High Income Individuals Restriction Pre- 2010

High Income Individuals Restriction Pre- 2010 Document last reviewed July 2018 1

Table of Contents High Income Individuals Restriction Pre- 2010...1 1. Introduction...3 1.1 General outline of the restriction...3 1.2 Reliefs affected...3 2. When does the restriction apply and to whom?...4 3. How the restriction operates...5 4. Ring-fenced income and calculation of Adjusted Income and Threshold Amount...6 4.1 What is ring-fenced income?...6 4.2 Ring-fenced income: calculation of Adjusted Income...6 4.3 Ring-fenced income: calculation of the Threshold Amount...7 4.4 Other income which is not part of total income...7 5. Chargeable persons and Form RR1...7 6. Married Couples...8 6.1 Extended standard rate-band...8 7. Exempt income...8 7.1 Case IV charge...9 7.2 Stallion stud fees...9 8. Carry forward of reliefs...10 8.1 Unused reliefs carried forward to 2007...10 8.2. Excess reliefs carried forward to 2008 and later years...10 8.3 Carry forward of excess relief in exempt income cases...11 9. Order of set off between reliefs...12 10. Interaction with calculations of credits and reliefs...12 11. Balancing charges...12 12. PRSI and Health Contribution...13 13. Feedback from Districts/Regions...13 Appendix 1...14 List of specified reliefs in Schedule 25B TCA 1997...14 Appendix 2...16 Step-by-Step Guide to Restriction Calculation...16 Appendix 3...17 Examples...17 Appendix 4...23 Apportionment of reliefs carried forward from 2006 to 2007...23

Note: This instruction applies primarily to the tax years 2007, 2008 and 2009. Please refer to Tax Instruction Part 15-02A-05 in relation to the tax year 2010 and later years, including the treatment that applies to civil partners following Finance (No. 3) Act 2011. 1. Introduction Section 17 Finance Act 2006 and section 18 Finance Act 2007 provide, with effect from 1 January 2007, for measures to limit the use of certain tax reliefs and exemptions by highincome individuals. These measures are known as the High Income Individuals Restriction, also sometimes called the High Earners Restriction or the High Income Earners Restriction. The aim of the provisions was to ensure that, from 2007, the individuals in question had an effective tax rate of approximately 20 per cent on the income sheltered by various reliefs. The legislation is contained in Chapter 2A of Part 15 (Sections 485C - 485G) of and Schedules 25B and 25C to the Taxes Consolidation Act 1997 (TCA). Unless otherwise indicated, all statutory references in this instruction are to the TCA. 1.1 General outline of the restriction The measures limit the total amount of specified reliefs (as listed in Schedule 25B) that a high-income individual can use to reduce his or her tax liability in a tax year. The limit is the greater of: the threshold amount (normally 250,000) which applies to the individual for the year, and 50% of his or her adjusted income for that year. Adjusted income is income before the specified reliefs are granted and is calculated by adding the total amount of the specified reliefs used by the individual in a given tax year to his or her taxable income for that year. The relief that is disallowed is added-back to the individual s taxable income for the year to give an increased recalculated taxable income figure. This amount is then taxed at normal income tax rates and the individual is entitled to the usual tax credits due against the tax chargeable on that amount. The relief disallowed is known as excess relief and is available for carry-forward to a subsequent year. It is deducted from total income in the subsequent year in computing an individual s taxable income in the same way as normal tax reliefs. However, it will be a specified relief for the purposes of deciding whether the restriction applies in that subsequent year. If the individual has no total income for tax purposes for the year to which the excess relief is carried forward, it can be carried forward to a later year, again subject to the restriction applying in that year. 1.2 Reliefs affected The reliefs restricted include: the various sectoral and area-based property tax incentives,

