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14 1970

FINANCE ACT, 1970

Chapter II

Income Tax, Sur-Tax and Corporation Profits Tax in Relation to Certain Receipts after Discontinuance of Trade or Profession and Related Matters.

Receipts accruing after discontinuance of trade or profession.

20. —(1) Where any trade or profession the profits or gains of which are chargeable to tax under Case I or Case 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 which are received after the discontinuance subject to any such deduction as is authorised by subsection (4).

(2) Subject to subsection (3), this section applies to all sums arising from the carrying on of the trade or profession during any period before the discontinuance (not being sums otherwise chargeable to tax), in so far as the amount or value of the sums was not brought 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.

(3) This section does not apply to any of the following sums—

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

(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, or

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

(d) sums arising to an individual from a work which is such that any profits or gains that might have arisen to that individual from its publication, production or sale, as the case might be, would, in accordance with section 2 (3) of the Finance Act, 1969 , have been disregarded for all purposes of the Income Tax Acts if they had arisen before the discontinuance of his profession, or

(e) sums received before the date of the passing of this Act.

(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 him by virtue of section 24), 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 it 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 way of relief before the discontinuance.

(5) For the purposes of this Chapter—

(a) “capital allowance” means any allowance, other than an allowance falling to be made in computing profits or gains, under section 241 or Part XIV, XV, XVI or XVII of the Income Tax Act, 1967 ;

(b) 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 brought into account in computing those profits or gains for tax purposes, and not otherwise, and “earnings basis” shall be construed accordingly;

(c) 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

(d) the value of any sum received in payment of a debt shall be treated as not brought into account in the computation to the extent that a deduction has been allowed in respect of that sum under section 61 (i) of the Income Tax Act, 1967 .

Supplementary provisions as to tax under section 20 or 26.

21. —(1) In the case of a transfer for value of the right to receive any such sums as are described in section 20 (2) or 26, any tax chargeable by virtue 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 20 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 he 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 therein under section 25.

(3) Where any sum chargeable to tax by virtue of section 20 or 26 is received, in any year of assessment beginning not later than ten 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 his personal representatives, that person or (in either case) his personal representatives may, by notice in writing sent to the inspector within two years after the end of that year of assessment, elect that the tax chargeable as aforesaid 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 186 (2) of the Income Tax Act, 1967 ) 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 20 (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 20 applies include any sums received by way of consideration for the transfer and any sums received by way of realisation by the transferee, on behalf of the transferor, of the work in progress transferred.

(5) No amount shall be deducted under section 20 (4) if that amount has been allowed under any other provision of the Income Tax Acts or of Part V of the Finance Act, 1920, as amended or extended by subsequent enactments.

(6) No amount shall be deducted more than once under section 20 (4) and as between sums chargeable for one year of assessment or accounting period and sums chargeable for a subsequent year of assessment or accounting period, any deduction in respect of a loss or capital allowance shall be made against sums chargeable for the earlier year of assessment or accounting period but, in the case of a loss which by virtue of this subsection or the said section 20 (4) is to be allowed after the discontinuance, a deduction shall not be made from any sum chargeable for a year of assessment or accounting period preceding that in which the loss is incurred.

Receipts and losses accruing after change treated as discontinuance.

22. —(1) The following provisions of 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 Income Tax Acts as if it had been permanently discontinued and a new trade or profession set up and commenced.

(2) Sections 20 and 21 shall apply in the case of any such change as aforesaid as if the trade or profession had been permanently discontinued:

Provided that where the right to receive any sums to which section 20 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 (save where the change took place before the date of the passing of this Act) any sums received by those persons by virtue of the transfer shall be treated for all purposes as receipts to be brought 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 61 (i) of the Income Tax Act, 1967 , in a computation for any period before the change.

Work in progress at discontinuance.

23. —(1) Where, in computing for any of the purposes of the Income 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 does not fall to be valued under paragraph (a), its value shall be taken to be the amount which would have been paid for a transfer thereof 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 twelve 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 brought 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 20 as if it were a sum to which that section applies received after the discontinuance.

(3) The foregoing provisions of this section apply where a profession is treated for any of the purposes of the Income 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 his death.

(4) For the purposes of section 62 of the Income Tax Act, 1967trading stock”, in relation to a trade, includes any services, article or material which would, if the trade were a profession, be treated as work in progress thereof for the purposes of this section, and references to the sale or transfer of trading stock shall be construed accordingly.

(5) 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.

(6) This section applies only to a discontinuance occurring after the date of the passing of this Act.

Debts set off against profits and subsequently released.

24. —(1) Where, in computing for tax purposes the profits or gains of a trade or profession, a deduction has been allowed for any debt incurred for the purposes of the trade or profession, then, if the whole or any part of that debt is thereafter released, the amount released shall be treated as a receipt of the trade or profession arising in the period in which the release is effected.

(2) (a) If in any such case as aforesaid the trade or profession has been permanently discontinued at or after the end of the period for which the deduction was allowed and before the release was effected, or is treated for tax purposes as if it had been so discontinued, section 20 shall apply as if the amount released were a sum received after the discontinuance.

(b) For the purposes of corporation profits tax, where an assessment under Case IV of Schedule D is made by virtue of paragraph (a), or would have been so made if the profits or gains were chargeable to income tax, the amount so assessed or which would have been so assessed shall be treated as income of the company received on the date on which the release was effected.

(3) This section applies to a release effected after the date of the passing of this Act.

Cash basis, etc.: relief for individuals.

25. —(1) If an individual born before the 6th day of April, 1919, or the personal representative of such an individual, is chargeable to tax under section 20 or 26 and—

(a) the individual was engaged in carrying on the trade or profession on the date of the passing of this Act, 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 with the relevant date,

the net amount with which he is so chargeable to tax shall be reduced by multiplying that net amount by the fraction given below.

(2) Where section 26 applies in relation to a change of basis taking place on a date before the date of the passing of this Act, then, in relation to tax chargeable by reference to that change of basis, subsection (1) shall have effect—

(a) as if that earlier date were substituted for the date specified in paragraph (a), and

(b) as if paragraph (b) were deleted.

(3) The said fraction is—

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

(b) where on that date he had attained the age of fifty-two, but had not attained the age of fifty-three, eighteen-twentieths, and so on, reducing the fraction by one-twentieth for each year he had attained, up to the age of sixty-four,

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

(4) In this section—

“the net amount” with which a person is chargeable to tax under section 20 means the amount with which he is so chargeable after making any deduction authorised by section 20 (4) but before giving any relief under this section;

“relevant date”—

(a) in relation to tax under section 20, means the date of the permanent discontinuance,

(b) in relation to tax under section 26, means the date of the change of basis.

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

26. —(1) Where, in the case of any trade or profession the profits or gains of which are chargeable to tax under Case I or Case 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.

This subsection applies 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 brought into account in computing the profits or gains for any period.

(2) 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 brought into account in computing profits for tax purposes for any period ending before or with 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 the said subsection (1) applies, and the change of basis were a change of the kind described in that subsection.

(3) In this section references to work in progress at the time of a change of basis shall be construed in accordance with section 23 (5) substituting therein for this purpose references to the change of basis for references to the discontinuance.

(4) There is 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 two successive periods are computed on different conventional bases, a change of conventional basis occurs at the end of the earlier period.

(5) This section shall not apply where the change took place before the date of the passing of this Act and, before that date—

(a) the decision had been taken to prepare accounts reflecting the change, or

(b) the trade or profession had been permanently discontinued,

but, subject as aforesaid, has effect as respects sums received at any time before or after that date.