Section 284 Wear and tear allowances

Source

Taxes Consolidation Act 1997 section 284.

Plant integral to industrial/commercial buildings – Interaction with restriction on amount of qualifying construction expenditure: Tax Briefing Issue 68 – 2008

(1) Subject to the Tax Acts, where a person carrying on a trade in any chargeable period has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, an allowance (in this Chapter referred to as a “wear and tear allowance”) shall be made to such person for that chargeable period on account of the wear and tear of any of the machinery or plant which belongs to such person and is in use for the purposes of the trade at the end of that chargeable period or its basis period and which, while used for the purposes of the trade, is wholly and exclusively so used.

(2)(a) Subject to paragraphs (aa), (ab) and (ad) and subsection (4), the amount of the wear and tear allowance to be made shall be an amount equal to-

(i) in the case of machinery or plant, other than machinery or plant of the type referred to in subparagraph (ii), 15 per cent of the actual cost of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by means of renewal, improvement or reinstatement, or

(ii) in the case of machinery or plant which consists of a vehicle suitable for the conveyance by road of persons or goods or the haulage by road of other vehicles, 20 per cent of the value of that machinery or plant at the commencement of the chargeable period.

(aa) Notwithstanding paragraph (a), where capital expenditure is incurred on or after 1 January 2001 on the provision of-

(i) machinery or plant, other than machinery or plant to which paragraph (a)(ii) and subsection (3A) relates, or

(ii) machinery or plant to which paragraph (a)(ii) relates, other than a car within the meaning of section 286 used for qualifying purposes within the meaning of that section,

the amount of the wear and tear allowance to be made shall be an amount equal to 20 per cent of the actual cost of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by means of renewal, improvement or reinstatement.

(ab) Where for any chargeable period ending on or after 1 January 2002 a wear and tear allowance would be due to be made to a person in respect of machinery or plant in accordance with paragraph (a), the person may elect that the amount of the wear and tear allowance to be made for that chargeable period and any subsequent chargeable period in respect of each and every item of the machinery or plant concerned shall, subject to subsection (4), instead of being the amount referred to in paragraph (a), be an amount equal to-

(i) where, apart from this paragraph, the allowance would be made in accordance with paragraph (a)(i), 20 per cent of the amount of the capital expenditure incurred on the provision of that machinery or plant which is still unallowed as at the commencement of the first-mentioned chargeable period, and

(ii) where, apart from this paragraph, the allowance would be made in accordance with paragraph (a)(ii), 20 per cent of the value of that machinery or plant at the commencement of the first-mentioned chargeable period.

(ac) An election under paragraph (ab) shall be irrevocable, and shall be included-

(i) where such an election is made by a chargeable person within the meaning of Part 41, in the return required to be made by that person under section 951 for the first chargeable period, and

(ii) where such an election is made by any other person, in the annual statement of profits or gains required to be delivered by that person under the Income Tax Acts, for the first year of assessment,

for which a wear and tear allowance in respect of machinery or plant is to be made in accordance with that paragraph.

(ad) Notwithstanding any other provision of this subsection but subject to subsection (4), where capital expenditure is incurred on or after 4 December 2002 on the provision of machinery or plant, the amount of the wear and tear allowance to be made shall be an amount equal to 12.5 per cent of the actual cost of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by means of renewal, improvement or reinstatement; but this paragraph shall not apply in the case of-

(i) machinery or plant to which subsection (3A) relates,

(ii) machinery or plant which consists of a car within the meaning of section 286, used for qualifying purposes, within the meaning of that section, or

(iii) machinery or plant provided under the terms of a binding contract evidenced in writing before 4 December 2002 and in respect of the provision of which capital expenditure is incurred on or before 31 January 2003.

(b) Where a chargeable period or its basis period consists of a period less than one year in length, the wear and tear allowance shall not exceed such portion of the amount specified in any other provision of this subsection as bears to that amount the same proportion as the length of the chargeable period or its basis period bears to a period of one year.

Amendments

Finance Act 2001, section 53.

Finance Act 2002 section 31(1).

Finance Act 2003 section 23(1)(a).

(3) For the purposes of paragraphs (a)(ii) and (b)(ii) of subsection (2), the value at the commencement of a chargeable period of the machinery or plant shall be taken to be the actual cost to the person of such machinery or plant reduced by the total of any wear and tear allowances made to that person in relation to the machinery or plant for previous chargeable periods.

