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GAZETTE
OCTOBER 1978
SOCIETY OF YOUNG SOLICITORS SECTION
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
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
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