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39 1997

TAXES CONSOLIDATION ACT, 1997

CHAPTER 7

Special measures on discontinuance of, and change of basis of computation of profits or gains of, a trade or profession

Valuation of trading stock at discontinuance of trade.

[ITA67 s62(1) (apart from proviso) and (2); FA70 s23(4)]

89. —(1) (a) In this section, “trading stock” means, subject to paragraph (b), property of any description, whether real or personal, which is either—

(i) property such as is sold in the ordinary course of the trade in relation to which the expression is used or would be so sold if it were mature or if its manufacture, preparation or construction were complete, or

(ii) materials such as are used in the manufacture, preparation or construction of property such as is sold in the ordinary course of that trade.

(b) For the purposes of this section, “trading stock”, in relation to a trade, includes any services, article or material which, if the trade were a profession, would be treated as work in progress of the profession for the purposes of section 90 , and references to the sale or transfer of trading stock shall be construed accordingly.

(c) References in this section to a trade having been discontinued or to the discontinuance of a trade shall be construed as not referring to or including any case where such trade was carried on by a single individual and is discontinued by reason of such individual's death (whether such trade is or is not continued by another person after such death), but shall be construed as referring to and including every other case where a trade has been discontinued or is, by virtue of any of the provisions of the Tax Acts, treated as having been discontinued for the purpose of computing tax.

(2) In computing the profits or gains of a trade which has been discontinued, any trading stock belonging to the trade at the discontinuance of the trade shall be valued in accordance with the following provisions:

(a) in the case of any such trading stock—

(i) which is sold, or is transferred for valuable consideration, to a person who carries on or intends to carry on a trade in the State, and

(ii) the cost of which to such person on such sale or transfer may be deducted by such person as an expense in computing for any purpose of the Tax Acts the profits or gains of the trade carried on or intended to be carried on by such person,

the value of such trading stock shall be taken to be the price paid for such trading stock on such sale or the value of the consideration given for such trading stock on such transfer, as the case may be;

(b) in the case of any other such trading stock, the value of such other trading stock shall be taken to be the amount which it would have realised if it had been sold in the open market at the discontinuance of the trade.

Valuation of work in progress at discontinuance of profession.

[FA70 s23(1) to (3) and (5); FA81 s9(d)]

90. —(1) Where, in computing for any of the purposes of the Tax Acts the profits or gains of a profession which has been discontinued, a valuation is taken of the work of the profession in progress at the discontinuance, that work shall be valued as follows:

(a) if the work is transferred for money or any other valuable consideration to a person who carries on or intends to carry on a profession in the State, and the cost of the work may be deducted by that person as an expense in computing for any such purpose the profits or gains of that profession, the value of the work shall be taken to be the amount paid or other consideration given for the transfer;

(b) if the work is not to be valued under paragraph (a), its value shall be taken to be the amount which would have been paid for a transfer of the work on the date of the discontinuance as between parties at arm's length.

(2) Where a profession is discontinued and the person by whom it was carried on immediately before the discontinuance so elects, by notice in writing sent to the inspector at any time within 24 months after the discontinuance, the amount, if any, by which the value of the work in progress at the discontinuance (as ascertained under subsection (1)) exceeds the actual cost of the work shall not be taken into account in computing the profits or gains of the period immediately before the discontinuance, but the amount by which any sums received for the transfer of the work exceed the actual cost of the work shall be included in the sums chargeable to tax under section 91 as if it were a sum to which that section applies received after the discontinuance.

(3) Subsections (1) and (2) shall apply where a profession is treated for any of the purposes of the Tax Acts as permanently discontinued as they apply in the case of an actual discontinuance, but shall not apply in a case where a profession carried on by a single individual is discontinued by reason of such individual's death.

(4) References in this section to work in progress at the discontinuance of a profession shall be construed as references to—

(a) any services performed in the ordinary course of the profession, the performance of which was wholly or partly completed at the time of the discontinuance and for which it would be reasonable to expect that a charge would have been made on their completion if the profession had not been discontinued, and

(b) any article produced, and any such material as is used, in the performance of any such services,

and references in this section to the transfer of work in progress shall include references to the transfer of any benefits and rights which accrue, or might reasonably be expected to accrue, from the carrying out of the work.

Receipts accruing after discontinuance of trade or profession.

[FA70 s20(1) to (4) and (5)(b), (c) and (d)]

91. —(1) Subject to subsection (2), this section shall apply to all sums arising from the carrying on of a trade or profession during any period before the discontinuance of the trade or profession (not being sums otherwise chargeable to tax), in so far as the amount or value of the sums was not taken into account in computing the profits or gains for any period before the discontinuance, and whether or not the profits or gains for the period were computed on an earnings basis or on a conventional basis.

