The High Court has ruled that wear and tear allowances claimed for a hotel trade cannot be deducted when calculating “world-wide income” for Ireland’s domicile levy.
In a judgment delivered on 5 April 2022, Ms Justice Emily Egan answered four questions of law in a case stated brought by the Revenue Commissioners. The appeal concerned an ex tempore determination by a Tax Appeals Commissioner on 14 December 2015 that Ann Corcoran and her brother Joseph Corcoran were not liable to the levy for the years at issue.
The levy is €200,000 annually and applies to qualifying individuals, including those whose world-wide income exceeds €1 million, whose Irish income tax liability is below €200,000 and whose Irish property exceeds €5 million in value. The parties agreed that the siblings met the other relevant conditions; the dispute was whether their world-wide income crossed the €1 million threshold.
The siblings operated a hotel trade in partnership during the relevant years, before the trade was incorporated. Their income after the wear and tear allowances was stated as €526,637 in 2010, €610,804 in 2011 and €543,871 in 2012. Revenue argued that disregarding those allowances took income above €1 million in each year. The judgment lists amounts in dispute after income tax of €61,213.49, €34,113 and €57,510.81 for Ann Corcoran, and €68,978, €41,435 and €68,847 for Joseph Corcoran, respectively.
The Commissioner had treated the capital allowances as deductible in calculating world-wide income, relying in part on the view that taxable profits should be used. Justice Egan found that approach wrong in law. She held that the statutory definition requires income to be estimated after ordinary trading expenses, but without regard to deductions such as capital allowances that are applied later in calculating taxable income. The court also rejected the taxpayers’ argument that world-wide income meant taxable income after those allowances.
The judge answered “No” to the first three questions, including whether the Commissioner was correct to allow the allowances, and “Yes” to whether the relevant provisions preclude deducting capital allowances from hotel-trade profits when calculating world-wide income.
The court did not make final orders in the judgment. It asked the parties to try to agree outstanding matters and said the case would be listed for mention on 28 April 2022 if further court time was needed.