Connected parties and restriction on offsetting losses against capital gains

While staring at the Capital Gains panel of Form 11 to try and work out how to report a loss made on a residential property sale, I came across the following tick boxes, relating to disposals between connected parties or otherwise not at arm's length:

Tick the box(es) to indicate:

- If any disposal was between connected parties or otherwise no at arm's length
- If any of the original acquisitions were between connected parties or otherwise not at arm's length
- If the market value has been substituted for the cost of acquisition of any assets disposed of

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I realized that I had no idea what connected parties are, nor what a disposal at arm's length is.

It piqued my curiosity, so I started looking for Revenue's explanatory material on the Internet.

Following is a summary of what I found.

I would appreciate if someone with a better understanding and experience on the matter could confirm if the below is correct and accurate.

Connected parties​

Reference: https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-19/19-02-09.pdf and https://www.irishstatutebook.ie/eli/1997/act/39/section/10

A person is connected with an individual if that person is the individual’s husband,
wife or civil partner, or is a relative, or the husband, wife or civil partner of a relative
of the individual or of the individual’s husband, wife or civil partner.

Relative means a brother, sister, ancestor and lineal descendant. For CGT purposes
relative also means an aunt, uncle, niece and nephew.

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Arm's length​

"Arm's length" is an expression commonly used to refer to transactions in which two or more unrelated parties agree to do business, acting independently and in their self-interest.

Restriction of losses​

Reference: https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-19/19-02-09.pdf

A loss which accrues to a person on a disposal to another person with whom he or
she is connected may not be deducted from any gain accruing to him or her except
on some other disposal by him or her of an asset to the same other person, at a time
when they are connected persons.

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Bottom line​

Does that essentially mean that:

a) Assuming person X and person Y are connected
b) and assuming person X sells an asset to person Y at a loss L

then:

c) Person X cannot use loss L to offset his other capital gains (gains accrued from disposal of assets to other parties)
d) Person X can only use loss L to offset gains made on sale of other assets to person Y

Connected Parties:

If Person X and Person Y are connected (e.g., they are relatives), any transaction between them is not considered to be at arm's length. This means that the transaction is treated as occurring at market value rather than the actual sale price.


Losses on Disposals:

When Person X sells an asset to Person Y at a loss (let's call it Loss L), there are specific restrictions on how that loss can be utilized:


c) Person X cannot use Loss L to offset other capital gains accrued from disposals made to unrelated parties. This restriction is in place to prevent tax avoidance through artificial loss creation in transactions between connected individuals.


d) Person X can only use Loss L to offset gains made on future sales of assets to Person Y. This means that if Person X later sells another asset to Person Y and realizes a gain, they can offset Loss L against that specific gain.


These rules are designed to ensure that losses between connected parties do not provide an unfair tax advantage by allowing them to offset gains from unrelated transaction

When connected people buy or sell things from each other, the law says it's not a normal deal. Instead, they must use the market value of the item, not the price they agreed on.

If someone loses money when selling something to a connected person, they can only use that loss against a profit made from selling to the same person.

If there are any restrictions on how the item can be used when it's sold between connected people, these restrictions are mostly ignored when deciding the item's value.

There are special rules for things like options to buy or sell, and for situations where the person selling isn't subject to capital gains tax

Yes, in simple terms if you make a loss on a disposal to a connected party the loss is ringfenced and only available for offset against gains made on other transactions with that same connected party.