Revenue Note for Guidance

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Revenue Note for Guidance

285 Acceleration of wear and tear allowances

Summary

Increased rates of wear and tear allowances (known as “accelerated wear and tear allowances” or “free depreciation”) are available in certain limited circumstances. Accelerated wear and tear allowances are made in respect of capital expenditure incurred on the provision of new machinery or plant (other than road vehicles) for the purposes of a trade. Subject to restrictions, the mechanism for granting accelerated allowances is for the wear and tear allowance to be made under section 284 to be increased by an amount to be specified by the person entitled to the allowance. Effectively, this provides for 100 per cent allowances to be taken by the person entitled to the wear and tear allowance under section 284 at his/her discretion. However, where the qualifying machinery or plant is provided for use on or after 1 April, 1988, the wear and tear allowance as increased under this section whether claimed for one or more chargeable periods cannot exceed —

  • 75 per cent of the expenditure incurred, where the machinery or plant is provided before 1 April, 1989,
  • 50 per cent of the expenditure incurred, where the machinery or plant is provided in the period 1 April, 1989 to 31 March, 1991, or
  • 25 per cent of the expenditure incurred, where the machinery or plant is provided for use in the period 1 April, 1991 to 31 March, 1992.

Moreover, for machinery or plant provided for use on or after 1 April, 1992, no wear and tear allowance may be increased under this section and, for machinery and plant provided for use before that date, no wear and tear allowance may be increased under this section for chargeable periods ending on or after 6 April, 1999.

There are 2 categories of exceptions to the restriction on the availability of accelerated wear and tear allowances. Firstly, in the case of —

  • machinery or plant provided for use for the purposes of certain trading operations carried on in the Shannon Airport Area or the Custom House Docks Area,
  • machinery or plant the expenditure on the provision of which was incurred before 31 December, 1995 under a binding contract entered into before 28 January, 1988,
  • machinery or plant provided for use for the purposes of a project approved by an industrial development agency on or before 31 December, 1985 and in respect of the provision of which expenditure was incurred before 31 December, 1995,
  • machinery or plant provided for use for the purposes of a project approved by an industrial development agency in the period from 1 January, 1986 to 31 December, 1988 and in respect of the provision of which expenditure was incurred before 31 December, 1996, and
  • machinery or plant provided for use in a trade of hotel-keeping before 1 April, 1991, including machinery or plant provided by a lessor to a lessee for use in such a trade, where a binding contract for the provision of the hotel building was entered into in the period from 28 January, 1988 to 31 May, 1988,

the wear and tear allowance may be increased by whatever amount is specified by the person entitled to it, that is, 100 per cent accelerated wear and tear allowances are available.

Secondly, in the case of —

  • machinery or plant provided for use for the purposes of a project approved for grant assistance by an industrial development agency in the period from 1 January, 1989 to 31 December, 1990 and in respect of the provision of which expenditure is incurred before 31 December, 1997 (or before 30 June, 1998 where a legal dispute gave rise to a delay),
  • machinery or plant provided for the purposes of such a project which was also approved for “section 130” loan financing and in respect of the provision of which expenditure is incurred before 31 December, 2002, and
  • machinery or plant provided for use for the purposes of a trade of hotel-keeping and in respect of the provision of which expenditure was incurred before 31 December, 1995, where a binding contract for the provision of the hotel building was entered into before 31 December, 1990 and where the hotel is registered with the National Tourism Development Authority (trading as Fáilte Ireland) within 6 months of its completion,

the wear and tear allowance may be increased up to 50 per cent of the capital expenditure incurred on the machinery or plant.

Where an accelerated wear and tear allowance is made for any chargeable period in respect of machinery or plant, no initial allowance under section 283 can be made in respect of the machinery or plant for the same or any subsequent chargeable period.

Details

Definitions

(1) “designated area” is an area designated for the purposes of the Industrial Development Act, 1969.

“industrial development agency” is the Industrial Development Authority, Shannon Free Airport Development Company Limited or Údarás na Gaeltachta.

“qualifying building or structure” is a building or structure which is to be an industrial building or structure in use for the purposes of a trade of hotel-keeping and in respect of the provision of which expenditure was incurred before 31 December, 1995, where a binding contract for the provision of the building or structure was entered into before 31 December, 1990.

“qualifying machinery or plant” is machinery or plant (other than road vehicles) which is provided on or after 1 April, 1967 for use in any designated area, or on or after 1 April, 1971 for use in any other area, for the purposes of a trade and which at the time it is so provided is unused and not secondhand.

