Revenue has published a new Tax and Duty Manual to provide guidance on the application of the leasing ringfence in sections 403 and 404 TCA 1997. The ringfence is intended to prevent the creation of tax advantages using leasing structures by restricting how excess capital allowances arising from leased machinery and plant may be used by a leasing company or group.
Section 403 TCA 1997 places a ringfence around the leasing of machinery or plant generally such that capital allowances on leased machinery or plant can be set off only against leasing income, or amounts arising from “lease-adjacent” activities and not against any other income or gains of the company or wider group.
Section 404 TCA 1997 places additional restrictions on “balloon leases.” These are leases that are structured to give rise to accelerated allowances while deferring the taxation of lease receipts to the end of the lease. This ringfence may also apply to certain restructuring and sale and leaseback arrangements.
It is to be noted that these ringfences are independent of one another, apply to different types of leases, and have different rules regarding the usage of restricted allowances.
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