The High Court has ruled that shares a dairy farmer received after supplying milk to Kerry Co-op’s nominated purchaser were a capital receipt outside the charge to income tax. The court said the shares followed a separate transaction and did not flow directly or inevitably from the farmer’s trade.
The judgment, delivered by Ms Justice Emily Egan on 26 May 2022, concerned a case stated by the Revenue Commissioners after the Tax Appeals Commission (TAC) found in favour of the farmer, Henry Walsh. The case asked whether his receipt of patronage shares was a capital receipt outside income tax.
Walsh farmed in Oranmore, County Galway, and supplied 473,586 litres of milk during the 2010/11 milk quota year to Kerry Creameries Ltd, Kerry Co-op’s nominated purchaser. Under the co-op’s rules, qualifying suppliers could be invited to subscribe at par for patronage shares based on the amount of milk supplied. Walsh subscribed for 107 shares at €1.25 each, paying €133.75.
The Revenue had assessed the market value of the shares as additional trading income and issued an amended assessment seeking €2,001.64 in income tax, USC and PRSI. The TAC’s lead appeal decision addressed the “core issue” of whether the benefit was a trading receipt or a capital receipt. Other questions, including whether the right to subscribe had a money’s worth, had been held over for later argument.
The High Court agreed with the TAC that the right to receive an invitation to subscribe arose from Walsh’s actual milk supply, rather than simply his status as a co-op member or trader. But it held that the benefit arising under the rules was the personal, non-assignable right to subscribe at par—not the shares themselves. The subscription and allocation were the result of a separate transaction and were not a trading receipt.
The court therefore answered the case stated by holding that receipt of the shares was outside the income tax charge. It did not decide whether the right to receive an invitation to subscribe had a value that should be included in calculating Walsh’s profits. The judgment said that issue had been parked and, if necessary, could be remitted to the commissioner for argument. The court also reversed the TAC’s finding that the shares themselves involved no transfer of value, because that issue had not been fully argued.