Amendments

Finance Act 2002 section 31(1)(b).

(3A)(a) This subsection applies to machinery or plant consisting of a sea fishing boat registered in the Register of Fishing Boats and in respect of which capital expenditure is incurred in the period of 6 years commencing on the appointed day, being expenditure that is certified by Bord Iascaigh Mhara as capital expenditure incurred for the purposes of fleet renewal in the polyvalent and beam trawl segments of the fishing fleet.

(b) Notwithstanding subsection (2), but subject to paragraph (ba) and subsection (4), wear and tear allowances to be made to any person in respect of machinery or plant to which this subsection applies shall be made during a writing-down period of 8 years beginning with the first chargeable period or its basis period at the end of which the machinery or plant belongs to that person and is in use for the purposes of that person’s trade, and shall be of an amount equal to-

(i) as respects the first year of the writing-down period, 50 per cent of the actual cost of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on that machinery or plant by means of renewal, improvement or reinstatement,

(ii) as respects each of the next 6 years of the writing-down period, 15 per cent of the balance of that actual cost after the deduction of any allowance made by virtue of subparagraph (i), and

(iii) as respects the last year of the writing-down period, 10 per cent of the balance of that actual cost after the deduction of any allowance made by virtue of subparagraph (i).

(ba) Notwithstanding subsection (2), but subject to subsection (4), wear and tear allowances to be made to any person in respect of machinery or plant to which this subsection applies, and in respect of which capital expenditure is incurred on or after the date of the coming into operation of section 52 of the Finance Act, 2001, shall be made during a writing-down period of 6 years beginning with the first chargeable period or its basis period at the end of which the machinery or plant belongs to that person and is in use for the purposes of that person’s trade, and shall be of an amount equal to-

(i) as respects the first year of the writing-down period, 50 per cent of the actual cost of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on that machinery or plant by means of renewal, improvement or reinstatement, and

(ii) as respects the next 5 years of the writing-down period, 20 per cent of the balance of that actual cost after the deduction of any allowance made by virtue of subparagraph (i).

(c) Where a chargeable period or its basis period consists of a period less than one year in length, the wear and tear allowance shall not exceed such portion of the amount specified in subparagraph (i), (ii) or (iii), as may be appropriate, of paragraph (b), [or in subparagraph (i) or (ii), as may be appropriate, of paragraph (ba), as bears to that amount the same proportion as the length of the chargeable period or its basis period bears to a period of one year.

(d) This subsection shall come into operation on such day (in this subsection referred to as the “appointed day”) as the Minister for Finance may, by order, appoint.

Amendments

Finance Act 2001 section 77(2).and schedule 2 para 19.

(4) No wear and tear allowance or repayment on account of any such allowance shall be made for any chargeable period if such allowance, when added to-

(a) the allowances on that account, and

(b) any initial allowances in relation to the machinery or plant under section 283,

made for any previous chargeable periods to the person by whom the trade is carried on, will make the aggregate amount of the allowances exceed the actual cost to that person of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by means of renewal, improvement or reinstatement.

(5) No wear and tear allowance shall be made under this section in respect of capital expenditure incurred on the construction of a building or structure which is or is deemed to be an industrial building or structure within the meaning ofsection 268.

(6) Subject to subsection (7), this section shall, with any necessary modifications, apply in relation to the letting of any premises the profits or gains from which are chargeable under Chapter 8 of Part 4 as it applies in relation to trades.

Amendments

Subs (7) is spent.

(8) For the purposes of this Part, Dublin Airport Authority shall be deemed to have incurred, on the vesting day, capital expenditure on the provision of machinery or plant, being the machinery or plant vested in Dublin Airport Authority on that day, and the actual cost of that machinery or plant shall be deemed to be an amount determined by the formula-

A – B

where-

A is the original actual cost of the machinery or plant, including in that cost any expenditure in the nature of capital expenditure on the machinery or plant by means of renewal, improvement or reinstatement, and

B is the amount of any wear and tear allowances which would have been made under this section in respect of the machinery or plant since the original provision of the machinery or plant if a claim for those allowances had been duly made and allowed.