(2) This section shall not apply to any of the following sums—

(a) sums received by a person beneficially entitled to such sums who is not resident in the State, or by a person acting on such person's behalf, which represent income arising directly or indirectly from a country or territory outside the State,

(b) a lump sum paid to the personal representatives of the author of a literary, dramatic, musical or artistic work as a consideration for the assignment by them, wholly or partially, of the copyright in the work,

(c) sums realised by the transfer of trading stock belonging to a trade at the discontinuance of the trade or, in a case in which the profits or gains of a profession were computed on an earnings basis at the discontinuance of the profession, sums realised by the transfer of the work of the profession in progress at the discontinuance, and

(d) sums arising to an individual from a work which is such that any profits or gains that might have arisen to the individual from its publication, production or sale, as the case might be, would in accordance with section 195 (3) have been disregarded for the purposes of the Income Tax Acts if they had arisen before the discontinuance of that individual's profession.

(3) Where any trade or profession, the profits or gains of which are chargeable to tax under Case I or II of Schedule D, has been permanently discontinued, tax shall be charged under Case IV of that Schedule in respect of any sums to which this section applies received after the discontinuance subject to any such deduction as is authorised by subsection (4).

(4) In computing the charge to tax in respect of sums received by any person which are chargeable to tax by virtue of this section (including amounts treated as sums received by such person by virtue of section 87 ), there shall be deducted from the amount which apart from this subsection would be chargeable to tax—

(a) any loss, expense or debit (not being a loss, expense or debit arising directly or indirectly from the discontinuance itself) which, if the trade or profession had not been discontinued, would have been deducted in computing for tax purposes the profits or gains of the person by whom the trade or profession was carried on before the discontinuance, or would have been deducted from or set off against those profits or gains as so computed, and

(b) any capital allowance to which the person who carried on the trade or profession was entitled immediately before the discontinuance and to which effect has not been given by means of relief before the discontinuance.

(5) For the purposes of this Chapter—

(a) the profits or gains of a trade or profession in any period shall be treated as computed by reference to earnings where all credits and liabilities accruing during that period as a consequence of the carrying on of the trade or profession are taken into account in computing those profits or gains for tax purposes, and not otherwise, and “earnings basis” shall be construed accordingly,

(b) the profits or gains of a trade or profession in any period shall be treated as computed on a conventional basis where they are computed otherwise than by reference to earnings, and

(c) the value of any sum received in payment of a debt shall be treated as not taken into account in the computation to the extent that a deduction has been allowed in respect of that sum under section 81 (2)(i).

Receipts and losses accruing after change treated as discontinuance.

[FA70 s22]

92. —(1) This section shall apply in any case where, as a result of a change in the persons engaged in carrying on a trade or profession, the trade or profession is treated for any of the purposes of the Tax Acts as if it had been permanently discontinued and a new trade or profession set up and commenced.

(2) (a) Sections 91 and 95 shall apply in the case of any such change as if the trade or profession had been permanently discontinued.

(b) Notwithstanding paragraph (a), where the right to receive any sums to which section 91 applies is or was transferred at the time of the change to the persons carrying on the trade or profession after the change, tax shall not be charged by virtue of that section, but any sums received by those persons by virtue of the transfer shall be treated for all purposes as receipts to be taken into the computation of profits or gains of the trade or profession in the period in which they are received.

(3) In computing for tax purposes the profits or gains of the trade or profession in any period after the change, there may be deducted a sum equal to any amount proved during that period to be irrecoverable in respect of any debts credited in computing for tax purposes the profits or gains for any period before the change (being debts the benefit of which was assigned to the persons carrying on the trade or profession after the change), in so far as the total amount proved to be irrecoverable in respect of those debts exceeds any deduction allowed in respect of them under section 81 (2)(i) in a computation for any period before the change.

Cash basis, etc: relief for certain individuals.

[FA70 s25]

93. —(1) In this section—

the net amount” with which a person is chargeable to tax under section 91 means the amount with which such person is so chargeable after making any deduction authorised by section 91 (4) but before giving any relief under this section;

relevant date” means—

(a) in relation to tax under section 91 , the date of the permanent discontinuance, and

(b) in relation to tax under section 94 , the date of the change of basis.

(2) Where an individual born before the 6th day of April, 1919, or the personal representative of such an individual, is chargeable to tax under section 91 or 94 and—

(a) the individual was engaged in carrying on the trade or profession on the 4th day of August, 1970, and

(b) the profits or gains of the trade or profession were not computed by reference to earnings in the period in which the date specified in paragraph (a) fell, or in any subsequent period ending before or on the relevant date,

the net amount with which such individual is so chargeable to tax shall be reduced by multiplying that net amount by the fraction specified in subsection (4).

