305 Income tax: manner of granting, and effect of, allowances made by means of discharge or repayment of tax

Summary

This section deals with the position for income tax where a capital allowance under Part 9 is to be made by discharge or repayment of tax, or in charging a person’s rental income under Case V of Schedule D, and is to be available, or available primarily, against a specified class of income. In general, where there is insufficient income of that class to absorb the allowance, any remaining allowance may be carried forward for set-off against similar income in future years. However, in the case of an allowance available primarily against a specified class of income, the taxpayer may elect to have the unabsorbed allowance set off against other income for the tax year in which the allowance became due. In certain cases allowances are ring-fenced, that is, they may be set off only against specific income.

Details

Capital allowances to be available or available primarily against income of a specified class

(1)(a) This provision deals with the position for income tax purposes where a capital allowance under Part 9 is to be made for any year of assessment by discharge or repayment of tax, or in charging a person’s rental income under Case V of Schedule D, and is to be available, or available primarily, against a specified class of income. An example of such an allowance is an initial allowance or a wear and tear allowance in respect of machinery or plant which is to be made to a non-trading lessor and is to be available primarily against the income from the leasing of the machinery or plant (see section 300(2)). Where such an allowance is due, the allowance may be set against the person’s income from the particular class (in the example quoted the income from the leasing of the machinery or plant) for the year of assessment and, if there is insufficient income of that class to absorb the allowance, any excess may be carried forward for set-off against similar income in subsequent years.

Set-off against other income

(1)(b) However, in the case of an allowance available primarily against a specified class of income, instead of having the excess allowance carried forward to subsequent years, the taxpayer may elect to have it set off against any other income of that year. The excess to be set off is calculated after first deducting or setting off against the specified class of income any allowances brought forward from earlier years. Where an individual or his/her spouse or civil partner is assessed under joint assessment (section 1017) the individual may elect to have the excess set firstly against his/her own other income and then against the income of his/her spouse or civil partner of that year.

An election must be made in writing to the inspector within 2 years of the end of the year involved. Where this option is exercised, only the balance of any allowance (that is, the amount of the excess allowance not given effect to against the other income) will be available for carry forward to future years.

Ring-fence on use of certain allowances

(1)(c) A special rule is provided to deal with the case where a capital allowance under Part 9, the amount of which has been determined in accordance with section 409E(3)(i), is to be made to an individual for a year of assessment in charging the “specified amount of rent” (i.e. the profit rent from the specified building, as defined in section 409E) of the individual under Case V of Schedule D for that year of assessment and is to be available only in charging that specified amount of rent.

In such cases, in charging income under Case V of Schedule D, the amount of the allowance is to be deducted from or set off against that specified amount of rent. In addition, if the amount of the allowance which would have been made to the individual if section 409E had not been enacted is greater than that specified amount of rent, there is a specific measure to deal with the excess. This measure provides that the excess is to be added to the amount of the allowance to be made to the individual for the next year of assessment in respect of the capital expenditure incurred on the construction or refurbishment of the “specified building” (as defined in section 409E) or the “residue of that expenditure” (as defined in section 409E), and is deemed to be part of the allowance for that next year, and so on for subsequent tax years. Section 409E(3) will apply in relation to the resulting allowance for that next year or any subsequent year of assessment.

Claims and appeals

(2) A claim for an allowance which is to be given by means of discharge or repayment of tax, or in charging a person’s rental income under Case V of Schedule D, is to be made to and determined by the inspector.

(3) A person aggrieved by a decision of the inspector may appeal the decision by notice in writing to the Appeal Commissioners. An appeal must be made within 30 days after the date of the notice of the decision. The Appeal Commissioners will hear and determine an appeal in the manner provided for in Part 40A.

Penalties

(4) There is a provision for a penalty of €3,000 for making a false claim, or for aiding or abetting a false claim, in respect of an allowance.

Relevant Date: Finance Act 2021