certain exemptions including those relating to artists income, stallion stud fees (see paragraph 7.2) and patent royalties, relief for donations, certain investment incentive reliefs such as BES relief and film relief, relief for interest paid on loans used to acquire an interest in a company or in a partnership. The reliefs affected by the restriction are listed in Schedule 25B TCA, which is reproduced in Appendix 1. Normal reliefs or credits claimed by taxpayers such as medical expenses, trade union subscriptions, the personal tax credits, and exemptions such as that for child benefit payable under the Social Welfare Acts are not restricted. In addition, normal business expenses and deductions for capital allowances on plant and machinery, genuine businessrelated trading losses and genuine losses from a rental activity that do not arise from the use of specified reliefs are not restricted. 2. When does the restriction apply and to whom? Generally, the restriction applies to a high-income individual for a tax year where: his or her adjusted income for the year is equal to or greater than the threshold amount (normally 250,000 but see paragraph 4), and the aggregate of specified reliefs used by the individual for the year is equal to or greater than the threshold amount. However, the restriction does not apply in cases where these criteria are met provided that the aggregate of specified reliefs used does not exceed half of the individual s adjusted income for the year. Where adjusted income is between 250,000 and 500,000, a tapering relief ensures that there is a graduated introduction of the restriction, with the restriction limiting relief for the specified reliefs to 50% of the adjusted income where the adjusted income exceeds 500,000 (see Examples 1, 2 and 3 in Appendix 3). Individuals in receipt of income that is fully exempt (e.g., artists income) are potentially subject to the restriction if the exemption they receive (i.e. amount of the net exempt income in the year) exceeds the relevant threshold amount (see paragraph 7). In the case of a married couple, a separate threshold amount applies to each spouse (see paragraph 6) so the income of the other spouse is not taken into account in calculating each person s income for the purposes of deciding whether the restriction might apply. In summary, the restriction applies to an individual if: 1. the individual s adjusted income is equal to or greater than the threshold amount; 2. the aggregate of the specified reliefs used by the individual for the year is equal to or greater than the threshold amount; and 3. the aggregate of the specified reliefs used by the individual exceeds half of the individual s adjusted income for the year.

3. How the restriction operates The steps for calculating the restriction are set out in Appendix 2. More detail is given below. Step 1 - Identify taxable income figure before restriction: This is the amount of the individual s taxable income before applying any restriction. The taxable income amount is T in the formula in section 485C used to calculate adjusted income and in the formula in section 485E used to calculate recalculated taxable income. In years after 2007, any excess relief from a previous year can be allowed against total income in determining this figure. Taxable income does not include income from dealing in residential development land which was chargeable at the special 20% rate or any other income which is not treated as forming part of total income. Step 2 - Compute the aggregate of specified reliefs: This is arrived at by adding up the amounts of all the specified reliefs that are used by the individual for the year. If the full amount of a relief is not used due to, for example, an insufficiency of income or because of a limit in the Tax Acts, the amount not used is not taken into account. The aggregate of specified reliefs is S in the formula in section 485C used to calculate adjusted income and in the formula in section 485E used to calculate recalculated taxable income. Step 3 - Compute adjusted income: The adjusted income formula (T+S) R is contained in section 485C. Where there is no ring-fenced income ( R in the formula see paragraph 4), the adjusted income is the sum of the taxable income ( T ) and the aggregate of specified reliefs ( S ) from steps 1 and 2. Where there is ring-fenced income ( R ), it is deducted from the sum of (T+S). Step 4 - Identify the allowable amount of specified reliefs: This is the greater of the threshold amount ( 250,000 where there is no ring-fenced income) and 50% of the adjusted income amount from step 3. It is Y in the formula in section 485E used to calculate recalculated taxable income. Where the adjusted income exceeds 500,000, the allowable amount is 50% of the adjusted income. Where the adjusted income is 500,000 or lower, the allowable amount is equal to the threshold amount. Where there is ring-fenced income, the normal threshold amount of 250,000 has to be adjusted in accordance with paragraph 4.3. Step 5 - Compute the restricted amount of specified reliefs: This is the amount of specified reliefs that are not allowed in the particular year. It is the difference between the aggregate of specified reliefs from step 2 and the allowable amount of specified reliefs from step 4. It is S-Y in the formula in section 485E used to calculate recalculated taxable income. Step 6 - Compute the recalculated taxable income: This is the sum of the taxable income from step 1 and the restricted amount of specified reliefs from step 5. It is the result of the formula T+(S-Y) in section 485E.

