First Previous (PART 11 Capital Allowances and Expenses for Certain Road Vehicles) Next (CHAPTER 2 Income tax: loss relief— treatment of capital allowances)

39 1997

TAXES CONSOLIDATION ACT, 1997

PART 12

Principal Provisions Relating to Loss Relief, Treatment of Certain Losses and Capital Allowances, and Group Relief

CHAPTER 1

Income tax: loss relief

Right to repayment of tax by reference to losses.

[ITA67 s307(1), (1AAA) and (2) to (6); F(MP)A68 s3(2) and Sch PtI; FA74 s26; FA79 s17; FA80 s19 and Sch1 PtIII; FA97 s146(2) and Sch9 PtII]

381. —(1) Subject to this section, where in any year of assessment any person has sustained a loss in any trade, profession or employment carried on by that person either solely or in partnership, that person shall be entitled, on making a claim in that behalf, to such repayment of income tax as is necessary to secure that the aggregate amount of income tax for the year ultimately borne by that person will not exceed the amount which would have been borne by that person if the income of that person had been reduced by the amount of the loss.

(2) This section shall not apply to any loss sustained in any year of assessment by the owner of a stallion from the sale of services of mares by the stallion or of rights to such services or by the part-owner of a stallion from the sale of such services or such rights.

(3) (a) In this subsection, “appropriate income” means either earned or unearned income according as income arising during the same period as the loss to the person sustaining the loss from the same activity would have been that person's earned or unearned income.

(b) For the purposes of subsection (1), the amount of income tax which would have been borne if income had been reduced by the amount of a loss shall be computed—

(i) where the loss has been sustained by an individual, on the basis of treating the loss as reducing—

(I) firstly, the appropriate income of the individual,

(II) secondly, the other income of the individual,

(III) thirdly, in a case where the individual, or, being a husband or wife, as the case may be, the individual's spouse, is assessed to tax in accordance with section 1017 , the appropriate income of the individual's wife or husband, as the case may be, and

(IV) finally, the other income of the individual's wife or husband, as the case may be, and

(ii) where the loss has been sustained in a trade carried on by a body corporate, on the basis of treating the loss as reducing—

(I) firstly, the income of the body corporate from profits or gains of the trade in which the loss was sustained, and

(II) then, the other income of the body corporate.

(4) The amount of a loss sustained in an activity shall for the purposes of this section be computed in the like manner as profits or gains arising or accruing from the activity would be computed under the relevant provisions of the Income Tax Acts.

(5) Where repayment has been made to a person for any year under this section—

(a) no portion of the loss which in the computation of the repayment was treated as reducing the person's income shall be taken into account in computing the amount of an assessment for any subsequent year, and

(b) so much of the loss as was required by subsection (3) to be treated as reducing income of a particular class or income from a particular source shall for the purposes of the Income Tax Acts be regarded as a deduction to be made from income of that class or from income from that source, as the case may be, in computing the person's total income for the year.

(6) Any claim to repayment under this section shall be made, in a form prescribed by the Revenue Commissioners, not later than 2 years after the end of the year of assessment and shall be made to and determined by the inspector; but any person aggrieved by any determination of the inspector on any such claim may, on giving notice in writing to the inspector within 21 days after notification to that person of the determination, appeal to the Appeal Commissioners.

(7) The Appeal Commissioners shall hear and determine an appeal to them under subsection (6) as if it were an appeal to them against an assessment to income tax, and the provisions of the Income Tax Acts relating to the rehearing of an appeal and to the statement of a case for the opinion of the High Court on a point of law shall, with the necessary modifications, apply accordingly.

Right to carry forward losses to future years.

[ITA67 s309(1) and (2); FA96 s132(2) and Sch5 PtII; FA97 s146(1) and Sch9 PtI par1(21)]

382. —(1) Where, in any trade or profession carried on by a person, either solely or in partnership, such person has sustained a loss (to be computed in the like manner as profits or gains under the provisions of the Income Tax Acts applicable to Cases I and II of Schedule D) in respect of which relief has not been wholly given under section 381 or under any other provision of the Income Tax Acts, such person may claim that any portion of the loss for which relief has not been so given shall be carried forward and, in so far as may be, deducted from or set off against the amount of profits or gains on which such person is assessed under Schedule D in respect of that trade or profession for any subsequent year of assessment, except that, if and in so far as relief in respect of any loss has been given to any person under this section, that person shall not be entitled to claim relief in respect of that loss under any other provision of the Income Tax Acts.

