Finance Act, 1984

Capital allowances for certain leased assets.

40.—(1) (a) In this section—

“chargeable period or its basis period” has the meaning assigned to it by paragraph 1 (2) of the First Schedule to the Corporation Tax Act, 1976 ;

“the specified capital allowances” means capital allowances in respect of—

(i) expenditure incurred on machinery or plant provided on or after the 25th day of January, 1984, for leasing in the course of a trade of leasing, or

(ii) the diminished value of such machinery or plant by reason of wear and tear,

other than capital allowances in respect of machinery or plant to which subsection (6) applies;

“trade of leasing” means—

(i) a trade which consists wholly of the leasing of machinery or plant, or

(ii) any part of a trade treated as a separate trade by virtue of subsection (2).

(b) For the purposes of this section—

(i) letting on charter a ship or aircraft which has been provided for such letting, and

(ii) letting any item of machinery or plant on hire,

shall be regarded as leasing of machinery or plant if, apart from this paragraph, it would not be so regarded.

(c) Where a company carries on a trade of operating ships in the course of which a ship is let on charter, paragraph (b) shall not have effect so as to treat the letting on charter as the leasing of machinery or plant if, apart from this section, the letting would fall to be regarded for the purposes of Case I of Schedule D as part of the activities of the trade.

(2) Where in any chargeable period or its basis period which ends on or after the 25th day of January, 1984, a person carries on as part of a trade any leasing of machinery or plant, that leasing shall be treated for all the purposes of the Tax Acts, other than any provisions of those Acts relating to the commencement or cessation of a trade, as a separate trade, distinct from all other activities carried on by him as part of the trade, and any necessary apportionment shall be made of receipts or expenses.

(3) (a) Notwithstanding any of the provisions of section 307 of the Income Tax Act, 1967 , where relief is claimed under that section in respect of a loss sustained in a trade of leasing, the amount of that loss in so far as, by virtue of section 318 of that Act, it is referable to the specified capital allowances shall be treated for the purposes of subsections (1) and (2) (a) of the said section 307 as reducing profits or gains of that trade of leasing only and shall not be treated as reducing any other income.

(b) Where paragraph (a) applies in the case of any claimant to relief under the said section 307—

(i) any limitation imposed by section 319 of the said Act on the amount of capital allowances which may be taken into account under section 318 of that Act shall be referred, as far as may be, to the specified capital allowances rather than to any other capital allowances, and

(ii) notwithstanding subsection (2) of the said section 318 (but without prejudice to paragraph (a) and to the order in which income is to be treated as reduced under subsection (2) (a) of the said section 307), the claimant may specify the extent to which any reduction of income treated as occurring by virtue of the said section 307 is to be referred to so much of the loss as is attributable to the loss, if any, actually sustained in the trade of leasing, the specified capital allowances or any other capital allowances, and, where the claimant so specifies, section 320 of the said Act shall apply in accordance with the claimant's specification and not in accordance with the said subsection (2) of the said section 318.

(4) (a) Where in an accounting period a company carrying on a trade of leasing incurs a loss in that trade and any specified capital allowances have been treated by virtue of section 14 of the Corporation Tax Act, 1976 , as trading expenses in arriving at the amount of the loss, the relevant amount of the loss shall not be available—

(i) for relief under subsection (2) of section 16 of that Act, except to the extent that it can be set off under that subsection against the company's income from the trade of leasing only, or

(ii) to be surrendered by way of group relief.

(b) For the purposes of paragraph (a) “the relevant amount of the loss” shall be the full amount of the loss or, if it is less, an amount equal to—

(i) where no capital allowances other than the specified capital allowances have been treated by virtue of section 14 of the Corporation Tax Act, 1976 , as trading expenses in arriving at the amount of the loss, the amount of the specified capital allowances,

or

(ii) where, in addition to the specified capital allowances, other capital allowances have been so treated by virtue of the said section 14, the lesser of—

(I) the amount of the specified capital allowances,

and

(II) the amount by which the loss exceeds the amount of the other capital allowances:

Provided that, where the amount of the loss does not exceed the amount of the other capital allowances, “the relevant amount of the loss” shall be nil.

(5) The proviso to subsection (1) of section 296 of the Income Tax Act, 1967 , and sections 14 (6) and 116 (2) of the Corporation Tax Act, 1976 , shall not have effect in relation to capital allowances—

(a) in respect of expenditure incurred on or after the 25th day of January, 1984, on the provision of machinery or plant, or

(b) in respect of the diminished value of machinery or plant by reason of wear and tear if that machinery or plant was first acquired on or after the 25th day of January 1984, by the person to whom the capital allowances are to be or have been made,

other than capital allowances in respect of machinery or plant to which subsection (6) applies.

(6) References in this section to machinery or plant to which this subsection applies are references to machinery or plant provided on or after the 25th day of January, 1984, for leasing where the expenditure incurred on the provision of the machinery or plant (or, for the purposes of paragraph (a) in the case of a film to which section 6 or 7 of the Irish Film Board Act, 1980 , applies, the cost of the making of the film)—

(a) has been or is to be met directly or indirectly, wholly or partly, by the Industrial Development Authority, the Irish Film Board, the Shannon Free Airport Development Company Limited or Údarás na Gaeltachta, or

(b) was incurred under an obligation entered into by the person providing the machinery or plant (hereafter in this subsection referred to as “the lessor”) and the person to whom it is to be leased (hereafter in this subsection referred to as “the lessee”) and that obligation was entered into—

(i) before the 25th day of January, 1984, or

(ii) before the 1st day of March, 1984, pursuant to negotiations which were in progress between the lessor and the lessee before the 25th day of January, 1984:

Provided that—

(I) an obligation shall be treated for the purposes of subparagraphs (i) and (ii) as having been entered into before a particular date if, but only if, before that date, there was in existence a binding contract in writing under which that obligation arose, and

(II) negotiations pursuant to which an obligation was entered into shall not be regarded for the purposes of subparagraph (ii) as having been in progress before the 25th day of January, 1984, unless, on or before that date, preliminary commitments or agreements in relation to that obligation had been entered into between the lessor and the lessee.