Management of unused Capital Allowances

[pdogs]

First post here to these superb forums. I'd like to "kick-off" with what I hope is a simple enough query.

In a bad trading year where there is not enough profit to utilise all available Capital Allowances it is not clear to me of how to determine the unused portion to be carried forward.

Say there is:-
3000 trading profit
2000 capital allowances
8000 other gross taxable income

3000 - 2000 + 8000 would be 9000, which @ 25% = 2250 tax.

A single person with only a personal allowance of 3600 to credit against the 2250 amount of tax would thus have no income tax liability (apart from PRSI etc) in the year. If the capital allowances are computed as above there would appear to be none to carry forward.

However if the 2000 were carried forward then:
3000 + 8000 would be 11000, which at 25% = 2750 tax and which would still mean there would be no actual income tax liability for the year.

Can one thus elect (or is it even automatic or possible) to carry forward the whole 2000 of capital allowances as "unused" for the future in this scenario since one's personal allowances would still absorb all income tax liability without the capital allowances coming into the calculations at all?

If this can be done then the secondary question is "does one need to inform the Revenue Commissioners in that year" as well as include the 2000 as the capital allowance claim for the year or simply bring the 2000 forward as unused in the next year's return?

 

[Graham_07]

Firstly, is the other gross taxable income from PAYE employment or pension ? A single person only gets €1,830 tax credit. The other €1,830 PAYE credit is only allowable to the extent of PAYE/Pension income. So if there is €8,000 in PAYE income the PAYE credit is limited to 20% of that or €1,600 , not €1,830.

Secondly, one can offset or c/fwd excess c/allces. e.g. If profit was €2,000 and c/allces €3,000 then the €1,000 excess c/allces could be c/fwd to following year or offset against other income of same year.

However in the example you gave there is no excess of c/allces. The profit for the year exceeds the c/allces for the year leaving a net taxable income from the trade. You must allocate the c/allces to the year of use.

 

[pdogs]

Sorry - I pulled the figures out of my head. There is an actual farm profit of 4104 and a gross taxable pension income of 9806 from a former public sector employer and capital allowances of 1507.

You have probably actually answered the question already with the points about (a) excess and (b) having to utilise them in the year in question.

There is a combined income of (4104 + 9806) which @ 20% = 2782 liability and which would be totally offset by the combined personal and paye allowances - even if there were no capital allowances available.

It just seems unfair in that one does not benefit at all from the capital allowances in such a situation since the net income tax liabilty would be the same whether the capital allowances were deducted from the farm profit or not. They are in that sense unutilised, I suppose, rather than unused. I suppose the taxman looks at it differently and sees it such that it is the unused part of ones personal allowance that is of relevance; and if that is unused that is just the way it is since personal allowances cannot in any event be carried forward.

It was a bad farm year (a) because of low cattle sales (herd locked-up) and (b) because of the costs of paying the fire brigade and repairing sheds damaged by fire. The fire damage etc was uninsured because the fire started in hay (even in old hay as was the case). In a normal year all three allowances would have been fully utilised so if the capital allowances could have been carried forward and used for the following good year then that would have been very nice.

P.S. Fire brigade charges by the way are not trivial - nearly 4000 in this case. I suspect many do not realise this until it happens to them.