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Capital Allowances for Intangible Assets
Posted on: Sunday, May 31, 2015
Capital Allowances for Intangible Assets is another area that seems to be cropping up in CAP 2 Tax exams.
When answering a question, what is the Examiner looking for?
- Firstly you should tell the Examiner that Capital allowances may be claimed on intangible assets used for the purpose of the trade.
- Secondly you should list the specified assets such as patents, registered designs, trademarks, brands, copyrights, domain names, know-how and the related goodwill.
- Thirdly, state that the relief applies to intangible assets recognised in accordance with Irish GAAP or IFRS
- The options to claim writing down allowances are (a) a claim based on accounting treatment of intangible asset or (b) a fixed write down period of 15 years - 7% per annum plus 2% in final year.
Other important points to remember:
- There is no clawback provided the 15 year life is exceeded.
- A separate trade is deemed to arise from managing, developing or exploiting the intangible assets and the relief is ring-fenced to that trade.
- The interest cost of funding the acquisition of the intangible assets, including interest on borrowings to invest in a company which uses the money to acquire intangible assets can only be relieved against the income of the separate trade.
- Carry forward of excess allowances and interest is permitted.
- There is no clawback of the relief where the assets are sold more than 5 years after the beginning of the accounting period in which the asset was first provided.
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