In computing tax due on your business profits, you do not get any allowance for depreciation of business assets. Instead, you get a capital allowance over several chargeable periods until the cost of the asset has been fully allowed.

Capital allowances are computed exclusive of grants (s 317) and VAT (s 319).

Machinery or plant

Expenditure on machinery or plant used in your business is given an annual wear and tear allowance of 12.5% (s 284). A similar allowance is given for expenditure on software (s 291).

If you dispose of an item of machinery or plant on which capital allowances were claimed, and the disposal results in an underclaim (or overclaim) of allowances, you may be due a balancing allowance (or subject to a balancing charge) (s 288).

Cars

A car (new or secondhand) costing over €24,000 is given an annual 12.5% wear and tear allowance as if the car’s purchase price were €24,000 (s 373).

The capital allowances and leasing deductions of cars bought or leased since 1 July 2008 are based on the level of carbon emissions (see Benefit in Kind, above). Cars with emissions above 190g/km get no allowance (s 380K).

A taxi or short-term hire car is given an unrestricted write off of the purchase price at 40% per annum on a reducing balance basis (s 286).

Restrictions

If you carry on a trade of leasing machinery or plant, you may only set off the related capital allowances against income from that trade. This is relaxed if not less than 90% of your activity consists of leasing (s 403). Capital allowances on assets let under a balloon lease may only be set against income from that lease. This is relaxed for certain foreign currency leases and long-term leases (s 404).

Industrial buildings

If you use an industrial building for your business, you may be due:

(a) an industrial building annual allowance (also known as a writing down allowance) (s 272),

(b) an industrial building accelerated writing down allowance (also known as “free depreciation”) (s 273), or

(c) an industrial building (initial) allowance (s 271).

These latter two allowances are now generally restricted to qualifying premises located in renewal incentive areas.

If the disposal of an industrial building on which capital allowances were claimed results in an underclaim (or overclaim), a balancing allowance (or charge) may arise (s 274).

Industrial buildings annual allowance may be claimed at the following rates:

(a) 15%, in respect of expenditure on:

(i) palliative care units (hospices),

(ii) private convalescent facilities,

(iii) private hospitals,

(iv) registered nursing homes,

(v) sports injury clinics.

(b) 10%, in respect of expenditure on:

(i) buildings for intensive livestock production,

(ii) market gardening structures.

(c) 4%, in respect of expenditure on:

(i) airport buildings, structures, runways, aprons,

(ii) camp/caravan site buildings and structures,

(iii) factories, mills, dock undertakings,

(iv) mineral analysis laboratories,

(v) hotels.

Restrictions: lessors

The accelerated industrial building annual allowance only applies if you are an owner-occupier; it is not given if you are a landlord who is letting the building (s 273). Both owner-occupiers and lessors can claim the industrial building (initial) allowance.

If you carry on a trade of leasing holiday cottages, any excess capital allowances may not be used to give rise to a tax repayment or to create or increase a loss (s 405).

No industrial building allowance is given in relation to a hotel for which a room ownership scheme exists (s 409).

If you are a lessor of an industrial building, or a passive investor in an industrial building, your ability to set excess capital allowances against your non-rental income is restricted to the lower of:

(a) the excess, or

(b) €31,750.

This restriction does not apply to a tourist building in a resort area, or a hotel (s 409A).

If you are a lessor of a hotel, or passive investor in a hotel, you have no ability to set excess capital allowances against your non-rental income (s 409B). This restriction does not apply to a hotel in an area of Cavan, Leitrim, Mayo, Monaghan, Roscommon or Sligo which is not a resort area, or a Fáilte Ireland recognised holiday cottage.

Restrictions: High Earners

Where your income exceeds €125,000, the maximum reliefs and exemptions you can claim is the higher of:

(a) €80,000, and

(b) 20% of your total income.

Farm buildings, structures, milk quotas

If you are a farmer, expenditure on farm buildings may qualify for a farm building allowance of 15% in each of the first six years and 10% in the seventh year (s 658).

Expenditure during 1 January 2006 to 31 December 2010 on farm pollution control structures may qualify for:

(a) An allowance of 15% of the expenditure in each of the first six years of the writing down period, and 10% in the final year of the writing down period. You may opt to take an increased allowance in any year of the writing down period equal to the lower of 50% of the expenditure or €50,000. If you do so, the balance is written off over the remaining years of the writing down period.

(b) Alternatively, an allowance of 33⅓% over three years (s 659).

Expenditure on the purchase of a milk quota may be written off over a seven year period (s 669B).

Patent rights

An annual allowance of one-seventeenth of the expenditure is given for capital expenditure on patent rights (s 755).