duty Manual Part 07-01-27 6 3. Recommendations/Decisions/Determinations The Employment Equality Act 1998 - 2015 contains provisions that allow a dispute between an employee and an employer to be resolved through mediation. Where mediation results in an agreement acceptable to both parties, the Mediator draws up the terms of settlement for signature by both parties. A payment made by an employer in accordance with such a settlement may be treated as a payment made on foot of a recommendation, decision or determination by a relevant authority for the purposes of the exemption. An agreed order made by the Circuit Court may also be regarded as a recommendation, decision or determination for the purposes of the exemption. Tax and Duty Manual Part 07-01-27 7 4. Out of Court Settlements Many disputes between employees and employers concerning the infringement of employees’ rights and entitlements or employers’ obligations to employees are settled by agreement without referral to a “relevant authority”. A payment made under such an agreement also qualifies for the exemption where all of the following conditions are met –  the agreement in settlement of a claim is evidenced in writing;  the original statement of claim by the employee is evidenced in writing;  the agreement is not between connected persons as defined in section 10 of the TCA 1997 (e.g. employer and relative, employer and director – see Appendix 1 for copy of section 10 TCA 1997);  the claim would have been a bona fide claim under a “relevant Act” had it been made to a “relevant authority” (e.g. sufficient grounds for the claim; claim is within the scope of one of the relevant Acts; claim made within specified time limits, etc.);  the claim is likely to have been the subject of a recommendation, decision or determination by a relevant authority that a payment be made to the person making the claim;  the payment does not exceed the maximum amount which could have been awarded under relevant legislation by the Rights Commissioner, Director of the Equality Tribunal, Employment Appeals Tribunal, Workplace Relations Commission or Labour Court as appropriate (e.g. a claim made under the Employment Equality Act 1998 for acts of discrimination – maximum amount cannot exceed a sum calculated as being not greater than 104 weeks pay). Tax and Duty Manual Part 07-01-27 10 In considering if the exemption provided for in section 192A TCA 1997 applies in respect of out-of-court settlements, due regard must be had to all terms and clauses included within any written agreement between the parties involved. This includes any terms which attribute or apportion the payment between different elements of the claim as set out above. Where the agreement does not clearly attribute the payment to any specific element of the claim, the classification and consequential tax treatment of same must be determined having due regard to the full facts and circumstances of the case and the terms of the agreement reached between the parties. 6. Tax Treatment of Legal Fees Comprehensive guidance is set out in Tax and Duty Manual Part 07-01-28. Tax and Duty Manual Part 07-01-27 11 Appendix 1 – section 10 TCA 1997 Section 10 TCA 1997 – Definition of “Connected Persons” Connected persons 10.— (1) In this section- "close company" has the meaning assigned to it by sections 430 and 431; "company" has the same meaning as in section 4 (1); "control" shall be construed in accordance with section 432; "relative" means brother, sister, ancestor or lineal descendant and, for the purposes of the Capital Gains Tax Acts, also means uncle, aunt, niece or nephew; "settlement" includes any disposition, trust, covenant, agreement or arrangement, and any transfer of money or other property or of any right to money or other property; "settlor", in relation to a settlement, means any person by whom the settlement was made, and a person shall be deemed for the purposes of this section to have made a settlement if the person has made or entered into the settlement directly or indirectly and, in particular (but without prejudice to the generality of the preceding words), if the person has provided or undertaken to provide funds directly or indirectly for the purpose of the settlement, or has made with any other person a reciprocal arrangement for that other person to make or enter into the settlement. (2) For the purposes of the Tax Acts and the Capital Gains Tax Tax and Duty Manual Part 07-01-27 12 Acts, except where the context otherwise requires, any question whether a person is connected with another person shall be determined in accordance with subsections (3) to (8) (any provision that one person is connected with another person being taken to mean that they are connected with one another). (3) A person shall be connected with an individual if that person is the individual's husband, wife or civil partner, or is a relative, or the husband, wife or civil partner of a relative, of the individual or of the individual's husband, wife or civil partner. (4) A person in the capacity as trustee of a settlement shall be connected with— (a) any individual who in relation to the settlement is a settlor, (b) any person connected with such an individual, and (c) a body corporate which is deemed to be connected with that settlement, and a body corporate shall be deemed to be connected with a settlement in any accounting period or, as the case may be, year of assessment if, at any time in that period or year, as the case may be, it is a close company (or only not a close company because it is not resident in the State) and the participators then include the trustees of or a beneficiary under the settlement. (5) Except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements, a person shall be connected with any person with whom such Tax and Duty Manual Part 07-01-27 15 that period and that the respondent is to commence a review of the selection procedures within three months of the date of the decision. Tax Treatment The payment of €20,000 qualifies for exemption under section 192A TCA 1997. Tax and Duty Manual Part 07-01-27 16 Example 2 Claim Employment - Promotion - Higher Pay Scales - Age - Promotion Assessments - Victimisation - The Employment Equality Act 