Revenue Note for Guidance

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Revenue Note for Guidance

287 Wear and tear allowances deemed to have been made in certain cases

Summary

The purpose of section 287 is to enable the amount of the wear and tear allowance to be made for a chargeable period in respect of machinery or plant to be determined on the basis of the true written-down value of the machinery or plant. Thus, the section applies for the purposes of calculating the written-down value at the commencement of the chargeable period of motor vehicles (section 284(3)) and applying the overall limit on the amount of wear and tear allowances that may be made in respect of machinery or plant generally (section 284(4)). For those purposes, normal wear and tear allowances are deemed to have been made in respect of machinery or plant used during any chargeable period in circumstances in which it attracted no wear and tear allowance or a restricted wear and tear allowance. An example of the use of machinery or plant in such circumstances is where a motor vehicle is bought for trade purposes but in a chargeable period is used entirely or partly for private purposes.

Details

Definitions

(1) “wear and tear allowance” is an allowance made under section 284 apart from any increase (free depreciation) in that allowance under section 285.

“normal wear and tear allowance” is defined as the wear and tear allowance or greater wear and tear allowance, if any, that would have been made for the chargeable period if the conditions specified in subsection (3) had been fulfilled in relation to that chargeable period. The reference to greater wear and tear allowance is designed to cater for the case where a restricted wear and tear allowance is given because, for example, the machinery or plant is used partly for business purposes and partly for other purposes.

Notional wear and tear allowances deemed to have been made

(2) Where for any chargeable period no wear and tear allowance or a wear and tear allowance less than the normal wear and tear allowance is made in respect of machinery or plant used during the chargeable period, then, for certain purposes of section 284, the normal wear and tear allowance is deemed to have been made to the person concerned in respect of the machinery or plant for that chargeable period. The purposes in question are the calculation of the written-down value at the commencement of a chargeable period of motor vehicles (subsection (3) of that section refers) and the application of the overall limit on the amount of wear and tear allowances that may be made in respect of machinery or plant generally (subsection (4) of that section refers).

Principles on which normal wear and tear allowance is to be calculated

(3) The normal wear and tear allowance for a chargeable period is to be calculated on the basis that —

  • the trade had been carried on by the person concerned ever since that person acquired the machinery or plant in such circumstances that the full amount of the profits or gains of the trade were chargeable to tax,
  • the trade had at no time consisted wholly or partly of exempted trading operations within the meaning of Chapter I of Part XXV of the Income Tax Act, 1967 or Part V of the Corporation Tax Act, 1976, that is, trading operations in Shannon Airport that were exempt from income tax and corporation tax,
  • since its acquisition by the person concerned the machinery or plant had been used by that person solely for the purposes of the trade,
  • a proper claim had been made by the person for a wear and tear allowance in respect of the machinery or plant for every relevant chargeable period, and
  • as respects any chargeable period, no question arose as to any sums (subsidies, grants, etc) being payable to the person in respect of or on account of the wear and tear of the machinery or plant.

(4) Where at any time after a company acquired machinery or plant it is not within the charge to corporation tax, any year of assessment or part of a year of assessment falling within that time will be treated as a chargeable period as if it had been an accounting period of the company. Thus, a normal wear and tear allowance will be deemed to have been made in respect of machinery or plant used during any such period.

Relevant Date: Finance Act 2021