TAX RELIEF ON CAPTIAL EXPENDITURE

THE cost of items like motor cars or machinery cannot be written off against profits in the year purchased. Instead tax law requires them to be written off currently over eight years at 12.5 per cent. This system is called Wear and Tear Allowances.

Accountants prepare accounts and usually claim 20 per cent depreciation on vehicles and plant but these amounts are disallowed for tax purposes and added back to the profit. Then the Wear and Tear Allowance is given as a deduction from the profits.

The annual budget of the Minister for Finance may change the rates of Wear and Tear. If they want to stimulate business activity the Minister may increase the rate of Wear and Tear so that more people will purchase new vehicles and plant rather than repair and continue with what they have.

In order to claim Wear and Tear you must own the item or be acquiring it under Hire Purchase (HP).

If leasing the items, the bank leasing company gets the Wear and Tear and you get a deduction for leasing charges in your accounts. At the end of the primary period, usually three years, one can purchase the item from the leasing company at a very low price. This may have the effect of cancelling some of the earlier leasing charges in your accounts so that more profits will be liable to tax.

Buildings also attract tax allowances. Farm buildings can be written off at 15 per cent per annum while factories and hotels attract only four per cent per annum.

The spate of construction in recent years in towns and cities was largely driven by what was called Urban Renewal Schemes.

Here, the Government granted high writeoffs for new construction of all sorts of buildings. This write-off could be claimed against the owner’s tax liability and it did not matter if the buildings were used for the owner’s business or let to other parties.

The most successful was Section 23 Relief, which granted an immediate write off of the cost of residential apartments against the total Irish rents of the owner.

Where a secondhand Section 23 apartment is sold and it is let for less than ten years, then the relief may be passed on to the new owner. In this way, Section 23 relief is still available for some purchasers of secondhand apartments.

Generally, the Urban Renewal Reliefs contributed to an overheating of the property marked and it is unlikely that anything like them will be available again in the near future.