(3) Where section 94 applies in relation to a change of basis taking place on a date before the 4th day of August, 1970, then, in relation to tax chargeable by reference to that change of basis, subsection (2) shall apply as if—

(a) that earlier date were substituted for the date specified in paragraph (a) of that subsection, and

(b) paragraph (b) of that subsection were deleted.

(4) The fraction referred to in subsection (2) is—

(a) where on the 6th day of April, 1970, the individual had not attained the age of 52 years, nineteen-twentieths,

(b) where on that date the individual had attained the age of 52 years, but had not attained the age of 53 years, eighteen-twentieths, and so on, reducing the fraction by one-twentieth for each year the individual had attained, up to the age of 64 years,

(c) where on that date the individual had attained the age of 65 years or any greater age, five-twentieths.

Conventional basis: general charge on receipts after change of basis.

[FA70 s26(1) to (4)]

94. —(1) Where in the case of any trade or profession the profits or gains of which are chargeable to tax under Case I or II of Schedule D there has been—

(a) a change from a conventional basis to the earnings basis, or

(b) a change of conventional basis which may result in receipts dropping out of computation,

tax shall be charged under Case IV of Schedule D in respect of sums to which this subsection applies which are received after the change and before the trade or profession is permanently discontinued.

(2) Subsection (1) shall apply to all sums arising from the carrying on of the trade or profession during any period before the change (not being sums otherwise chargeable to tax) in so far as their amount or value was not taken into account in computing the profits or gains for any period.

(3) Where in the case of any profession the profits or gains of which are chargeable to tax under Case II of Schedule D—

(a) there has been a change from a conventional basis to the earnings basis, or a change of conventional basis, and

(b) the value of work in progress at the time of the change was debited in the accounts and allowed as a deduction in computing profits for tax purposes for a period after the change,

then, in so far as no counterbalancing credit was taken into account in computing profits for tax purposes for any period ending before or on the date of the change, tax shall be charged under subsection (1) in respect of that amount for the year of assessment in which the change occurred as if that amount were a sum to which subsection (2) applies and the change of basis were a change of the kind described in subsection (1).

(4) In this section, references to work in progress at the time of a change of basis shall be construed in accordance with section 90 (4) but as if references in that section to the change of basis were references to the discontinuance.

(5) There shall be a change from a conventional basis to the earnings basis at the end of a period, the profits or gains of which were computed on a conventional basis, if the profits or gains of the next succeeding period are computed by reference to earnings and, if the profits or gains of 2 successive periods are computed on different conventional bases, a change of conventional basis shall occur at the end of the earlier period.

Supplementary provisions as to tax under section 91 or 94.

[FA70 s21; CTA76 s164 and Sch3 PtII]

95. —(1) In the case of a transfer for value of the right to receive any sums described in section 91 (1) or 94 , any tax chargeable by virtue of either of those sections shall be charged in respect of the amount or value of the consideration (or, in the case of a transfer otherwise than at arm's length, in respect of the value of the right transferred as between parties at arm's length), and references in those sections to sums received shall be construed accordingly.

(2) Where an individual is chargeable to tax by virtue of section 91 in respect of any sums received after the discontinuance of a trade or profession, and the profits or gains of the trade or profession to which such individual was entitled before the discontinuance fell to be treated as earned income for the purposes of the Income Tax Acts, those sums shall also be treated as earned income for those purposes but after any reduction in those sums under section 93 .

(3) Where any sum chargeable to tax by virtue of section 91 or 94 is received in any year of assessment beginning not later than 10 years after the discontinuance or, as the case may be, change of basis by the person by whom the trade or profession was carried on before the discontinuance or change or by such person's personal representatives, such person or (in either case) such person's personal representatives may, by notice in writing sent to the inspector within 2 years after the end of that year of assessment, elect that the tax so chargeable shall be charged as if the sum in question were received on the date on which the discontinuance took place or, as the case may be, on the last day of the period at the end of which the change took place, and, in any such case, an additional assessment shall (notwithstanding anything in section 924 (2)) be made accordingly and, in connection with that assessment, no further deduction or relief shall be made or given in respect of any loss or allowance deducted in pursuance of section 91 (4).

(4) Where work in progress at the discontinuance of a profession, or the responsibility for its completion, is transferred, the sums to which section 91 applies include any sums received by means of consideration for the transfer and any sums received by means of realisation by the transferee on behalf of the transferor of the work in progress transferred.

(5) No amount shall be deducted under section 91 (4) if that amount has been allowed under any other provision of the Tax Acts.

(6) No amount shall be deducted more than once under section 91 (4) and, as between sums chargeable for one year of assessment and sums chargeable for a subsequent year of assessment, any deduction in respect of a loss or capital allowance shall be made against sums chargeable for the earlier year of assessment but, in the case of a loss which by virtue of this subsection or section 91 (4) is to be allowed after the discontinuance, a deduction shall not be made from any sum chargeable for a year of assessment preceding that in which the loss is incurred.