a whole and any sums allowable as a cost of acquisition of those new assets are to be reduced by the amount so apportioned. Where the shares comprising the new assets are not all of the same class, the apportionment between the shares is to be on the basis of market value at the time they were acquired by the person transferring the business.
(4)
The amount of the gain not to be charged is the part of the total net gain on the assets transferred which is attributable proportionately to the shares received in exchange for the business.
(5)
Example
A person, X, started in business on 6 April, 1980 having purchased a premises on that day for
€20,000. On 1 December, 2002 she transfers the business with all its assets except cash to a company in exchange for 5,000 shares in the company and a cash payment of €50,000. The following were agreed market values on 1 December, 2002 —
Stock in trade €20,000
Goodwill €40,000
Premises €150,000
Debtors €10,000
Total value of assets €220,000
The following liabilities of the business are to be paid by the company on behalf of X —
Creditors €4,000
Tax liability €6,000
Total €10,000
The gains on the transfer are as follows — Stock and debtors not chargeable
Goodwill €40,000
Premises €150,000
Less €20,000 x 3.091 €61,820 €88,180
Total gain €128,180
The non-share consideration received by X for the transfer is —
Cash €50,000
Liabilities taken over (creditors and taxation) €10,000
€60,000
As the total value of the assets transferable is €220,000 the amount of the consideration received by X in shares is €220,000 less €60,000, that is, €160,000.
The total gain on the transfer, €128,180, is apportioned between the amount received in shares and the non-share consideration as follows —
160,000 220,000
--- 128,180
= €93,222 60,000
220,000
--- 128,180
= €34,958
The gain of €34,958 is taxable in the normal manner. The gain of €93,222 is attributable to the consideration received in shares and is not taxable. Instead, the cost of the shares in calculating any liability on a future disposal of the shares is reduced by the deferred gain —
Value of shares €160,000
Less deferred sum €93,222
Base cost €66,778
600A Replacement of qualifying premises Summary
This section provides capital gains tax ―rollover‖ relief where a person disposes, before 4 December 2002, of certain residential rental property and reinvests the proceeds in certain other residential rental property. While the qualifying premises being disposed of can contain any number of residential units, the replacement premises must have at least the same number of residential units as the qualifying premises being disposed of, but not less than 3 such units. All properties must comply with the Housing Regulations.
Full relief is given if all the proceeds from the disposal are reinvested in acquiring a replacement premises, and partial relief where part only of the proceeds are so reinvested. The relief will not apply if it does not meet certain time or profit requirements. If the premises was not a qualifying premises for a period of the person‘s ownership, or if other assets are included in the consideration for acquisition or disposal of the qualifying premises, then said consideration for acquisition or disposal will be apportioned according to what proportion of the consideration relates to the qualifying premises.
The relief operates on the basis that the capital gain on the disposal of the qualifying
premises is ―rolled over‖, that is, it is deemed not to arise until the replacement premises is disposed of. Moreover, the gain, subject to the same conditions being satisfied, continues to be ―rolled over‖ where the replacement premises is disposed of and the proceeds from that disposal are reinvested in a further replacement premises and so on.
However, while gains arising on disposals before 4 December 2002 may be ―rolled over‖, and continue to be ―rolled over‖ while the person continues to invest in replacement premises, this entitlement will not apply to any gains arising on disposals on or after that date. However, provision is made to allow relief where a replacement premises is acquired before 4 December 2002 but the related qualifying premises has not been disposed of before that date.
Details Definitions
―qualifying premises‖ means a building / part of a building which consists of one or more residential units, generates a rent and complies with the Housing Regulations.
(1)
―Regulations‖ means —
• the Housing (Standards for Rented Houses) Regulations, 1993 (S.I. No. 147 of 1993),
• the Housing (Rent Books) Regulations, 1993 (S.I. No. 146 of 1993), and
• the Housing (Registration of Rented Houses) Regulations, 1996, as amended by the Housing (Registration of Rented Houses) (Amendment) Regulations, 2000 (S.I. No. 12 of 2000).
―replacement premises‖ means a building / part of a building acquired with the consideration realised from the disposal of a qualifying premises, generates a rent and complies with the Housing Regulations. It must contain at least 3 residential units, but if the qualifying premises consists of more than 3 rented residential units, the replacement premises must contain at least that number of units.
―residential unit‖ means a part of a residential premises which is self-contained and is used or suitable for use as a dwelling.
The relief
The relief afforded by the section is that where a person disposes of a qualifying premises before 4 December 2002, which was such a premises throughout the period of the person‘s ownership, and with the proceeds from the disposal acquires a replacement premises, then the chargeable gain on the disposal of the qualifying premises on a claim being made in that respect, is treated as if it did not arise until the person disposes of the replacement premises or those premises cease to be a replacement premises.
(2)(a)
If the proceeds from the sale of replacement premises are re-invested in further replacement premises there is a further deferral of the chargeable gain.
(2)(b) [However, if a person has acquired a replacement premises before 4 December 2002,
with the intention of disposing of the related qualifying premises, but has not done so before 4 December 2002, they may still be eligible to avail of the relief if they dispose of the qualifying premises on or before 31 December 2003. In this situation any gain arising on such a disposal may be treated as if it did not arise until the person disposes of the replacement premises or those premises cease to be a replacement premises.]
Only part of proceeds reinvested
Where only part of the consideration for the disposal, before 4 December 2002, of qualifying premises is re-invested in replacement premises there is capital gains tax deferral only where the amount not re-invested is less than the gain on the disposal, and
(3)
then the gain is only deferred to the extent that it exceeds the amount not re-invested.
Where replacement premises are acquired before 4 December 2002 but the qualifying premises were not disposed of before that date, relief under this subsection may be available where not all of the consideration is reinvested and the disposal is made on or before 31 December 2003.
Limits to relief
The deferral of a gain under this section gives no entitlement to any additional indexation relief under section 556.
(4)