Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

557 Part disposals

Summary

Where only part of an asset is disposed of, only a portion of the cost is deductible in computing a chargeable gain or an allowable loss on the part disposal. Where the expenditure attributable to each part of the asset is known, the amount deductible is the expenditure attributable to the part disposed of. Where the expenditure cannot be so quantified, it is apportioned in accordance with the rules laid down in this section and only the amount apportioned to the part disposed of is deductible.

Details

(1) There is to be an apportionment of the costs allowable in computing a gain or a loss where there is a part disposal of an asset. (Section 534(b) defines what is meant by a part disposal.)

(2) A simple apportionment rule is set out under which the amount allowable on a part disposal is, in terms of a fraction of total expenditure, the amount determined by the fraction —

A


A + B

where A is the consideration for the disposal and B is the market value of the remainder. It is also provided that the balance of the expenditure is to be attributed to the property remaining and this in terms of a fraction of total expenditure can be stated as —

A


A + B

where A and B have the same meanings as above.

Example

An asset cost 50,000. A part is sold for 40,000 at a time when the remainder is valued at 60,000. The chargeable gain is computed thus —

Proportion of cost attributable to the part sold is-

€40,000


×€50,000 = €20,000

€40,000 + €60,000

The gain (disregarding any indexation relief under section 556) is therefore 40,000 less 20,000, that is, 20,000. The balance of the expenditure, 30,000 (that is, 50,000 less 20,000) is attributable to the remainder of the asset.

(3) Apportionments are to be made before the operation of section 555 which deals with the restriction of losses by reference to capital allowances and renewals allowances. Where the expenditure attributable to each part is known, the capital allowances to be taken into account for the purposes of that restriction are those attributable to the part disposed of. Where the expenditure attributable to the parts has to be determined by the apportionment rule, the full capital allowances are taken into account for the purposes of the restriction. To the extent that any allowances have been taken into account to restrict a loss on a disposal, they will not be taken into account for restricting a loss on a subsequent disposal.

Thus, in the case of an asset which attracts capital allowances or renewals allowances, the apportionment is to be made first and capital allowances are to be taken into account under section 555 only to the extent that they relate to the part of the asset disposed of. If there has been a previous part disposal at a loss and on that disposal capital allowances or renewals allowances have been used to restrict the allowable loss, then, only the balance of the allowances is to be used to restrict any further loss on the disposal of the asset in full or in part.

(4) Where the actual expenditure on the different parts of an asset is known there is to be no apportionment. This occurs where expenditure is wholly attributable either to the part of the asset disposed of or the remainder of the asset.

Relevant Date: Finance Act 2017