(2) Any relief under this section shall be given as far as possible from the assessment for the first subsequent year of assessment and, in so far as it cannot be so given, from the assessment for the next year of assessment and so on.

Relief under Case IV for losses.

[ITA67 s310; FA97 s146(1) and Sch9 PtI par1(22)]

383. —(1) Where in any year of assessment a person sustains a loss in any transaction (being a transaction of such kind that, if any profits had arisen from the transaction, such person would have been liable to be assessed in respect of those profits under Case IV of Schedule D) in which such person engages, whether solely or in partnership, such person may claim for the purposes of the Income Tax Acts that the amount of that loss shall, as far as may be, be deducted from or set off against the amount of profits or gains on which such person is assessed under Case IV of Schedule D for that year and that any portion of the loss for which relief is not so given shall be carried forward and, in so far as may be, deducted from or set off against the amount of profits or gains on which such person is assessed under that Case for any subsequent year of assessment.

(2) In the application of this section to a loss sustained by a partner in a partnership, “the amount of profits or gains on which such person is assessed” shall, in respect of any year, be taken to mean such portion of the amount on which the partnership is assessed under Case IV of Schedule D as the partner would be required under the Income Tax Acts to include in a return of the partner's total income for that year.

(3) Any relief under this section by means of carrying forward any portion of a loss shall be given as far as possible from the assessment for the first subsequent year of assessment and, in so far as it cannot be so given, from the assessment for the next year of assessment and so on.

Relief under Case V for losses.

[ITA67 s89; FA69 s24; FA90 s18(1)(b) and (c); FA97 s146(1) and Sch9 PtI par1(7)]

384. —(1) In this section, “the person chargeable” has the same meaning as in Chapter 8 of Part 4 .

(2) Where in any year of assessment the aggregate amount of the deficiencies computed in accordance with section 97 (1) exceeds the aggregate of the surpluses as so computed, the excess shall be carried forward and, in so far as may be, deducted from or set off against the amount of profits or gains on which the person chargeable is assessed under Case V of Schedule D for any subsequent year of assessment, and if income tax has been overpaid the amount overpaid shall be repaid.

(3) Any relief under this section shall be given as far as possible from the assessment for the first subsequent year of assessment and, in so far as it cannot be so given, from the assessment for the next year of assessment and so on.

Terminal loss.

[ITA67 s311]

385. —(1) Where a trade or profession is permanently discontinued, and any person carrying on the trade or profession either solely or in partnership immediately before the time of the discontinuance has sustained in the trade or profession a loss to which this section applies (in this Chapter referred to as a “terminal loss”), then, subject to sections 386 to 389 , that person may claim for the purposes of the Income Tax Acts that the amount of the terminal loss shall, as far as may be, be deducted from or set off against the amount of profits or gains on which that person has been charged to income tax under Schedule D in respect of the trade or profession for the 3 years of assessment last preceding that in which the discontinuance occurs, and there shall be made all such amendments of assessments or repayments of tax as may be necessary to give effect to the claim.

(2) Relief shall not be given in respect of the same matter both under this section and under any other provision of the Income Tax Acts.

(3) Any relief under this section shall be given as far as possible from the assessment for a later rather than an earlier year.

Determination of terminal loss.

[ITA67 s312; FA96 s131(2) and Sch5 PtI par1(16)]

386. —(1) In this section, “the relevant capital allowances”, in relation to any year of assessment, means the capital allowances to be made in charging the profits or gains of the trade or profession for that year, excluding amounts carried forward from an earlier year, and for the purposes of paragraphs (a) and (c) of subsection (2) the amount of a loss shall be computed in the like manner as profits or gains are computed under the provisions of the Income Tax Acts applicable to Cases I and II of Schedule D.

(2) The question whether a person has sustained any, and if so what, terminal loss in a trade or profession shall for the purposes of section 385 be determined by taking the amounts, if any, of the following (in so far as they have not been otherwise taken into account so as to reduce or relieve any charge to income tax)—

(a) the loss sustained by the person in the trade or profession in the year of assessment in which it is permanently discontinued;

(b) the relevant capital allowances for that year of assessment;

(c) the loss sustained by the person in the trade or profession in the part of the preceding year of assessment beginning 12 months before the date of the discontinuance;

(d) the same fraction of the relevant capital allowances for that preceding year of assessment as the part beginning 12 months before the date of the discontinuance is of a year.