Rates of free depreciation – general

(2)(a) Subject to restrictions, a person who is entitled to a wear and tear allowance under section 284 for any chargeable period in respect of qualifying machinery or plant may require that the allowance be increased by such amount as the person may specify. Effectively, this provides for 100 per cent allowances to be taken by the person entitled to the wear and tear allowance under section 272 at his/her discretion. Thus, the person could take the full 100 per cent allowance in the first year for which entitlement to the wear and tear allowance exists. Alternatively, the person could take the allowances in whatever tranches that person wishes, for example, 20 per cent in year 1, 30 per cent in year 2, 50 per cent in year 3, subject to at least the basic wear and tear allowance being taken for any one year.

(2)(b) For qualifying machinery or plant provided on or after 1 April, 1988, wear and tear allowances as increased under this section, whether claimed for one or more chargeable periods, cannot exceed —

  • 75 per cent of the expenditure incurred, where the machinery or plant was provided before 1 April, 1989,
  • 50 per cent of the expenditure incurred, where the machinery or plant was provided in the period 1 April, 1989 to 31 March, 1991, or
  • 25 per cent of the expenditure incurred, where the machinery or plant was provided in the period 1 April, 1991 to 31 March, 1992.

(3) Moreover, for qualifying machinery or plant provided on or after 1 April, 1992, no acceleration of the wear and tear allowances is permitted and, for qualifying machinery or plant provided before that date, no acceleration of the wear and tear allowances is permitted for chargeable periods ending on or after 6 April, 1999.

Continued entitlement to 100 per cent free depreciation for certain machinery or plant

(4) The restrictions (subsection (2)(b)) and prohibition (subsection (3)) on the acceleration of wear and tear allowances do not apply in the case of certain machinery or plant.

In the case of —

  • (5)(a)(i) machinery or plant provided before 23 April, 1996 for use for the purposes of relevant trading operations carried on by companies in the Shannon Airport Area (section 445) or the Custom House Docks Area (section 446); but, in the case of capital expenditure incurred on or after 6 May, 1993, excluding any machinery or plant provided by a lessor to a lessee other than where the leasing of that machinery or plant is part of those relevant trading operations,
  • (5)(a)(ii) machinery or plant provided by a company on or after 23 April, 1996 for use for the purposes of such relevant trading operations carried on by the company, but, in the case of capital expenditure incurred on or after 6 May, 1993, excluding any machinery or plant provided by a lessor to a lessee other than where the leasing of that machinery or plant is part of those relevant trading operations,
  • (5)(b) machinery or plant the expenditure on the provision of which was incurred before 31 December, 1995 under a binding contract entered into on or before 27 January, 1988,
  • (5)(c) machinery or plant provided for the purposes of a project approved by an industrial development agency on or before 31 December, 1985 and in respect of the provision of which expenditure was incurred before 31 December, 1995,
  • machinery or plant provided for the purposes of a project which was approved by an industrial development agency in the period from 1 January, 1986 to 31 December, 1988 and in respect of the provision of which expenditure was incurred before 31 December, 1996, and
  • (5)(d) machinery or plant provided for use in a trade of hotel-keeping before 1 April, 1991, including machinery or plant provided by a lessor to a lessee for use in such a trade, where a binding contract for the provision of the hotel building was entered into in the period from 28 January, 1988 to 31 May, 1988,

the wear and tear allowance may continue to be increased by whatever amount is specified by the person entitled to it, that is, 100 per cent accelerated wear and tear allowances are available.

Continued entitlement to 50 per cent free depreciation for certain machinery or plant

(6) The prohibition (subsection (3)) on the acceleration of wear and tear allowances does not apply, and the restrictions (subsection (2)(b)) on such acceleration are modified, in the case of certain machinery or plant.

In the case of —

  • (7)(a)(i) machinery or plant provided for the purposes of a project approved for grant assistance by an industrial development agency in the period from 1 January, 1989 to 31 December, 1990 and in respect of the provision of which expenditure is incurred before 31 December, 1997 (or before 30 June, 1998 where a legal dispute gave rise to a delay),
  • machinery or plant provided for the purposes of such a project which was also approved for “section 130” loan financing and in respect of the provision of which expenditure is incurred before 31 December, 2002, and
  • (7)(a)(ii) & (b) machinery or plant provided for use for the purposes of a trade of hotel-keeping and in respect of the provision of which expenditure was incurred before 31 December, 1995, where a binding contract for the provision of the hotel building was entered into before 31 December, 1990 and where the hotel is registered with the National Tourism Development Authority (trading as Fáilte Ireland) within 6 months of its completion,

the wear and tear allowance may continue to be increased by whatever amount is specified by the person entitled to that allowance up to 50 per cent of the expenditure incurred (that is, free depreciation of up to 50 per cent of the expenditure may be taken).

Restriction on availability of initial allowance where free depreciation claimed

(8) Where a wear and tear allowance in respect of qualifying machinery or plant expenditure is accelerated for any chargeable period, no industrial buildings (initial) allowance is to be made in respect of that expenditure for the same or any subsequent chargeable period.

Relevant Date: Finance Act 2021