381C Restriction of loss relief – anti-avoidance

Summary

This section (inserted by 11 of the Finance Act 2014) modifies and limits the use of section 381 in circumstances where an individual wishes to claims relief under section 381 for a loss which was artificially created for the purposes of making a section 381 claim. Any losses which are not available for relief under section 381 pursuant to the operation of this section are available for carry forward under section 382.

Details

(1)(a) “Arrangements” means any agreement, understanding, scheme, transaction or series of transactions, whether or not they are legally enforceable.

“Relevant loss” means a trading or professional loss, including any amount of current year capital allowances which by virtue of section 392 are available for relief under section 381, other than a loss which relates to:

• a loss generated from specified property reliefs to which the USC property relief surcharge applies (both of these can generate losses through the use of an incentive in the tax code in a manner which was intended by the Oireachtas. Therefore claiming such relief should not be restricted).

“Relevant period for a year of assessment” means, in most cases, the basis period for that year of assessment. However, in circumstances where that basis period is shorter than 6 months (because of the operation of the commencement, cessation or change in accounting date rules) then a period of 6 months must be looked at. In the case of cessations, the 6 months is the 6 months up to the date of cessation. In all other cases it is a 6 month period starting with the first day of the basis period.

“Relevant tax avoidance arrangements” means arrangements the main purpose, or one of the main purposes of which, was to give rise to a claim under section 381.

(1)(b) For the purposes of section 381C, an individual carries on a trade in a non-active capacity during a relevant period for a year of assessment if, during that period, that individual does not work for the greater part of his or her time on the day to day management or conduct of the trade / profession.

A person cannot be said to work for the greater part of his or her time on the day to day management or conduct of the trade or profession during a period unless:

• on average, during the period, the individual spends 10 hours a week
• personally engaged in the activities of the trade or profession and
• those activities are carried on on a commercial basis
• in such a way that profits of the trade or profession could reasonably be expected to be made in the period or within a reasonable time there after.

(2) A person who

• does not meet the test set out in (1)(b) and
• sustains a relevant loss for the year of assessment and
• that loss arises from tax avoidance arrangements, in whole or in part, directly or indirectly

then, no relief is available for that loss under section 381.

Relevant Date: Finance Act 2019