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13 1986

FINANCE ACT, 1986

Chapter VI

Income Tax, Corporation Tax and Capital Gains Tax

Limited partnerships: relief restrictions.

46. —(1) In this section—

the aggregate amount”, in relation to a trade, means—

(a) in the case of an individual, the aggregate of amounts given or allowed to him at any time under any of the specified provisions—

(i) in respect of a loss sustained by him in the trade, or of interest paid by him by reason of his participation in the trade, in any relevant year of assessment, or

(ii) as an allowance falling to be made to him for any relevant year of assessment either in taxing the trade or by way of discharge or repayment of tax to which he is entitled by reason of his participation in the trade,

and

(b) in the case of a company, the aggregate of amounts given or allowed to the company (hereafter in this section referred to as the “partner company”) or to another company at any time under any of the specified provisions—

(i) in respect of a loss incurred by the partner company in the trade, or of charges paid by it or another company by reason of its participation in the trade, in any relevant accounting period, or

(ii) as an allowance falling to be made to the partner company for any relevant accounting period either in taxing the trade or by way of discharge or repayment of tax to which it is entitled by reason of its participation in the trade;

limited partner”, in relation to a trade, means—

(a) a person who is carrying on the trade as a limited partner in a limited partnership registered under the Limited Partnerships Act, 1907,

(b) a person who is carrying on the trade as a general partner in a partnership, who is not entitled to take part in the management of the trade and who is entitled to have his liabilities, or his liabilities beyond a certain limit, for debts or obligations, incurred for the purposes of the trade, discharged or reimbursed by some other person, or

(c) a person who carries on the trade jointly with others and who, under the law of any territory outside the State, is not entitled to take part in the management of the trade and is not liable beyond a certain limit for debts or obligations incurred for the purposes of the trade;

relevant accounting period” means an accounting period of the partner company which ends on or after the specified date and at any time during which it carried on the trade as a limited partner;

the relevant time” means—

(a) in the case of an individual, the end of the relevant year of assessment in which the loss is sustained or the interest is paid, or for which the allowance falls to be made (except that where he ceased to carry on the trade during that year of assessment it is the time when he so ceased), and

(b) in the case of a partner company, the end of the relevant accounting period in which the loss is incurred or the charges are paid, or for which the allowance falls to be made (except that where the partner company ceased to carry on the trade during that accounting period it is the time when it so ceased);

relevant year of assessment” means a year of assessment which ends after the specified date and at any time during which the individual carried on the trade as a limited partner;

the specified date” means the 22nd day of May, 1985;

the specified provisions” means—

(a) in the case of an individual—

(i) section 296 of the Income Tax Act, 1967 ,

(ii) section 307 of that Act, and

(iii) Chapter III of Part I of the Finance Act, 1974 ,

and

(b) in the case of a company, the following provisions of the Corporation Tax Act, 1976

(i) section 10,

(ii) section 14 (6),

(iii) section 16 (2),

and

(iv) subsections (1), (2) and (6) of section 116.

(2) (a) Where, in the case of an individual who is a limited partner in relation to a trade, an amount may, apart from this section, be given or allowed under any of the specified provisions—

(i) in respect of a loss sustained by him in the trade or of interest paid by him by reason of his participation in the trade, in a relevant year of assessment, or

(ii) as an allowance falling to be made to him for a relevant year of assessment either in taxing the trade or by way of discharge or repayment of tax to which he is entitled by reason of his participation in the trade,

such an amount may be given or allowed, otherwise than against income consisting of profits or gains arising from the trade, only to the extent that the amount given or allowed or, as the case may be, the aggregate amount in relation to that trade, does not exceed the amount of his contribution to the trade as at the relevant time.

(b) Where, in the case of a partner company which is a limited partner in relation to a trade, an amount may, apart from this section, be given or allowed under any of the specified provisions—

(i) in respect of a loss sustained by the partner company in the trade, or of charges paid by the partner company or another company by reason of its participation in the trade, in a relevant accounting period, or

(ii) as an allowance falling to be made to the partner company for a relevant accounting period either in taxing the trade or by way of discharge or repayment of tax to which it is entitled by reason of its participation in the trade,

such an amount may be given or allowed to the partner company, otherwise than against profits or gains arising from the trade, or to another company, only to the extent that the amount given or allowed, or, as the case may be, the aggregate amount does not exceed the partner company's contribution to the trade as at the relevant time.