Step 7 - Calculate the increased tax liability based on the recalculated taxable income figure from step 6: Deductions and reliefs are not available against the recalculated taxable income amount. These have already been allowed under the normal rules in computing taxable income at step 1 and, if they are specified reliefs, will have been taken into account in computing the aggregate of specified reliefs at step 2. However, tax credits that are due can be granted in the normal way. Step 8 Carry forward excess relief: The amount of specified reliefs not allowable in a year (step 5) can be carried forward under section 485F to the following year. This excess relief can then be deducted from total income in calculating taxable income. If there is no total income in that following year, the excess relief can continue to be carried forward until it is used up (see paragraph 8.2). Step 9 Include excess relief in specified reliefs: The excess relief carried forward is itself a specified relief (see the entry at reference 47 in Appendix 1). Therefore, any excess relief carried forward will, to the extent to which it is used, be added to other specified reliefs used for the following year(s) in deciding whether the restriction should apply for the year in question. 4. Ring-fenced income and calculation of Adjusted Income and Threshold Amount 4.1 What is ring-fenced income? Ring-fenced income is income that is subject to final liability type taxes. It is income which is normally liable to tax at the standard rate (SR - currently 20%) or the standard rate plus 3% (SR + 3) regardless of the amount received or the rate of tax at which the individual is liable. Ring-fenced income is defined in section 485C as including: Deposit interest received from which DIRT at SR is deducted - section 261(c)(i)(II) Gross deposit interest received by an individual who made a declaration under section 256(1A) or (1B) relating to exemption or repayment - section 261B Gross deposit interest received which arises in an EU Member State other than Ireland and which is liable to tax at SR - section 267M Foreign life policy payment liable at 20% (SR) - section 730J(1)(a)(i)(I) Foreign life policy payment liable at 23% (SR + 3) - section 730J(1)(a)(i)(II)(B) Foreign life policy gain liable at 23% (SR + 3) - section 730K(1)(b) Offshore fund payment liable at 20% (SR) - section 747D(a)(i)(I)(B) Offshore fund payment liable at 23% (SR + 3) - section 747D(a)(i)(II)(B) Offshore fund gain liable at 23% (SR + 3) - section 747E(1)(b)(ii) 4.2 Ring-fenced income: calculation of Adjusted Income Ring-fenced income is excluded from the calculation of adjusted income. If this income were to be included in the adjusted income figure it would effectively increase the amount of relief available against income chargeable at 41%. Excluding it from the calculation of adjusted

income means that it is excluded from the calculation of the amount of relief that is allowed for the year i.e. the greater of the threshold amount and half of the adjusted income (see Example 4 in Appendix 3). 4.3 Ring-fenced income: calculation of the Threshold Amount Where adjusted income is less than 500,000 and an individual has ring-fenced income, the threshold amount of 250,000 that normally applies must be reduced when looking at the level of the individual s adjusted income and her or his use of specified reliefs (see paragraph 2). This is achieved by reducing 250,000 to an amount which bears the same proportion to that figure that the adjusted income bears to the aggregate of the adjusted income and the ring-fenced income (see Example 4 in Appendix 3). 4.4 Other income which is not part of total income Although not defined as ring-fenced income, income from dealing in residential development land that is chargeable at 20% is excluded from the calculation of taxable income and adjusted income as it does not form part of total income for the purposes of the Tax Acts (see section 644A(3)). Likewise any other income which is treated as not forming part of total income is excluded from such calculations e.g. income arising to unit holders in investment undertakings section 739G(2A) as inserted by s.39(1)(d) FA 2008. 5. Chargeable persons and Form RR1 Section 485FB provides that any individual who is subject to the restriction is deemed to be a chargeable person if s/he is not already one. This means that the individual is required to submit a self-assessment tax return by the return filing date for the tax year. In addition, individuals affected by the restriction are required to submit a statement on a prescribed form (Form RR1) with their tax return. The Form RR1 must include full details of the aggregate of specified reliefs used by the individual for the year, together with: the individual s taxable income before the application of the restriction, the individual s taxable income after the application of the restriction, and the amount of the revised tax payable for the year. Therefore, the information referred to in steps 1 to 7 in paragraph 3 should be available on the completed Form RR1. Revenue has the power to verify the accuracy of any details or figures included in the form. Also, where a Form RR1 is not submitted but it appears that such a form is required, Revenue has the power to make relevant enquiries to determine whether or not an individual should have submitted the form.

