Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I move amendment No. 70:

In page 60, to delete lines 25 to 38, and in page 61, to delete lines 1 to 4 and substitute the following:“ “(1B) (a) In this subsection—

‘connected person’ has the same meaning as in section 10; ‘debt’ means a debt or debts, in respect of borrowed money, whether incurred by the person making the disposal of an asset or by a connected person;‘group’ and ‘member of a group’ have the same meanings, respectively, as in section 616.

(b) Where—

(i) the amount or value of the consideration referred to in subsection (1)(a), or
(ii) the amount of any expenditure referred to in subsection (1)(b), was defrayed either directly or indirectly out of borrowed money, the debt in respect of which is released in whole or in part (whether before, on or after the disposal of the asset), that amount shall be reduced by the lesser of the amount of the debt which is released or the amount of the allowable loss which, but for this subsection, would arise.

(c) For the purposes of paragraph (b), the date on which the whole or part of a debt is released shall be determined on the same basis as the release of the whole or part of a specified debt is treated as having been effected in section 87B(4).
(d) Where a debt is released in whole or in part in a year of assessment after the year of assessment in which the disposal of the asset takes place (such that the release of the debt was not taken into account in the computation of a chargeable gain or allowable loss on the disposal of the asset) then for the purposes of the Capital Gains Tax Acts a chargeable gain, equal to the amount of the reduction that would have been made under paragraph (b) had the release been effected in the year of assessment in which the disposal of the asset took place, shall be deemed to accrue to the person who disposed of the asset on the date on which the debt is released but, where the disposal is to a connected person, any gain under this subsection shall be treated for the purposes of section 549(3) as if it accrued on the disposal of an asset to that connected person.
(e) A chargeable gain under paragraph (d) shall not be deemed to accrue where, had a gain accrued on the disposal of the asset, it would not have been a chargeable gain or it would have qualified for relief from capital gains tax.
(f) Where a debt released is in respect of money borrowed by a member of a group of companies from another member of the group, the amount or value of the consideration referred to in subsection (1)(a), or the amount of any expenditure referred to in subsection (1)(b), shall not be reduced by the amount of that debt which is released under paragraph (b) or a chargeable gain in respect of the release of that debt shall not be deemed to accrue under paragraph (d).”.”.

Section 552 of the Taxes Consolidation Act 1997 sets out the rules for determining the allowable base cost of an asset for the purposes of calculating any chargeable gain or allowable loss on the disposal of the asset. The amendment in section 40 is designed to ensure only the real economic capital cost of the asset to its owner is allowed as a deduction in the computation of a chargeable gain or allowable loss on a subsequent disposal, where the cost of an asset has been financed with borrowed money that is not repaid to the lender and is ultimately written off.

This amended section contains several refinements to ensure the section works as intended. These include ensuring a loan released before the disposal of an asset will be subject to the restriction. This amendment is necessary as it appears some arrangements for the release of debts may provide that a debt is released before an asset is actually disposed of. It will also ensure any restriction or deemed chargeable gain does not exceed the lesser of the amount of the loss nominally made or the amount of the debt released. It will ensure a deemed chargeable gain cannot arise in respect of an asset that is exempt or fully relieved from capital gains tax while the release in a group of companies of an inter-company loan funded from within the group is not subject to the restriction.