The Gazette 1978

GAZETTE

OCTOBER 1978

SOCIETY OF YOUNG SOLICITORS SECTION

owned on the 6th April 1974. The Bill also proposes to abolish the alternative method of calculating capital gains tax for Irish resident individuals by reference to their income tax liability. In relation to assets held on the 6th April 1974 there are two alternative methods of computing the capital gain or loss, namely, by reference to the market value on 6th April 1974 adjusted for inflation or by reference to the actual cost without adjustment. The Bill provides that where both methods would show a gain, only the smaller gain is taxable; where both would show a loss, only the smaller loss is allowable; and where one method would show a gain and the other a loss, the disposal will be treated as giving rise to neither a gain nor a loss. There is no need for the taxpayer to elect between the two methods of computation, as these rules will be applied automatically. Indexation will apply to all taxpayers — individuals, companies and trustees, whether resident or non-resident. It will also apply to all categories of assets, and there will be no exclusion for development land, minerals or other assets. 2. Rates of Tax: The second major change proposed by the Bill is an increase in the standard rate of capital gains tax from 26% to 30%, coupled with reductions in that rate for certain taxpayers where certain assets have been held for more than three years. Unlike indexation, the relief afforded by reducing rates of tax is by no means universal. It does not apply at all to companies or non- residents, both of whom will pay capital gains tax at the rate of 30% on all chargeable assets, no matter how long the period for which they have been held. The lower rates are available to Irish-resident individuals and trustees, but there are restrictions also on the assets in respect of which the reduced rates apply, and even Irish-resident individuals and trustees do not get the benefit ofthe lower rates in respect ofdevelopment land in the State, minerals andmineral rights in the State, and exploration or exploitation rights in a designated area. Unquoted shares in a company deriving more than 50% of their value from any of die said assets are also excluded from relief. The reduced rates of tax will nevertheless apply to quite substantial categories of assets, including all quoted shares, many unquoted shares and all land not possessing development value. Unlike indexation, which is applied automatically, the reduced rates of tax do not apply unless the resident individual or trustee claims them by notice in writing to the Inspector of Taxes within two years from the end of the year of assessment in which the disposal is made or such longer period as the Revenue Commissioners may allow. Where a claim is allowed, the rate of tax will reduce by for each period of three years during which the assets have been owned by the same taxpayer in the same capacity. Where the assets have been owned for more than twenty-one years they will cease to be chargeable assets. A taxpayer who makes a number of disposals in a single year of assessment may have some gains taxable at 30%, some gains taxable at the reduced rates, some exempt gains and some losses. The Bill

CAPITAL GAINS TAX (AMENDMENT) BILL 1978 The Society of Young Solicitors and the Dublin Solicitors' Bar Association joined with the Leinster Society of Chartered Accountants and the Royal Institute of Chartered Surveyors, to organise the recent meeting in the Hibernian Hotel, Dublin, on the subject of the new Capital Gains Tax (Amendment) Bill 1978. The following is the text of the contribution to the discussion made by Roderick Buckley on behalf of the Solicitors present. He outlined the proposed alteration to reliefs under the new Bill in relation to all disposals of assets taking place on or after the 6th of April 1978. These are as follows:— 1. Indexation: The Bill proposes that the base cost of all assets will be adjusted to take account of inflation between the year of assessment in which the assets were acquired and the year of assessment in which they are disposed of. A similar adjustment will be made in respect of all other expenditure which is deductible in calculating the gain on the asset, for example, expenditure on improving the asset which is reflected in its state or nature at the time of the disposal. However, no adjustment will be available in respect of expenditure incurred within the twelve months immediately preceding the disposal. The inflation adjustment will be calculated by reference to the difference between the consumer price index in the February preceding the year of assessment in which the expenditure was incurred and the consumer price index in the February preceding the year of assessment in which the disposal is made. The Revenue Commissioners will make regulations each year specifying the inflation adjustments which will be made in respect of disposals during that year. The figures for disposals in the current year of assessment 1978/79 are contained in the Capital Gains Tax (Amendment) Bill and they indicate that expenditure incurred in 1974/75 will be increased by 81.5%, while expenditure in the three subsequent years of assessment will be increased by 46.6%, 26.3% and 8.3% respectively. It may be important in certain cases to remember that no adjustment is available in respect of expenditure incurred within the twelve months prior to the disposal, even though the expenditure may fall within the previous year of assessment. For example, expenditure incurred last year 1977/78 is in general adjusted upwards by 8.3% if the asset is disposed of in this year of assessment. However, if the expenditure was incurred on the 1st November 1977 and the asset is being sold today, no adjustment will be available as the expenditure falls within the previous twelve months. On the other hand, if we postpone the disposal of the asset for another month an inflation adjustment of 8.3% will be available and this may be important where the expenditure in question has been substantial. All assets held on the base date for capital gains tax, 6th April 1974, are deemed to have been sold and immediately re-acquired for their market value on that date. Time apportionment is no longer available as an alternative method of calculating the gain on assets

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