Revenue Note for Guidance
561 Wasting assets qualifying for capital allowances
Summary
Wasting assets used for the purposes of a trade or profession, in respect of which capital allowances have or could have been claimed, do not qualify for exemption from capital gains tax under section 603. Section 561 ensures that the provisions of section 560 for writing off expenditure at a uniform rate do not apply to such assets. This is because of the special provisions of section 555 restricting losses by reference to capital allowances. Thus, in the case of wasting assets qualifying for capital allowances, section 555 applies instead of section 560.
Details
(1) Subsections (3) to (5) of section 560 do not apply in the case of the disposal of an asset where the asset was used for a trade or profession during the full period of ownership of the asset by the disponer, and capital allowances have been given or could have been claimed in respect of the expenditure on the asset. The same exclusion is made where expenditure was incurred which had otherwise qualified in full for any capital allowance (as, for example, on leased machinery).
(2) In the case of assets which qualify only in part for capital allowances, the expenditure and consideration are to be apportioned and the part corresponding to the expenditure which has qualified for capital allowances is to be dealt with under section 555 while the remainder comes within the ambit of section 560 or is exempt under section 603. Any apportionment of the consideration agreed for the purposes of a balancing allowance or balancing charge is to apply also for capital gains tax but otherwise consideration is to be apportioned in the same way as expenditure.
Example 1
On 1 December, 2002 X bought a machine for €50,000. The asset is used partly () in X’s trade and partly () for personal use. Thus, only () of the expenditure qualifies for capital allowances. He sells the asset for €60,000 on 1 December, 2004. The computation of the gain (disregarding indexation relief under section 556) is as follows —
Consideration for the disposal €60,000 × 3/4 |
€45,000 |
|
Less cost €50,000 × 3/4 |
€37,500 |
|
Gain |
€7,500 |
The part of the asset not qualifying for capital allowances is a wasting chattel and is exempt from capital gains tax under section 603.
Example 2
X owns a plant hire business. In July 2002 she bought a boat for €120,000 which she uses privately for 3 months of the year. The predictable life is 40 years and the scrap value is €4,000. She gets capital allowances for income tax purposes on of the cost, X sells the boat in July 2009 for €100,000. For income tax purposes the capital allowances given amount to of (€120,000 less €100,000), that is €15,000. For capital gains tax the part of the expenditure to which the capital allowances relate is considered without reference to the wasting assets provisions, as follows —
Cost price €120,000 × 3/4 |
€90,000 |
|
Sale price €100,000 × 3/4 |
€75,000 |
|
Loss |
€15,000 |
|
Capital allowances granted for income tax |
€15,000 |
The result is no gain and no loss.
The balance of the asset comes within the ambit of section 603.
Relevant Date: Finance Act 2021