1998 - section 6 (1) (f), (2) (a), (2) (f),74(2), 82(1). Background The claimant, a civil servant, claimed that he was discriminated against by his then Department when he was excluded from the higher pay scales applicable to senior members of his grade. He subsequently made a claim under the Employment Equality Act 1977 that two female staff who were junior to him were promoted. He withdrew this latter claim but claimed that he was victimised by his employer subsequent to making it. Decision The Equality Officer found that the Department discriminated against the claimant on age grounds in refusing to place him on the higher pay scale. She also found that the claimant was victimised by the Department in a series of incidents subsequent to his claim under the Employment Equality Act 1977, which culminated with the refusal of the payment of the higher scale. The claimant was awarded the higher pay scale payment and compensation of €8,000 in total in respect of both complaints. Tax Treatment The payment of €8,000 awarded for victimisation qualifies for the exemption under section 192A TCA 1997. However, the higher scale payment itself is remuneration and chargeable under section 112 TCA 1997. Tax and Duty Manual Part 07-01-27 17 Example 3 Claim Employment Equality Act 1998 sections 6 and 8 - Employment – Discriminatory treatment - Gender - Promotion – Victimisation. Background The complainant alleged that she was discriminated against by the respondent on the gender ground in terms of section 6(2)(a) of the Employment Equality Act 1998 and contrary to section 8 of that Act when she was not appointed to a particular position and the successful applicant was male. She also contends that she was victimised when she sought to address her grievance at not being selected for the position. The respondent denied the allegations. Conclusions The Equality Officer found that the respondent did discriminate against the complainant in terms of section 6(2)(a) of the Employment Equality Act 1998. The Equality Officer found that the respondent failed to display fairness in its selection procedures. The Equality Officer also found that there was a lack of transparency in the marking for core/special competencies. In relation to the complainant’s allegation of victimisation, the Equality Officer found that the evidence did not support the allegation. Decision The Equality Officer ordered the respondent to implement fair and transparent selection procedures in future competitive competitions for employment and promotions. The Equality Officer also ordered the respondent to pay the complainant compensation in the form of arrears of remuneration in the gross amount of €60,000 and compensation for the effects of the act of discrimination in the amount of €10,000. Tax and Duty Manual Part 07-01-27 20 Tax Treatment The award made represents arrears of remuneration chargeable to tax under section 112 of the TCA 1997, thus the section 192A TCA exemption does not apply. Tax and Duty Manual Part 07-01-27 21 Example 2 Claim Industrial Relations Acts 1946 to 1990 section 13(9) Industrial Relations Act 1969. Subject Appeal of Rights Commissioner's Recommendation concerning alleged unfair dismissal. Background The worker concerned was absent from work on sick leave for considerable periods of time and the dispute concerned the question of whether she resigned from her position with the Company in January 1997. The dispute was referred to a Rights Commissioner for investigation and recommendation. The Rights Commissioner's findings and recommendation were as follows:- "While I accept that the claimant was very ill for a long period, I have come to the conclusion that she did resign her position, although she may not have been fully aware of the consequences of her actions at the time. I, therefore, recommend in favour to the Company." The Rights Commissioner's Recommendation was appealed by the Union to the Labour Court under section 13(9) of the Industrial Relations Act 1969. Decision The Labour Court, taking into account all of the issues in this case, upheld the appeal and awarded the claimant €2,000 in compensation. Tax and Duty Manual Part 07-01-27 22 Tax Treatment This is a global payment to take account of all of the issues involved including the termination of the employment. Consequently, it is a payment to which section 123 TCA 1997 applies (i.e. a payment made in connection with or otherwise as a consequence of the termination of the employee’s employment). Accordingly, it would not fall within the scope of section 192A TCA 1997. However, it would be covered by the statutory exemption of €10,160 contained in section 201 TCA 1997. Tax and Duty Manual Part 07-01-27 25 Example 2 Claim Payment of Wages Act 1991 & Terms of Employment (Information) Act 1994. Subject Appeal against the recommendations of the Rights Commissioner concerning alleged dismissal without notice and statutory entitlement to payments. Background The employee began work for the employer in June 2001. The employer had not furnished the employee with any written contract or terms of employment, nor did he provide him with any payslips. The employer submitted a P60, which described the employee’s commencement date as September 2001. The Rights Commissioner’s Recommendation was appealed to the Employment Appeals Tribunal. Decision The Tribunal accepted the evidence of the employee that he was unfairly dismissed from his employment without notice in 2002. The Tribunal found that the employer was clearly in breach of its statutory obligations pursuant to sections 3 and 5 of the Terms of Employment (Information) Act 1994. The Tribunal awarded the employee compensation quantified by reference to 4 weeks wages remuneration of €1,290 and his statutory entitlement of one week’s gross wages in lieu of notice. Tax and Duty Manual Part 07-01-27 26 Tax Treatment The payment of €1,290 in respect of the employer’s failure to supply the employee with a written contract or terms of employment, or payslips, qualifies for exemption under section 192A TCA 1997. The payment of one week’s gross wages in lieu of notice is chargeable under section 123 TCA 1997 but would be covered by the exemption available under section 201 TCA 1997.