In the recent Supreme Court (SC) case of Sean Flaherty v The Revenue Commissioners 2026 [IESC] 4, the SC considered when a contract would be considered to be ‘conditional’ for Irish capital gains tax (CGT) purposes. Ordinarily, a disposal is deemed to occur (and a charge to Irish CGT is considered to arise) on the date a contract is entered into. However, where a contract is ‘conditional’ in nature, a disposal does not occur until the relevant conditions are satisfied. This can be a double-edged sword, as the rules apply both where tax rates increase or decrease and where exemptions are introduced or abolished, so the impact of a conditional contract can be uncertain.
Background
In this case, the taxpayer sold a boat and realized a chargeable gain. After entering into the contract but before completion occurred, revised entrepreneurial relief – which allowed a reduced rate of CGT to apply – was introduced in Ireland. The taxpayer argued that the contract was ‘conditional’ in nature as a number of procedural steps needed to be satisfied before completion occurred (eg, the purchaser needed to obtain a sea fishing license and a certificate of registration needed to be applied for and issued). Therefore, the taxpayer asserted that a ‘disposal’ did not occur for CGT purposes until these conditions were satisfied (thus allowing him to avail of the revised entrepreneurial relief).
The taxpayer was unsuccessful in his appeal. The SC found that the contract was immediately binding upon execution and that the taxpayer was not entitled to avail of revised entrepreneurial relief. In particular, the SC focused on the fact that the ‘conditions’ were procedural in nature. The SC set out the following 4-stage test as to when a contract would be ‘conditional’ for CGT purposes:
- a legally enforceable contract must exist between the parties;
- the contract must provide for one party to dispose of, and the other to acquire, an asset;
- the obligation to dispose of and acquire that asset must be conditional upon an event; and
- the contractual obligation to dispose of or acquire that asset must not arise unless and until the event occurs.
Historically, there has been conflicting practice and uncertainty as to when a contract would be treated as ‘conditional’ for CGT purposes. This SC decision has brought clarity to this area. However, the law in Ireland arguably now diverges from the long-standing UK position (which was thought to have precedential value in Ireland) that a contract is ‘conditional’ for CGT purposes where no binding contract (ie, no contract at all) comes into existence until relevant conditions are satisfied.
Key takeaway
Whether a contract is intended to be conditional or not, taxpayers should ensure that this is clearly and unambiguously stated in the relevant agreement. Whether a contract is conditional or unconditional can have a material impact on the certainty of the tax treatment to be applied and professional tax advice should always be sought. This is particularly true in cases of contractual arrangements which may be impacted by Ireland’s Finance Act, which may be signed before budgetary objectives are communicated but performed afterwards.
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