299 Allowances to lessees

Summary

(1) In the case of a lessee carrying on a trade, where the terms of a lease of machinery or plant provide that the lessee is bound to maintain the machinery or plant and deliver it over in good condition at the end of the lease and the burden of wear and tear of the machinery or plant falls directly on the lessee (and not the lessor), the lessee is entitled to an initial allowance (if available) and wear and tear allowances in respect of the machinery or plant. In effect, for the purposes of those allowances, the lessee is treated as if the capital expenditure incurred on the provision of the machinery or plant had been incurred by the lessee and as if the machinery or plant belonged to the lessee.

With effect from 4 April 2010, this section will only apply where the machinery or plant is let by means of a finance lease.

Details

(1) A lessee may claim a wear and tear allowance in respect of machinery or plant where-

• the machinery or plant is let under a finance lease (within the meaning of section 76D),
• the terms of the lease provides that the lessee is bound to maintain the machinery or plant and deliver it over in good condition at the end of the lease term,
  and
• the burden of wear and tear in fact falls directly on the lessee.

(2) A lessee carrying on a trade is not entitled to accelerated wear and tear allowances (free depreciation) in respect of machinery or plant unless the contract of letting provides that the lessee will or may become the owner of the machinery or plant at the end of the letting period. If free depreciation is claimed but the lessee does not become the owner of the machinery or plant, the allowances are withdrawn to the extent that they exceed the normal wear and tear allowances, and any necessary amended assessments or adjustments of assessments are to be made to recover that excess. However, there will be no withdrawal of the allowances where the lessee dies before being able to become the owner of the machinery or plant.

(3)(a) & (b) The provision of subsection (1) will only apply where a “lessee” and “lessor” make a joint election to have the section applied or, where the “lessor” is not within the charge to tax under Schedule D, the “lessee” elects that the provisions should apply. The election must be made in writing on a form approved by the Revenue Commissioners.

(3)(c)(i) Where an election is made, the amount to be deducted for any chargeable period of the lessee in respect of the “lease payments”, is to be the amount of the “lease payments” which have been deducted in the profit and loss account for the period in accordance with generally accepted accounting practice.
The aggregate amount (referred to in subparagraph (ii) as “the aggregate deductible amount”) of “lease payments” to be deducted in the tax computation over the term of the lease should be the aggregate amount of such payments which in accordance with generally accepted accounting practice would be deducted from the profit and loss account over the terms of the lease.

(3)(c)(ii) The amount of expenditure on which wear and tear allowance will be granted will be the difference between the aggregate amount of “lease payments” made to the lessor over the terms of the lease and “the aggregate deductible amount” as defined in subparagraph (i).

Relevant Date: Finance Act 2019