6. Married Couples In the case of married couples, we must look at the adjusted income and the amount of specified reliefs used by each spouse to determine whether the restriction applies to that spouse (see Example 5 in Appendix 3). In cases involving single treatment, each individual is required to submit a separate Form RR1 (see paragraph 5). In cases involving joint assessment, section 485FA provides that, where the restriction applies, the aggregation of income takes place at the level of taxable income rather than at the level of total income that would otherwise apply. This allows each individual to be looked at separately for the purposes of calculating adjusted income and recalculated taxable income. This provision applies to married couples taxed under joint assessment and under separate assessment and to cases where either a husband or wife is the assessable spouse. In all such cases, the spouse who is subject to the restriction must submit the Form RR1. However, where the restriction applies to both spouses, a single Form RR1 combining both spouses details may be submitted. Section 485FA also provides that the benefit of reliefs and deductions under the provisions listed in Part 1 of the Table to section 458 are not lost because of the aggregation of income in joint assessment cases at the level of taxable income rather than at the level of total income. Therefore, the benefit of deductions and reliefs that might be lost because of this change can move across between the spouses. The aim of this measure is to maintain the existing benefit of the deductions and reliefs where the legislation allowed them to be given against joint total income; its does not create any new entitlement to transfer the benefit of a relief or deduction that does not exist under the normal rules. Any adjustment under this provision should be made before the application of any restriction under Chapter 2A of Part 15. This rule is similar to the rule that unused rate bands, reliefs and deductions may be transferred between spouses in separate assessment cases. 6.1 Extended standard rate-band Please refer to Tax Instruction 15.2A.02 in relation to the entitlement of married couples to the extended rate band for all years and in relation to the entitlement of civil partners to the extended rate band for the years 2011 and later years. 7. Exempt income Individuals who are in receipt of income which is exempt from income tax for example, artists income, greyhound fees and patent royalty - are subject to the restriction if the amount of the exempted income exceeds the threshold amount. Where the income that is exempted in a year (i.e., the specified relief used) as computed under normal Case I/II rules

does not exceed the threshold amount of 250,000 (where there is no ring-fenced income) there is no restriction provided that no other specified reliefs are used. Individuals whose exempt income exceeds the threshold amount and whose taxable income from other sources is equal to or greater than the amount of the exempt income are also unaffected, again provided that no other specified reliefs are used. All other individuals with exempt income that exceeds the threshold amount (normally 250,000) are subject to the restriction. Where there is ring-fenced income, the normal threshold amount of 250,000 is reduced proportionally in accordance with paragraph 4 above and the restriction applies where the exempt income exceeds the reduced amount (see Examples 6, 7 and 8 in Appendix 3). 7.1 Case IV charge In cases involving exempt income and in certain other cases, no assessment may have been necessary or, where an assessment was necessary, an income source may not have been assessed because of the use of a specified relief. Accordingly, where a restriction applies, section 485G(3) provides that: an amount of income, chargeable under Case IV of Schedule D, is deemed to arise where the amount of the recalculated taxable income (in accordance with section 485E) exceeds the amount of the income already assessed, such deemed amount can be included in an assessment for the year involved and tax can be assessed and collected in the normal way. Any additional amount charged in this way under Case IV is to be ignored for the purposes of the various formulae that relate to the restriction itself. Nor is it to be reckoned in computing the individual s total income for the year. Therefore, while it will be shown as a source of income on an assessment, it is not added to the other income assessed and, accordingly, in some cases figures on assessments may not appear to add-up e.g. the amount of the Case IV charge may not be the difference between the recalculated taxable income figure and the original taxable income figure because of deductions etc. 7.2 Stallion stud fees The tax exemption for stallion stud fees does not apply to income arising after 31 July 2008. 1 Consequently, the restriction only applied to such income for 2007 and for the period 1 January 2008 to 31 July 2008. Where additional income tax is paid because of a restriction on the amount of stallion stud fees which are exempt in 2007 or 2008 (up to 31 July 2008) such additional tax paid is available as a non-refundable income tax credit in the year after the year in respect of which the payment was made. Any credit that is not used up in the year in which it is initially due can be carried forward to later years. Because a credit is available, any excess relief (see paragraph 8.2) under section 485E that relates to a restriction of the stallion stud fee exemption and which would otherwise have been available for carry forward, does not apply. 1 Chapter 4 of Part 23 TCA 1997 (section 669G 669K) as inserted by section 26(1)(b) FA 2007 provided for the termination of the exemption with effect from 31 July 2008.