Calculation of amount of profits or gains for purposes of terminal loss.

[ITA67 s313(1) and (2)]

387. —(1) The amount of the profits or gains on which a person has been charged to income tax for any year of assessment in respect of the profits or gains of a trade or profession shall, for the purposes of relief under section 385 from the assessment for that year, be taken to be the full amount of the profits or gains on which the person was assessable for that year reduced by—

(a) a sum equal to the total amount of the deductions, if any, in respect of capital allowances made in charging the profits or gains,

(b) a sum equal to the amount of the deductions, if any, in respect of payments made or losses sustained, which were to be made from the profits or gains in computing for income tax purposes the person's total income for the year, or would have been so made if the person were an individual, and

(c) in the case of a body of persons, a sum equal to so much of the profits or gains as was applied in payment of dividends;

but, where any deduction mentioned in paragraph (b) may be treated in whole or in part either as having been made from the profits or gains or as having been made from other income, the deduction shall, as far as may be, be treated for the purposes of this subsection as made from the other income.

(2) Where under subsection (1)(b) the amount of the profits or gains on which a person was assessable for any year is reduced by reference to a payment made by the person, a like reduction shall be made in the amount of the terminal loss for which relief may be given under section 385 for earlier years unless the payment was made wholly and exclusively for the purposes of the trade or profession.

Meaning of “permanently discontinued” for purposes of terminal loss.

[ITA67 s314(1)]

388. —For the purposes of sections 385 to 389 , a trade or profession shall be treated as permanently discontinued and a new trade or profession set up or commenced when it is so treated for the purposes of section 69 , or where by reference to section 1008 (1)(a)(ii) a several trade of a partner has been deemed to have been permanently discontinued; but—

(a) a person who continues to be engaged in carrying on the trade or profession immediately after such a discontinuance shall not be entitled to relief in respect of any terminal loss on that discontinuance, and

(b) on any discontinuance, a person not continuing to be so engaged may be given relief in respect of a terminal loss against profits or gains on which the person was charged in respect of the same trade or profession for a period before a previous discontinuance, if the person has been continuously engaged in carrying on the trade or profession between the 2 discontinuances, and, in the person's case, if the previous discontinuance occurred within 12 months before the others, it shall be disregarded for the purposes of section 386 (2).

Determination of claim for terminal loss.

[ITA67 s315; F(MP)A68 s3(2) and Sch PtI]

389. —(1) Any claim under section 385 shall be made to and determined by the inspector, but any person aggrieved by any decision of the inspector on any such claim may, on giving notice in writing to the inspector within 21 days after the notification to that person of the decision, appeal to the Appeal Commissioners.

(2) The Appeal Commissioners shall hear and determine an appeal to them under subsection (1) as if it were an appeal against an assessment to income tax, and the provisions of the Income Tax Acts relating to the rehearing of an appeal and to the statement of a case for the opinion of the High Court on a point of law shall, with the necessary modifications, apply accordingly.

Amount of assessment made under section 238 to be allowed as a loss for certain purposes.

[ITA67 s316; FA96 s132(1) and Sch5 PtI par 1(17); FA97 s29(3), (5) and (6)]

390. —(1) Subject to this section, where a person has been assessed to income tax for a year of assessment under section 238 in respect of a payment made wholly and exclusively for the purposes of a trade or profession, the amount on which income tax has been paid under that assessment shall for the purposes of sections 382 and 385 to 389 be treated as if it were a loss sustained in that trade or profession and relief in respect of such loss shall be allowed accordingly; but no relief shall be allowed under this section in respect of any such payment or any part of such payment which is not ultimately borne by the person assessed or which is charged to capital.

(2) (a) This subsection shall apply to expenditure incurred for the purposes of a trade or profession which is set up and commenced on or after the 22nd day of January, 1997.

(b) Where an individual who has set up and commenced a trade or profession has been assessed to tax for any year of assessment under section 238 in respect of a payment made—

(i) before the time the trade or profession has been set up and commenced, and

(ii) wholly and exclusively for the purposes of the trade or profession,

then, this section shall apply in relation to the payment as it would apply if the payment were made at that time.

(c) An allowance or deduction shall not be made under any provision of the Tax Acts, other than this section, in respect of any expenditure or payment which is treated under this section as incurred on the day on which a trade or profession is set up and commenced.

(3) This section shall not apply to any sum assessed under section 238 by virtue of section 246 (2), 757 or 1041 (1).