In the recent case 196TACD2025, the Irish Tax Appeals Commission (“TAC“) considered two interesting points; (i) whether a taxpayer was carrying on a trade of land development and entitled to claim loss relief and (ii) whether the taxpayer could object to Revenue issuing its notice of assessment outside the statutory time limit when that objection had not been included in the taxpayer’s Notice of Appeal.
The determination provides a useful insight into the factors that TAC will consider in determining whether a trade of land development is being carried out, including:
- the impact of any funding arrangements put in place by a taxpayer in connection with their land development activities;
- the efforts of the taxpayer to obtain planning permission in respect of any development; and
- the taxpayer’s treatment of their tax affairs, including whether any VAT registrations are made and the timing of any loss relief claims in relation to the purported trade.
Background
The taxpayer purchased an agricultural site with the intent of developing houses on the land for resale. The purchase of the site was funded by way of a loan. The taxpayer had no prior experience in the trade of land development.
While some works were carried out by the taxpayer on the site, these were remedial in nature and ultimately no houses were built. The taxpayer engaged two separate parties to submit a planning application in respect of the site but this process was never completed and the land remained zoned for agricultural use.
No trading losses were claimed by the taxpayer at the time and the taxpayer never registered for VAT as a trader. Subsequently, the taxpayer engaged a new accountant and sought to retroactively claim trading losses under section 381 of the Taxes Consolidation Act, 1997 (“TCA”) in respect of the interest paid on the loan for the site.
Revenue disallowed the losses claimed by the taxpayer and issued amended assessments on the basis that the taxpayer was not carrying on the trade of land development. The taxpayer appealed these assessments.
Relevant Factors for a Trade of Land Development
In considering whether the taxpayer was carrying on a trade of land development, the TAC had regard to (i) the intention of the taxpayer at the time of purchase, (ii) the level of “operational activities” undertaken by the taxpayer with respect to the land, (iii) the taxpayer’s initial treatment of the arrangements for tax purposes and (iv) the badges of trade.
Intention of the taxpayer
The TAC found that the purpose of the taxpayer’s financing was to fund the one-off purchase and was not to develop the lands. The taxpayer had argued that the Irish High Court decision of Revenue Commissioners v O’Farrell established the principle that where a taxpayer purchases land with the intention of developing that land, he is immediately, at the point of purchase, engaged in trade or an adventure in the nature of trade.[1]
The TAC noted that in O’Farrell the taxpayer had an agreement with the bank for financing to purchase and develop the lands and the taxpayer also had a development plan. In the current case, the purpose of the loan secured by the taxpayer was to finance the one-off purchase of the land and the financing did not go towards the subsequent development of the land.
The TAC found that even if the taxpayer did intend to engage in a trade, there would need to be “operational activities”, such as dealings with third parties, in order for such trade to have commenced, in accordance with the decision in Mansell v Revenue and Customs Commissioners.[2]
Operational activities
The TAC further found that the taxpayer had not undertaken sufficient operational activities to demonstrate that they were trading. In coming to their conclusion, the Commissioner considered the High Court case of Buckley v Revenue Commissioners which accepted that the purchase of the land itself could be land development for the purposes of being considered a trade but cautioned that it is necessary to have regard to “all the circumstances” when assessing whether a taxpayer is engaged in trade.[3]
The additional circumstances that were taken into account by the court in Buckley included (i) zoning, (ii) the fact that there was no planning permission, (iii) the fact that no application for planning permission was made and (iv) that there was no formal agreement for financing the development costs.
Similarly, the TAC in the present case had particular regard to the taxpayer’s failure to obtain planning permission in respect of the site and noted that:
- the land was zoned as agricultural land and was at no stage zoned for residential purposes;
- the taxpayer had never applied for planning permission; and
- no evidence was submitted that the taxpayer had hired third parties to design plans to submit a planning application.
Tax treatment
In addition, the taxpayer’s initial treatment of the arrangements for tax purposes contradicted his arguments that his activities were trading in nature. The TAC noted that the taxpayer never claimed purported third party costs as trading losses and found that this constituted evidence that the taxpayer did not consider himself to be acting as a trader in land development but instead envisaged the site as being something more akin to a capital investment.[4]
The TAC also considered it relevant that the taxpayer never registered for VAT as a trader or claimed trading losses as they occurred. In its view, the most likely explanation as to why the taxpayer only began to claim losses when he retained a new accountant in 2008 was that he was seeking to claim that he was engaged in trading as a land developer on a post facto basis.[5]
Badges of trade
Finally, the TAC considered the application of the “badges of trade” in the context of the taxpayer’s activities and ultimately concluded that the taxpayer never commenced trading because there was no evidence of operational activities.
Although the taxpayer did engage third party contractors, it was unclear how much actual work was carried out on the taxpayer’s behalf. The TAC held that the one-off purchase of the land by the taxpayer in and of itself was insufficient to support a finding that the taxpayer was trading.
Time Limits
At hearing stage, the taxpayer also argued that the amended assessments were invalid as they were not raised by Revenue within the statutory four year time limit.
The TAC noted that section 949I(6) TCA precluded the taxpayer from raising additional grounds that were not specified in their Notice of Appeal, unless the TAC was satisfied that the ground could not reasonably have been so specified. As the taxpayer provided no reason as to why the ground could not reasonably have been stated in the Notice of Appeal, the TAC held that the derogation set out in section 949I(6) TCA did not apply.
In any event, the TAC was satisfied that Revenue was entitled to raise the amended assessments outside the four year period on the basis that the taxpayer’s return did not contain a “true and full disclosure” of all material facts necessary for the making of an assessment. As the taxpayer had made his tax returns on the basis that he had been engaged in trade, the TAC considered that he had not made a full and true disclosure and that therefore the four year rule did not apply.
The TAC’s reasoning appears at odds with the High Court decision in O’Sullivan v Revenue Commissioners (which was also referenced within the determination).[6] In O’Sullivan, the Court indicated that an error in law by the taxpayer in its return (such as whether an amount was a capital gain or receipt of income) may not preclude that return from being “full and true”, provided that the taxpayer makes a full and true disclosure of all material facts.[7] The TAC’s interpretation of O’Sullivan, namely that an error in law is sufficient to render a return as not being “full and true”, is far more restrictive.
Key Takeaways
In determining whether a taxpayer carries on a trade for the purposes of land development, the TAC will apply the badges of trade and have regard to all the circumstances surrounding the taxpayer’s activities and will not limit itself to a single determinative factor.
In order to support a trade of developing land, it is important to show evidence of operational activities such as the preparation of a clear development plan, applications for planning permission and seeking financing for development costs.
This case is also a reminder of the importance of including all grounds of appeal in the Notice of Appeal as it may not be possible to raise new arguments at hearing stage that are not included in the Notice of Appeal.
Finally, this case again highlights the restrictive interpretation being taken by the TAC as to what constitutes a “true and full disclosure” of all material facts necessary for the making of an assessment, which can give rise to an open-ended statute of limitations for tax purposes.
[1] [2018] IEHC 171.
[2] [2006] STC (SCD) 605.
[3] Buckley, para 47.
[4] Para 51 of the Determination.
[5] Para. 50 of the Determination.
[6] [2024] IEHC 611.
[7] Para. 114 of O’Sullivan.