(3) (a) A person's contribution to a trade at any time is the aggregate of—

(i) the amount which he has contributed to it as capital and has not subsequently, either directly or indirectly, drawn out or received back from the partnership or from a person connected with the partnership (other than anything, in relation to expenditure which he has incurred on behalf of the partnership trade or in providing facilities for the partnership trade, which he is or may be entitled so to draw out or receive back at any time when he carries on the trade as a limited partner or which he is or may be entitled to require another person to reimburse to him), and

(ii) the amount of any profits or gains of the trade to which he is entitled but which he has not received in money or money's worth.

(b) A person shall, for the purposes of paragraph (a), be treated as having received back an amount which he has contributed to the partnership if—

(i) he received consideration of that amount or value for the sale of his interest, or any part of his interest, in the partnership,

(ii) the partnership or any person connected with the partnership repays that amount of a loan or an advance from him, or

(iii) the person receives that amount of value for assigning any debt due to him from the partnership or from any person connected with the partnership.

(4) To the extent that an allowance is taken into account in computing profits or gains or losses in the year of loss by virtue of section 318 of the Income Tax Act, 1967 , it shall, for the purposes of this section, be treated as falling to be made in the year of loss (and not in the year of assessment for which the year of loss is the basis year).

(5) For the purposes of this section, a person shall be regarded as connected with a partnership if he would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 .

Amendment of section 16 (gifts to President's Award Scheme) of Finance Act, 1985.

47. Section 16 of the Finance Act, 1985 , is hereby amended by the substitution in subsection (1) (b) (i) of “1987” for “1986” and the said subsection (1) (b) (i), as so amended, is set out in the Table to this section.

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(i) is made on or before the 5th day of April, 1987, to the trustees of the President's Award Scheme to be applied by them for the purposes of that scheme, and

Surcharge for late submission of returns.

48. —(1) (a) In this section—

return of income” means a return, statement, declaration or list which a person is required to deliver to the inspector by reason of a notice which is given by the inspector under any one or more of the specified sections;

specified date” means, in relation to a return of income for a year of assessment or accounting period—

(i) (I) as respects the year 1986-87, the 31st day of December, 1987,

(II) as respects the year 1987-88 or any subsequent year of assessment, the 31st day of December in the year,

(III) as respects accounting periods ending in the year beginning on the 6th day of April, 1986, and ending on the 5th day of April, 1987, the 31st day of December, 1987, and

(IV) as respects accounting periods ending on or after the 6th day of April, 1987, the last day of the period of nine months commencing on the day next after the end of the accounting period, or

(ii) the last day of the period of six months commencing on the day next after the date on which the person is required by notice to deliver the return of income,

whichever is the later;

specified sections” means—

(i) sections 70 , 94 (a), 94 (d), 169 , 170 , 172 and 197 of the Income Tax Act, 1967 ,

(ii) section 11 of the Finance Act, 1976 , and

(iii) section 143 of the Corporation Tax Act, 1976 ;

tax” means income tax, corporation tax or capital gains tax as may be appropriate.

(b) For the purposes of this section—

(i) where a person fraudulently or negligently delivers an incorrect return of income on or before the specified date in relation to the return of income, he shall be deemed to have failed to deliver the return of income on or before that date unless the error in the return of income is remedied on or before that date,

(ii) where a person delivers an incorrect return of income on or before the specified date in relation to that return of income but does so neither fraudulently nor negligently and it comes to his notice (or, if he has died, to the notice of his personal representatives) that it is incorrect, he shall be deemed to have failed to deliver the return of income on or before the specified date in relation to the return of income unless the error in the return of income is remedied without unreasonable delay,

