Finance Act, 1963

• Permanent Page URL

Option to treat capital allowances as creating or augmenting loss in trade, etc.

5.—(1) In this section—

“balancing charges” means balancing charges under Part V of the Finance Act, 1959 ;

“capital allowances” means allowances, other than allowances falling to be made in computing profits or gains, under Rule 6 of the Rules applicable to Cases I and II of Schedule D, section 5 or section 6 of the Finance Act, 1946 , Part V of the Finance Act, 1956 , Part IV of the Finance (Miscellaneous Provisions) Act, 1956 , Part V of the Finance Act, 1957 , or Part V or section 74 of the Finance Act, 1959 ;

“year of claim” means, in relation to any claim under section 34 of the Income Tax Act, 1918, the year of assessment for which the claim is made.

(2) Subject to the provisions of this section, any claim made under section 34 of the Income Tax Act, 1918, for relief in respect of a loss sustained in any trade, being a claim in the case of which the year of claim is the year 1963-64 or a subsequent year of assessment, may require the amount of the loss to be determined as if an amount equal to the capital allowances for the year of assessment for which the year of claim is the basis year were to be deducted in computing the profits or gains or losses of the trade in the year of claim and a claim may be so made notwithstanding that apart from those allowances a loss has not been sustained in the trade in the year of claim.

(3) Where on any claim made by virtue of this section relief is not given under the said section 34 for the full amount of the loss determined as aforesaid, the relief shall be referred as far as may be to the loss sustained in the trade rather than to the capital allowances in respect of the trade.

(4) For the purposes of this section—

(a) where the end of the basis period for a year of assessment falls in or coincides with the end of any year of assessment, that year is the basis year for the first mentioned year of assessment, but so that if a year of assessment would under the foregoing provision be the basis year both for that year itself and another year of assessment, it shall be the basis year for the year itself and not for the other year;

(b) any reference to capital allowances or balancing charges for a year of assessment shall be construed as a reference to those falling to be made in charging the profits or gains of the trade for that year, excluding, in the case of allowances, amounts carried forward from an earlier year;

(c) effect shall be deemed to be given in charging the profits or gains of the trade for a year of assessment to allowances carried forward from an earlier year before it is given to allowances for the year of assessment; and

(d) any reference to an amount of capital allowances non-effective in a year of assessment shall be construed as referring to the amount to which by reason of an insufficiency of profits or gains effect cannot be given in charging the profits or gains of the trade for that year.

In paragraph (a) of this subsection “the basis period for a year of assessment” means in relation to any trade the period on the profits or gains of which income tax for that year falls to be finally computed under Case I of Schedule D in respect of the trade or, where, by virtue of any Act, the profits or gains of any other period are to be taken to be the profits or gains of the said period, that other period.

(5) The capital allowances for any year of assessment shall be taken into account under subsection (2) of this section only if and so far as they are not required to offset balancing charges for the year; and, where the capital allowances taken into account are allowances for the year of claim, relief shall not be given by reference to those allowances in respect of an amount greater than the amount non-effective in the year of claim.

(6) For the purposes of subsection (5) of this section, the capital allowances for any year of assessment shall be treated as required to offset balancing charges for the year up to the amount on which the balancing charges fall to be made after deducting from that amount the amount, if any, of capital allowances for earlier years which is carried forward to that year and would, without the balancing charges, be non-effective in that year.

(7) Subject to subsection (8) of this section, where for any year of claim relief is given under the said section 34 by reference to any capital allowances, then, for all the purposes of the Income Tax Acts, effect shall be deemed to have been given to those allowances up to the amount in respect of which relief is so given, and any relief previously given for a subsequent year on the basis that effect had not been given to the allowances as aforesaid shall be adjusted, where necessary, by additional assessment.

(8) Where in any year of assessment a trade is permanently discontinued, or is treated, for the purposes of Rule 11 of the Rules applicable to Cases I and II of Schedule D, as permanently discontinued, and immediately before the discontinuance the trade was being carried on in partnership, then, notwithstanding the last foregoing subsection, for the purposes of any claim for relief made by virtue of section 4 of the Finance Act, 1960 , and relating to that discontinuance, effect shall not be deemed to have been given either—

(a) to any part of the capital allowances falling to be made in charging the profits or gains of the trade for that year by reason of relief given under the said section 34 by reference to those allowances; or

(b) to any part of the capital allowances falling to be made in charging the profits or gains of the trade for the preceding year by reason of relief so given by reference to them, in so far as that relief must be referred to the part of the allowances apportionable to the part of the year within twelve months of the discontinuance on an apportionment made by reference to the comparative lengths of the two parts of the year;

but, where the same partner claims relief both under the said section 34 and under the said section 4 in respect of the same allowances, the total amount for which relief is to be given to him by reference thereto shall not exceed the greater of the amounts for which, apart from any deficiency of income, relief might have been given under either section separately, and the total amount for which relief is to be given to all the partners under those sections in respect of any allowances shall not in any event exceed the amount of the allowances to which effect has not been given apart from those sections.

(9) Where a person claiming relief under the said section 34 has, since the end of the year of claim, carried on the trade in question in partnership, effect shall not be given to this section in relation to that claim, except with the written consent of, or of the personal representatives of, every other person who has been engaged in carrying on the trade between the end of that year and the making of the claim:

Provided that where the claim is for a loss sustained before an event treated as the permanent discontinuance of the trade, this subsection shall not require the consent of any person as having been so engaged since that discontinuance or as the personal representative of such a person.

(10) Relief from tax may be given by virtue of subsection (2) of this section by reference to capital allowances for a year of assessment before the passing of any Act imposing income tax for that year, as if income tax had been imposed for the year without alteration; but if relief given to a person by virtue of that subsection for any year of claim is affected by a subsequent alteration of the law, or by any discontinuance of the trade or other event occurring after the end of the year, any necessary adjustment may be made, and so much of any repayment of tax as exceeded the amount repayable in the events that happened shall, if not otherwise made good, be recovered from the person by assessment under Case VI of Schedule D; and for the purpose of such assessment the amount of capital allowances by reference to which the repayment was made, or an appropriate part of that amount, shall be deemed to be income chargeable under the said Case VI for the year of claim.

(11) This section applies, with any necessary adaptations, in relation to a profession, employment or vocation and in relation to the occupation of lands for the purposes of husbandry only or of woodlands, where, in either case, profits or gains arising from the occupation are, for the year of claim and the year of assessment for which the year of claim is the basis year, chargeable under Schedule D, as it applies in relation to a trade.