COVID-19 – Cash tax savings and more for the Real Estate Industry

Am I paying VAT on rents charged to tenants even though I haven’t received the rent?

Given the rapidly evolving situation arising from the COVID-19 virus, and the current national crisis, you may well be receiving requests from tenants to defer rent/pay it over an extended period of time. Where you agree such rent deferment with tenants, and VAT invoices are raised in advance of rent due dates, this could result in cash flow issues for you. In this context you may wish to consider an alternative approach to requesting payment of rent rather than by the issue of VAT invoices to such tenants in advance. This could be done in a manner that would not necessarily trigger a VAT liability on the date of issue of the request, allowing the VAT on the rent to become due for payment after receipt of payment of the rent from the tenant. 

Specific arrangements would need to be looked at in order confirm that this can be implemented. Please contact a member of the VAT team or your usual Deloitte contact for further information on this.

Will I still be able to meet the conditions to avail of the stamp duty refund on land acquired for residential development? 

As many of you will be aware, where you have incurred stamp duty at the commercial rate on the purchase of land which is intended for residential development, a potential refund is available to reduce the effective rate of stamp duty on the land purchase to 2%.

In order to avail of this refund there are strict conditions that need to be satisfied, including completing construction operations within specific time limits. Due to the Government’s order to close construction sites, all work has currently been halted and while sites may open in the coming weeks the enhanced measures to ensure health and safety is maintained on sites will no doubt have a knock on effect on operations for some time. 

These measures could have detrimental consequences for completing construction operations within the time limits required to qualify for the stamp duty refund. Revenue have not issued any clarity on its position surrounding the refund. As such, in order to safeguard the refund for the future it may be beneficial to seek a formal ruling from Revenue where there is a risk that you may not meet the conditions for the refund as a direct result from these Government imposed measures. If you wish to discuss this in more detail please contact a member of our Stamp Duty team or your usual Deloitte contact.

Does a company still need to distribute rental income to avoid the close company surcharge during COVID-19?

For close companies an additional surcharge of 20% is imposed on investment income, such as rental profits, which has not been distributed within 18 months from the end of the accounting period in which the income arose. In recognition that companies may need to retain cash to ensure the survival of their business through COVID-19, Revenue have introduced a temporary extension to the distribution period by a further 9 months. 

In order to avail of this extension an application must be made to Revenue setting out the facts and circumstances that support the extension. Please click on the link for further details on this measure, if you require any assistance on this application please reach out to your usual Deloitte contact.

How can a company use the losses incurred during COVID-19?

Companies that have incurred trading and rental losses can potentially set the loss against income for the previous corresponding accounting period. This should give rise to a refund of corporation tax paid in the prior year. Any unused losses can be carried forward against future trading and rental income. Accelerating the filing of tax returns could generate cash tax refunds.

Developer and construction companies should ensure that they review the carrying value of their work in progress in looking at the overall loss position in the current environment. 

The ability to carry losses back to the preceding period only applies to companies. Individuals cannot benefit from loss relief in this way.

Is now the time to think about succession planning while values are likely lower? 

Given the current economic position as a result of the pandemic and assuming that this has unfortunately had a negative impact on the value of property, and other investment assets, this may be an opportune time to consider passing these assets to the next generation.

Reduced values can allow individuals to minimise the capital gains tax arising on the transfer of assets and the capital acquisitions tax arising on the receipt of assets. As in previous times of economic downturn, we may see capital acquisitions tax thresholds reduce in the coming years as the Government seeks to re-coup costs incurred during the pandemic.

Whilst the current COVID-19 crisis is creating a number of challenges for both individuals and their businesses it is worth considering if there are any opportunities during this time which can be maximised.

In addition to succession planning, with some of us having the benefit of more free time it may provide the chance to take care of tasks that can otherwise be put on the long finger. We strongly recommend that you have an up-to-date will in place and should also consider putting an Enduring Power of Attorney in place to appoint an attorney to manage your affairs should you lose mental incapacity to do so yourself. We have a team of tax advisors and solicitors in our Private Client team who can assist with any of the above should you wish to discuss them in more detail.

What happens if I can’t pay my tax liabilities during COVID-19?

In a further measure to help businesses survive COVID-19 the Minister for Finance has introduced tax debt ‘warehousing’. The deferral of tax payments can facilitate businesses severely impacted by COVID-19 to retain cash and sustain liquidity. 

It is understood the measures will be put in place to allow certain VAT and PAYE tax debt which cannot be paid during the COVID-19 related period, to be warehoused interest free for a 12 month period from recommencement of trading, during which time there will be no debt enforcement action taken by Revenue in respect of the debt. The period covered by the arrangements is the duration of time where the business was unable to trade, or was trading at a significantly reduced level, due to the Covid-19 related restrictions and includes two months after the business re-commences ‘normal’ trading.

The scheme will be split into 3 key phases;

Period 1 – Covid-19 restricted trading phase

  • Ring fencing of tax debts built up while the business is unable to trade or was subject to restricted trading, and debts for an additional two months after the business re-commences ‘normal’ trading. 
  • No enforcement of debt and no interest will apply
  • Debt must be quantified by filing all relevant returns for the restricted trading phase; where an estimated return was submitted, the correct return will have to be filed before the end of Period 1 to ensure that the debt benefits from the warehousing.
  • Guidelines state that the restricted phase may vary from sector to sector and business to business, depending on when Government restrictions are relaxed in line with the roadmap for re-opening society and business as announced on 1 May 2020.

Period 2 – Zero interest phase:

  • This will last for 12 months after the end of Period 1.
  • No interest will be charged on the debt built up in Period 1. 
  • Businesses must pay current tax liabilities as they arise.

Period 3 – Reduced interest phase:

  • This will last from the end of Period 2 until the Covid-19 related debts built up in Period 1 are paid. 
  • Interest rate of 3% p.a.

Revenue have confirmed that warehousing provisions will not impact on the ability to attain tax clearance and Revenue will continue to issue refunds irrespective of the debt owed under the warehousing arrangements.

A summary of the further measures introduced in response to COVID-19 is set out below;

In addition to the above;

Home Building Finance Ireland has introduced the Momentum Fund as a direct response to COVID-19 to ensure established developers can continue to deliver large-scale residential projects.

Ensure you are availing of the wage subsidy scheme benefits.

If you wish to discuss any of the items outlined above in more details please reach out to a member of your Deloitte team.

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