(iii) where a person delivers a return of income on or before the specified date in relation to the return of income but the inspector, by reason of being dissatisfied with any statement of profits or gains arising to the person from any trade or profession which is contained in the return of income, requires the person, by notice in writing served on him under section 174 of the Income Tax Act, 1967 , to do any thing, the person shall be deemed not to have delivered the return of income on or before the specified date unless he does that thing within the time specified in the notice,

(iv) references to such of the specified sections as are applied, subject to any necessary modifications, in relation to capital gains tax by paragraph 3 of Schedule 4 to the Capital Gains Tax Act, 1975 , shall be construed as including references to those sections as so applied, and

(v) references to a return of income for a year of assessment or in relation to a year of assessment shall be construed as references to a return of income requiring a statement or particulars of any income of the year ended on the 5th day of April immediately preceding the commencement of that year of assessment.

(2) Where, in relation to a year of assessment (being the year 1986-87 or any subsequent year of assessment) or accounting period (being an accounting period ending on or after the 6th day of April, 1986), a person who is required to deliver a return of income to the inspector fails to deliver the return of income, on or before the specified date in relation to the return of income, any amount of tax for that year of assessment or accounting period which, apart from this section, is or would be contained in an assessment to tax made or to be made on a person (hereafter in this subsection referred to as the “chargeable person”) who is chargeable to tax for that year of assessment or accounting period on or by reference to the whole or any part of the income, profits or chargeable gains which is contained in or returned in the return of income, or which would be so contained in or returned in the return of income if it were delivered, shall be increased by an amount (hereafter in this subsection referred to as the “surcharge”) equal to 10 per cent. of that amount of tax and, if the tax contained in the assessment to tax is not the amount of tax as so increased, all the provisions of the Tax Acts and the Capital Gains Tax Acts, apart from this section but including in particular those relating to the collection and recovery of tax and the payment of interest on unpaid tax, shall apply as if the tax contained in the assessment to tax were the amount of tax as so increased:

Provided that, in determining the amount of the surcharge, the tax contained in the assessment to tax shall be deemed to be reduced by the aggregate of—

(a) any tax deducted by virtue of any of the provisions of the Tax Acts or the Capital Gains Tax Acts from any income, profits or chargeable gains, charged in the assessment to tax in so far as that tax has not been repaid or is not repayable to the chargeable person and in so far as the tax so deducted may be set off against the tax contained in the assessment to tax,

(b) the amount of any tax credit to which the chargeable person is entitled in respect of any income, profits or chargeable gains charged in the assessment to tax, and

(c) any other amounts which are set off in the assessment to tax against the tax contained therein.

Amendment of section 30 (appeals against assessments and payments on account) of Finance Act, 1976.

49. Section 30 of the Finance Act, 1976 , is hereby amended by the substitution, in subsection (1), of the following definition for the definition of “the appropriate amount” (inserted by the Finance Act, 1984 ):

“‘the appropriate amount’ means—

(a) in the case of an assessment to income tax (other than an assessment to an amount representing income tax for the purposes of section 31 (1) (a) of the Corporation Tax Act, 1976 ) for the year 1984-85 or 1985-86, 85 per cent. of the amount of tax found to be chargeable by the assessment on the determination of the appeal,

(b) in the case of—

(i) an assessment to income tax or capital gains tax for the year 1986-87 or any subsequent year of assessment, or

(ii) an assessment to corporation tax for an accounting period ending on or after the 6th day of April, 1986,

90 per cent. of the amount of the tax found to be chargeable by the assessment on the determination of the appeal, and

(c) in the case of any other assessment to tax, 80 per cent. of the amount of tax found to be chargeable by the assessment on the determination of the appeal;”.

Capital allowances for, and deduction in respect of, vehicles.

50. —(1) (a) Sections 25 to 29 of the Finance Act, 1973 , shall have effect, in relation to expenditure incurred on the provision or hiring of a vehicle to which those sections apply, as if for “£2,500”, in each place where it occurs in those sections, there were substituted “£4,000”.

(b) The reference in paragraph (a) to expenditure incurred on the provision or hiring of a vehicle does not include—

(i) as respects the said sections 25 to 27, a reference to expenditure incurred before the 6th day of April, 1986, or incurred within twelve months after that day under a contract entered into before that day, and

(ii) as respects subsections (2) and (3) of the said section 28 and the said section 29, a reference to expenditure under a contract entered into before the said 6th day of April, 1986.