8. Carry forward of reliefs 8.1 Unused reliefs carried forward to 2007 Unused relief carried forward from 2006 to 2007 may consist of a mixture of specified and non-specified reliefs. Therefore, it is necessary to distinguish the amounts that refer to specified reliefs to see if the restriction applies in 2007. For example, capital allowances carried forward may consist of plant and machinery allowances (not specified reliefs) and allowances relating to a building in a designated area (specified reliefs). Schedule 25C contains a number of formulae to determine the amounts attributable to specified and non-specified reliefs for the following four categories of relief: Case I capital allowances Case I losses Case V capital allowances Case V losses The calculations are based on the 4-year period preceding 2007 (i.e. 2003 to 2006) and, in general, seek to apportion the allowances coming forward by comparing the amount of specified reliefs granted in those years within the category to the overall allowances granted within that category. An individual who is not satisfied with the resulting apportionment of specified and nonspecified reliefs may apply to Revenue for the apportionment to operate over such longer or shorter period that gives a fairer apportionment. However, the year 2006 must always be included. Where such an application is made, Revenue must issue a determination in writing to the individual either: accepting the proposed method of apportionment, setting out an apportionment based on some other time period, or confirming the figures determined in accordance with the original rules. If the individual does not accept this Revenue determination, he or she can appeal the determination to the Appeal Commissioners within 30 days of the determination. The formulae involved are set out in Appendix 4 which includes a worked example of the Case I capital allowances formula. 8.2. Excess reliefs carried forward to 2008 and later years Reliefs that are not allowed in a year because of the restriction, and which are added back in order to increase an individual s taxable income for that year, are known as excess relief. Section 485F provides that the amount of the excess relief can be carried forward to the following year and used as a deduction from the individual s total income in arriving at his or her taxable income for that year. However, any other relief to which the individual is entitled, including other specified reliefs for that year, is given in priority to the excess relief carried forward. Excess relief that cannot be used in the first year to which it is carried forward can be carried forward to later years. Reliefs carried forward as excess relief lose their character in that they are pooled in a single amount. The pooled amount is then treated as a separate

tax relief in its own right. As it is deducted from total income in the year in which it is used, it reduces the amount of taxable income in that year before the calculation of any restriction that might apply. However, it is also a specified relief in the year in which it is used and thus subject to the restriction in that year (see entry at Reference number 47 in Appendix 1.) 8.3 Carry forward of excess relief in exempt income cases Relief carried forward as excess relief may include an amount that arises because of the application of the restriction in an exempt income situation, e.g., the artists exemption. In such a situation, it will only be possible to use the excess relief carried forward if the individual has other non-exempt income in the year to which the excess relief is carried forward (see Example 9 in Appendix 3).

9. Order of set off between reliefs Section 485C(3) specifies the order in which various reliefs are to be used. From 2007, regardless of whether an individual is subject to the restriction, a non-specified relief must be deducted in priority to a specified relief as follows: In relation to Case V, capital allowances carried forward are deducted in priority to capital allowances arising in the current year. Where the amount carried forward includes both capital allowances that are specified reliefs and ordinary capital allowances such as those for plant and machinery, the ordinary capital allowances are deducted from the net rent in priority to the capital allowances that are specified reliefs. Normal rental deductions, such as insurance and management expenses, are deducted from gross rent in priority to a specified relief such as section 23 type relief. Non-specified reliefs are deducted from total income in priority to specified reliefs. For example, health expenses are deducted in priority to relief for investment in films. Loss relief is given for a normal loss in priority to a loss that is referable to the use of specified reliefs. Normal business expenses allowed in computing assessable Case I/II income are deducted in priority to double rent allowance due under section 324, 333, 345 or 354 or paragraph 13 of Schedule 32. Please refer to Example 10 in Appendix 3. 10. Interaction with calculations of credits and reliefs Section 23 Finance Act 2008 clarified the correct sequence of events where calculations in other provisions of the Tax Acts interact with the application of the restriction. Calculations that commonly require total income, taxable income, tax payable or tax chargeable for a year to be taken into account as part of the calculation must take place before the application of the restriction. If such calculations were to be made after the application of the restriction they could impact on the effectiveness of the restriction. In general, these calculations must be carried out before the restriction is applied but the benefit of a credit or reduction in tax (as calculated before applying the restriction) can be given against the tax chargeable following the application of the restriction. Also, where an individual is subject to the restriction, the exemption and marginal relief provisions in sections 187 and 188 TCA do not apply for that year. These provisions are contained in section 485G (4) and (5). 11. Balancing charges Section 485G(2) provides that where capital allowances in relation to a building or structure are specified reliefs, an individual will be treated as if he or she had received the full benefit of the allowances in the particular year even if the allowances were restricted. This is because the restricted portion of the capital allowances becomes part of the pool of restricted reliefs to be carried forward to a subsequent year. The tax written down value of the building or

