Revenue Note for Guidance

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Revenue Note for Guidance

546 Allowable losses

Summary

All the rules used in computing gains apply in computing losses. The principles by which a gain is determined to be a chargeable gain apply in deciding whether a loss is an allowable loss. Thus, a loss cannot be an allowable loss if a gain on the same transaction would not be a chargeable gain.

Relief for losses by a person who is neither resident nor ordinarily resident in the State is confined to losses on the disposal of those assets in respect of which such a person would be liable to tax on chargeable gains if a gain instead of a loss had resulted from the transaction. These assets are land and mineral assets in the State, trading assets of a branch or business in the State and rights of exploration or exploitation in the Irish Continental Shelf area.

An allowable loss may not be carried back and set against a gain in an earlier year of assessment (except on a death as provided in section 573). Relief may not be given more than once in respect of any loss. Where relief in respect of a loss has been or may be given under the Income Tax Acts, no relief is given for the loss against capital gains.

Where a person is chargeable to capital gains tax for a year of assessment at 2 or more rates, the losses are to be deducted, as far as possible, from the gains chargeable at the higher, or highest, of the rates and then from gains chargeable at the lower rate or, if chargeable at 3 or more rates, from the next highest rate and so on.

Details

(1) Where an asset is not a chargeable asset, no allowable loss can accrue on disposal of the asset.

(2) Except where otherwise expressly provided, the amount of a loss on the disposal of an asset is computed in the same way as the amount of a gain on the disposal of an asset is computed.

(3) Except where otherwise expressly provided, the question of whether a loss (or part of a loss) is an allowable loss is decided on the same principles on which a gain (or part of a gain) is determined to be a chargeable gain. Thus, where it is provided that gains on the disposal of an asset are not chargeable gains, losses on the disposal of the asset are not allowable losses.

(2) & (3) Subsections (2) and (3) are qualified by the words “Except where otherwise expressly provided” in order to protect provisions of the Capital Gains Tax Acts which deal with losses in special cases. For example, under section 602(4) a loss on the disposal of tangible movable property sold for less than €2,540 is restricted by treating the consideration as being equal to €2,540, having regard to the corresponding exemption for gains on such property.

(4) A person who is neither resident nor ordinarily resident in the State is liable to capital gains tax only in respect of gains on the disposal of such assets as are mentioned in section 29(3), namely, land and mineral assets in the State, trading assets of a branch, business or agency in the State and exploration and exploitation rights in the Irish Continental Shelf area. In the same manner relief for losses by such a person is confined to losses on similar assets.

(5) With one exception, an allowable loss cannot be carried back to an earlier year of assessment. The exception is a loss incurred by an individual in the year of his/her death which under section 573(3) may be carried back for offset against chargeable gains accruing in the 3 years of assessment before the year of assessment in which the death occurs. Also, relief may not be given more than once in respect of any loss or part of a loss and, if relief has been given for a loss or part of a loss under the Income Tax Acts, no relief can be given for that loss or part of a loss under the Capital Gains Tax Acts.

(6) Where a person is chargeable to capital gains tax for a year of assessment at 2 rates, losses are to be deducted as far as possible from gains chargeable at the higher of the 2 rates and then from the gains chargeable at the lower rate. Similarly, where a person is chargeable at 3 or more rates, losses are to be deducted as far as possible from the gains chargeable at the highest rate and then from the gains chargeable at the next highest rate and so on. The set-off is, therefore, made in the order which best benefits the taxpayer.

Relevant Date: Finance Act 2020