(2) Section 32 of the Finance Act, 1976 , shall have effect, in relation to qualifying expenditure (within the meaning of that section) incurred in respect of a period subsequent to the 5th day of April, 1986, as if for “£3,500”, in each place where it occurs, there were substituted “£4,000”.

Amendment of section 25 (allowance for certain expenditure on construction of multi-storey car-parks) of Finance Act, 1981.

51. —(1) Section 25 of the Finance Act, 1981 , is hereby amended by the substitution in subsection (1), in the definition of “relevant expenditure”, of “1988” for “1987” (inserted by the Finance Act, 1984 ), and the said definition, as so amended, is set out in the Table to this subsection.

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relevant expenditure” means capital expenditure incurred on or after the 29th day of January, 1981, and before the 1st day of April, 1988, on the construction of a multi-storey car-park.

(2) The said section 25 is hereby further amended by the substitution of the following subsection for subsection (2) (inserted by the Finance Act, 1984 ):

“(2) All the provisions of the Tax Acts (other than section 25 of the Finance Act, 1978 ) relating to the making of allowances or charges in respect of capital expenditure on the construction of an industrial building or structure shall apply to relevant expenditure as if it were expenditure incurred on the construction of a building or structure in respect of which an allowance falls to be made for the purposes of income tax or corporation tax, as the case may be, under Chapter II of Part XV or under Chapter I of Part XVI of the Income Tax Act, 1967 , by reason of its use for a purpose specified in section 255 (1) (a) of that Act.”.

Capital allowances: treatment of grants, etc.

52. —(1) (a) Subject to paragraph (b), where an allowance falls to be made for the purposes of income tax or corporation tax, as the case may be, under section 241 or 251 of the Income Tax Act, 1967 , and the capital expenditure incurred on the provision of the machinery or plant in respect of which the allowance falls to be made was incurred on or after the 29th day of January, 1986, the following provisions shall apply:—

(i) expenditure shall not be regarded as having been incurred by a person in so far as it has been or is to be met directly or indirectly by the State, by any board established by statute or by any public or local authority, and

(ii) the actual cost of any machinery or plant to any person shall, for the purposes of the said section 241, be taken to be the amount of capital expenditure incurred on the provision of such machinery or plant less any such expenditure as is referred to in subparagraph (i).

(b) Paragraph (a) shall not have effect in relation to any capital expenditure which is or is to be met in the manner mentioned in paragraph (a) (i)

(i) under the terms of an agreement finally approved on or before the 29th day of January, 1986, by a Department of State, any board established by statute or any public or local authority, or

(ii) under the terms of an agreement which—

(I) is the subject of negotiations which were in progress on the 29th day of January, 1986, with a Department of State, any board established by statute or any public or local authority, and

(II) is finally approved by such Department, board or authority not later than the 31st day of December, 1986.

(2) Section 264 of the Income Tax Act, 1967 , is hereby amended by the insertion after subsection (3) of the following subsection:

“(3A) In ascertaining the writing-down allowance falling to be made to a person under subsection (3), the residue of expenditure mentioned in that subsection shall, where it exceeds the amount of expenditure incurred by that person in respect of the sale, be taken to be the amount of expenditure so incurred.”.

Application of section 40 (capital allowances for certain leased assets) of Finance Act, 1984.

53. Section 40 of the Finance Act, 1984 , is hereby amended, as respects machinery or plant provided for leasing on or after the 13th day of May, 1986—

(a) in subsection (1), by the insertion after the definition of “chargeable period or its basis period” of the following definition:

“‘lessee’ and ‘lessor’, in relation to machinery or plant provided for leasing, mean, respectively, the person to whom the machinery or plant is or is to be leased and the person providing the machinery or plant for leasing and ‘lessee’ and ‘lessor’ include, respectively, the successors in title of a lessee or a lessor;”,

(b) in subsection (1), in the definition of “the specified capital allowances”, by the insertion after “subsection (6)” of “, (7) or (8)”, and the said definition, as so amended, is set out in the Table to this section,

(c) in subsection (5), by the insertion after “subsection (6)” of “or (7)”, and the said subsection, as so amended, is set out in the Table to this section, and

(d) by the deletion of subsection (6) and the substitution therefor of the following subsections:

“(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 was incurred under an obligation entered into by the lessor and the lessee—

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

(b) 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.