structure is, therefore, not affected by any restriction. As the tax written down value is used to determine whether a balancing allowance or balancing charge arises on the sale of the building or structure, it is possible for a balancing charge to arise even though capital allowances have been restricted. Where this occurs, the balancing charge is to be reduced by the lesser of: the amount of any excess relief coming forward to the year in which the balancing charge arises which has not already been deducted for the year, and the sum of the amounts of the allowances restricted each year which relate to the building or structure involved. The amount to be taken for each year is calculated by applying the following formula to the allowance in respect of the building or structure for the year: where - A x E S A is the amount of the allowance made to the individual for the year, E is the amount of the individual s excess relief for the year, and S is the individual s aggregate of specified reliefs for the year. Where the balancing charge is reduced, a corresponding reduction must be made to the excess relief carried forward. Please refer to Example 11 in Appendix 3. 12. PRSI and Health Contribution As the focus of the restriction is on the recalculation of taxable income, it did not affect PRSI and the health contribution 2. In the year that a restriction applies, reckonable income for PRSI and health contribution purposes is based on the original income assessable to income tax. Where excess relief is carried forward for deduction from total income in the following year, the excess relief is not deductible in calculating reckonable income for PRSI and health contribution purposes for that year. 13. Feedback from Districts/Regions Where districts or regions encounter difficulties or anomalies in relation to the restriction of reliefs they should seek the advice of their Revenue Technical Services area which may, if necessary, bring the matter to the attention of the Personal Tax Policy and Legislation Division. 2 ebrief No. 57/2007 dated 8 November 2007 dealt with this issue.

List of specified reliefs in Schedule 25B TCA 1997 Ref. Section Description Appendix 1 1 140 Dividends and distributions out of income from stallion fees, stud greyhounds and woodlands 2 141 Dividends and distributions out of exempt patent income 3 142 Dividends and distributions out of exempted income from certain mining operations 4 143 Dividends and distributions out of relieved income from certain mining operations 5 195 Exemption of certain earnings of writers, composers and artists 6 231 Exempt profits or gains from stallion fees 7 232 Exempt profits or gains from occupation of woodlands 8 233 Exempt profits or gains from stud greyhound service fees 9 234 Exempt income from patent royalties 10 248 Relief for interest paid on loans used to acquire an interest in a company 11 248/250 Relief for interest paid on loans used to acquire an interest in a company 12 253 Relief for interest paid on loans used to acquire an interest in a partnership 13 272 Writing-down allowances in respect of capital expenditure on: Hotels written-off at 15% rate (S268(1)(d)) Nursing homes (Sec. 268(1)(g)) including residential units attached to nursing homes (Sec. 268(1)(g) by virtue of S268(3B)) Convalescent homes (S268(1)(i)) Private hospitals (S268(1)(j)) Sports injury clinics (S268(1)(k)) Mental health centres (S268(1)(l)) Specialist palliative care units (S268(1)(m)) Holiday camps written-off at 15% rate and holiday cottages (S268(3)) 14 273 Acceleration of writing-down allowances in respect of certain expenditure on certain industrial buildings or structures 15 274 Balancing allowances in respect of capital expenditure on the buildings listed at Ref. No. 13 above. 15A 304(4) Income tax: allowances and charges in taxing a trade, etc. 15B 305(1) Income tax: manner of granting, and effect of, allowances made by means of discharge or repayment of tax 16 323 Customs House Docks Area: capital allowances in relation to the construction of certain commercial premises 17 324 Customs House Docks Area: double rent allowance in respect of rent paid for certain business premises 18 331 Temple Bar Area: accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures 19 332 Temple Bar Area: capital allowances in relation to construction or refurbishment of certain commercial premises 20 333 Temple Bar Area: double rent allowance in respect of rent paid for certain business premises 21 341 Urban Renewal Scheme and Designated Streets Scheme: accelerated capital allowances for construction/refurbishment of certain industrial buildings or structures 22 342 Urban Renewal Scheme and Designated Streets Scheme: capital allowances in relation to construction/refurbishment of certain commercial premises 23 343 Enterprise Areas: capital allowances in relation to construction/refurbishment of certain buildings or structures

