Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 2

Income tax: loss relief – treatment of capital allowances

Overview

This Chapter, in section 392, authorises the deduction of capital allowances in the computation of a loss for the purposes of section 381 (that is, relief for current year losses). In addition to operating to increase the loss, the deduction of the capital allowances may be used to create a loss for the purposes of relief under section 381. Under the Chapter the capital allowances to be considered in computing a loss are those for the year of assessment in which the loss is sustained (section 391). The allowances are to be reduced by the amount of any balancing charges required to be made for the year (section 393). Claims for the treatment provided by the Chapter are to be included in claims made under section 381.

391 Interpretation (Chapter 2)

(1) References to “year of claim” are references to the year of assessment for which a claim for loss relief under section 381 (that is, current year loss relief) is made.

(1) & (2)(a) The capital allowances or balancing charges (being balancing charges under Part 9 (Industrial Buildings or Structures, Machinery or Plant, Dredging) or Chapter 1 of Part 29 (Patents)) for a year of assessment which are to be taken into account are those in respect of assets used for the trade in question and attributable to that year. Allowances or charges attributable to other assets and which would not be made in charging the profits/gains of the trade are excluded. Also excluded are capital allowances carried forward from earlier years.

(2)(b) Where the capital allowances to be made in charging the profits of a trade for a year of assessment include allowances carried forward from an earlier year, any amount of capital allowances actually granted in that year of assessment is to be treated as consisting primarily of the allowances so carried forward.

(2)I References to an amount of capital allowances being non-effective in a year of assessment are references to so much of the capital allowances to be made for a year of assessment as cannot be actually made in charging the profits of the trade because the profits chargeable are insufficient.

(3) The Chapter also applies to the other activities, namely, professions (including vocations) and employments, in which losses eligible for relief under section 381 may arise.

Relevant Date: Finance Act 2019