(7) 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, 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) 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:

Provided that this subsection shall not apply to machinery or plant provided for leasing on or after the 13th day of May, 1986, unless—

(a) the machinery or plant is a film to which section 6 or 7 of the Irish Film Board Act, 1980 , applies, or

(b) the expenditure incurred on the provision of the machinery or plant (not being a film of the kind mentioned in paragraph (a)) was incurred under an obligation entered into by the lessor and the lessee before—

(i) the 13th day of May, 1986, or

(ii) the 1st day of September, 1986, pursuant to negotiations which were in progress between the lessor and the lessee before the 13th day of May, 1986.

(8) (a) The reference in the definition of ‘the specified capital allowances’ in subsection (1) to machinery or plant to which this subsection applies is a reference to machinery or plant (not being a film of the kind mentioned in paragraph (a) of the proviso to subsection (7)) provided on or after the 13th day of May, 1986, for leasing by a lessor to a lessee (who is not a person connected with the lessor) under a lease the terms of which include an undertaking given by the lessee that, during a period (hereafter in this section referred to as ‘the relevant period’) which is not less than three years and which commences on the day on which the machinery or plant is first brought into use by the lessee, the machinery or plant so provided will be used by the lessee for the purposes only of a specified trade carried on in the State by the lessee:

Provided that any machinery or plant in respect of which such an undertaking has been given by a lessee, and which at any time has been treated as machinery or plant to which this subsection applies, shall at any later time cease to be machinery or plant to which this subsection applies if, at that later time, it appears to the inspector (or, on appeal, to the Appeal Commissioners) that the undertaking has not been fulfilled by the lessee; and, where any machinery or plant so ceases to be machinery or plant to which this subsection applies, such assessments or adjustments of assessments shall be made to recover from the lessor any relief from tax given to the lessor because the machinery or plant was treated as machinery or plant to which this subsection applies.

(b) This subsection shall not apply to machinery or plant provided for leasing on or after the 13th day of May, 1986, if the expenditure incurred on the provision of the machinery or plant was incurred under an obligation entered into by the lessor and the lessee before—

(i) the 13th day of May, 1986, or

(ii) the 1st day of September, 1986, pursuant to negotiations which were in progress between the lessor and the lessee before the 13th day of May, 1986.

(9) For the purposes of subsections (6), (7) and (8)—

(a) an obligation shall be treated 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

(b) negotiations pursuant to which an obligation was entered into shall not be regarded as having been in progress between a lessor and a lessee before a particular date 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.

(10) In subsection (8) (a), ‘specified trade’, in relation to a lessee, means a trade which, throughout the relevant period, consists wholly or mainly of—

(a) the manufacture of goods (including activities which would, if the borrower were to make a claim for relief in respect of the trade under Chapter VI of Part I of the Finance Act, 1980 , fall to be regarded for the purposes of that Chapter as the manufacture of goods), or

(b) exempted trading operations within the meaning of Part V (Profits from Trading within Shannon Airport) of the Corporation Tax Act, 1976 :

Provided that a trade shall be regarded, as respects the relevant period, as consisting wholly or mainly of particular activities if, but only if, the total amount receivable by the lessee from sales made or, as the case may be, in payment for services rendered in the course of those activities in the relevant period is not less than 75 per cent. of the total amount receivable by the lessee from all sales made or, as the case may be, in payment for all services rendered in the course of the trade in the relevant period.

(11) Section 157 of the Corporation Tax Act, 1976 , shall apply for the purposes of subsection (8) (a), save that, for the purposes of determining whether a person is connected with another person whose profits or gains are chargeable to income tax, the provisions of section 16 (3) of the Finance (Miscellaneous Provisions) Act, 1968 , shall apply.”.

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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), (7) or (8) applies;

(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) or (7) applies.