24 344 Multi-storey car parks: capital allowances in relation to construction or refurbishment 25 345 Urban Renewal Scheme, Enterprise Areas and Multi-storey car parks: double rent allowance in respect of rent paid for certain business premises 26 352 Qualifying Resort Areas: accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures 27 353 Qualifying Resort Areas: capital allowances in relation to construction or refurbishment of certain commercial premises 28 354 Qualifying Resort Areas: double rent allowance in respect of rent paid for certain business premises 29 372C Qualifying Areas: accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures 30 372D Qualifying Areas and Living-Over-the-Shop Scheme: capital allowances in relation to construction or refurbishment of certain commercial premises 31 372M Qualifying Rural Areas: accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures 32 372N Qualifying Rural Areas: capital allowances in relation to construction or refurbishment of certain commercial premises 33 372V Park-and-Ride Facilities: capital allowances in relation to construction or refurbishment 34 372W Park-and-Ride Scheme: capital allowances in relation to construction or refurbishment of certain commercial premises 35 372AC Town Renewal Areas: accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures 36 372AD Town Renewal Areas: capital allowances in relation to construction or refurbishment of certain commercial premises 36A 372AX Mid-Shannon Corridor Tourism Infrastructure Investment Scheme: accelerated capital allowances in relation to construction/refurbishment of certain registered holiday camps 36B 372AY Mid-Shannon Corridor Tourism Infrastructure Investment Scheme: capital allowances in relation to construction or refurbishment of certain tourism infrastructure facilities 37 372AP Relief for Lessors 38 372AU(1) Saver for relief due, and for clawback of relief given, under old schemes 39 381 Right to repayment of tax by reference to losses 40 381 Right to repayment of tax by reference to losses as extended by S392 (option to treat capital allowances as creating or augmenting a loss) 41 382 Right to carry forward losses to future years 42 383 Relief under Case IV for losses 43 384 Relief under Case V for losses 44 385 Terminal loss 45 481 Relief for investment in films 46 482 Relief for expenditure on significant buildings and gardens 47 485F Carry-forward of excess relief 48 489(3) BES relief 49 843 Capital allowances for buildings used for third level education purposes 50 843A Capital allowances for buildings used for certain child-care purposes 51 847A Donations to certain sports bodies 52 848A Donations to approved bodies 53 Para. 11 of Sch. 32 54 Para. 13 of Sch. 32 Urban Renewal Scheme, 1986: capital allowances in relation to certain commercial premises in designated areas other than Customs House Docks Area Urban Renewal Scheme, 1986: double rent allowance in relation to certain premises in designated areas other than Customs House Docks Area

Appendix 2 Step-by-Step Guide to Restriction Calculation 1. Identify Taxable Income 1 figure before restriction. 2. Calculate the Aggregate of Specified Reliefs 2 (i.e., add up all specified reliefs in respect of which effect is given in the year) 3. Compute Adjusted Income 3 this is the sum of Lines 1 and 2 where there is no ringfenced income (see Note 1). 4. Identify the Allowable Amount 4 of Specified Reliefs - this is normally the greater of 250,000 (but see Note 1) and 50% of the Adjusted Income figure at Line 3. 5. Compute the Restricted Amount 5 of specified reliefs (amount not allowable in the year) this is the difference between the amount at Line 2 and the amount at Line 4. 6. Add the restricted amount at Line 5 to the Taxable Income figure at Line 1. This gives you the Recalculated Taxable Income 6 figure. 7. Calculate the Increased Tax Liability based on the Recalculated Taxable Income figure (i.e. after the application of the restriction) but granting the normal tax credits 7 that are due. 8. The relief restricted in the year known as Excess Relief (amount at Line 5) is carried forward to the next year and given as a deduction from total income in calculating taxable income in that next year and so on for following years 8. 9. The Excess Relief carried forward is itself a specified relief and subject to the restriction in any following year in which it is given 9. Note 1: Slight adjustments to the above calculations are required where certain deposit interest, and similar income that is already subject to final liability type taxes, is involved (known as ring-fenced income). Such income is to be excluded from the calculation of adjusted income. Also, the threshold amount of 250,000 is to be reduced in the proportion that the adjusted income bears to the aggregate of the adjusted income and the ring-fenced income. Note 2: While income from dealing in residential development land (chargeable at 20%) is not defined as ring-fenced income, it is also to be excluded from the calculation of taxable income and adjusted income as it does not form part of total income for the purposes of the Income Tax Acts see section 644A(3) TCA 1997. Likewise, any other income which is treated as not forming part of total income is to be excluded from those calculations. 1 This is T in adjusted income formula in section 485C and T in formula in section 485E 2 This is S in adjusted income formula in section 485C and S in formula in section 485E 3 This is the result of the adjusted income formula (T+S) R in section 485C 4 This is Y in the formula in section 485E 5 This is the result of S-Y in the formula in section 485E 6 This is the result of the formula T + (S-Y) in section 485E 7 Deductions and reliefs are not available against the recalculated taxable income amount. 8 See section 485F in relation to carry forward of excess relief 9 See the entry at Reference number 47 in Schedule 25B which covers this. 16

Appendix 3 Examples 1, 2 and 3 - Paragraph 2: when the restriction applies 1. Mr. Andrews has taxable income of 100,000 in 2007 and has used section 23 type relief in that year amounting to 200,000. He has no ring-fenced income so his adjusted income is 300,000. While his adjusted income is greater than 250,000, the specified reliefs used by him are less than that amount and the restriction does not apply. 2. Ms. Boyle has taxable income of 400,000 in 2007 and has used section 23 type relief in that year amounting to 300,000. She has no ring-fenced income so her adjusted income is 700,000. While her adjusted income and specified reliefs used are both greater than 250,000, the restriction does not apply as the amount of the section 23 type relief used does not exceed 50 per cent of her adjusted income. 3. Mr. Cleary has taxable income of 100,000 in 2007 and has used section 23 type relief in that year amounting to 300,000. He has no ring-fenced income so his adjusted income is 400,000. The restriction applies as: his adjusted income and specified reliefs used are both greater than 250,000, and the amount of the section 23 type relief exceeds 50% of his adjusted income. The specified reliefs used by him, 300,000, must be restricted to 250,000 and the excess is added to his taxable income of 100,000 giving recalculated taxable income of 150,000. Example 4 - Paragraph 4: Adjusted Income and Reduced Threshold Amount 4. Mr. Doyle has taxable income of 100,000 in 2007 and used section 23 type relief in that year amounting to 200,000. He also has used 20,000 film relief and 25,000 BES relief. He has bank deposit interest (ring-fenced income) of 15,000, which is included in his taxable income figure of 100,000. Adjusted income is determined by the formula (T +S) R where: T = the individual s taxable income i.e. 100,000 S = the aggregate amount of specified reliefs used in the year i.e. 245,000 R = the amount of the individual s ring-fenced income for the year i.e. 15,000 The result of this formula is 330,000 and this is the amount of the adjusted income. Threshold Amount Where an individual s adjusted income is less than 500,000 and his or her income includes ring-fenced income the threshold amount is proportionally reduced as follows: 250,000 x A where: B A = is the individual s adjusted income for the year, and B = is the sum of T + S above. In this case A is 330,000 and B is 345,000. The result of the calculation using these figures is that the threshold amount, rather than being 250,000, is reduced to 239,130. Mr. Doyle s use of specified reliefs is greater than this amount and, because of the adjustments made to exclude ring-fenced income, the restriction applies. Mr. Doyle s taxable income is to be recalculated using the formula T + (S Y) in section 485E where: 17

T = is the individual s taxable income i.e. 100,000 S = the aggregate amount of specified reliefs used in the year i.e. 245,000 Y = is the greater of the threshold amount and one half of the individual s adjusted income for the year i.e. threshold amount of 239,130 is greater. As a result of this formula, specified reliefs are restricted by 5,870 and this is added to taxable income of 100,000 giving recalculated taxable income of 105,870. 18

Example 5 Paragraph 6: Whether restriction applies to both spouses 5. A married couple, Mr. and Mrs. Early are taxed under joint assessment and in 2007 have the following income and deductions: Mr. Early - Mrs. Early - Case I/II 650,000 720,000 Deposit Interest 10,000 10,000 Capital allowances (plant & machinery) Capital allowances (Town Renewal scheme) (15,000) (15,000) (430,000) n/a Rental income nil 200,000 BES (30,000) n/a Capital allowances (rented hotel) Passive investor -significant (S482) building n/a (320,000) 10 (40,000) 11 5.1 Mr. Early Taxable Income 185,000 683,250 Mr. Early s Town Renewal capital allowances are in respect of a commercial property used for his profession and are set against the income from his profession. His taxable income for 2007 is 185,000. His specified reliefs are Town Renewal capital allowances and BES. His adjusted income (T+S) - R is: (185,000 + 460,000) 10,000 = 635,000 Recalculated taxable income T+(S-Y) is: 185,000 + (460,000 317,500) = 327,500 As half the adjusted income figure ( 317,500) is greater than 250,000, that figure is used in the formula. His recalculated taxable income is 327,500 and he will be taxed on this amount in the normal manner. The specified reliefs are restricted by 142,500 and this amount will be carried forward to 2008 as excess relief to be deducted from total income. 5.2 Mrs. Early Mrs. Early s capital allowances in respect of the hotel are ring-fenced against the rental income of 200,000 (which is accordingly reduced to nil) with excess capital allowances of 120,000 going forward to 2008. Her allowances as a passive investor in a significant building are restricted to 31,750. Therefore, her taxable income for 2007 is 683,250. Although Mrs. Early has specified reliefs in excess of 250,000 available in 2007 in relation to her investments, she actually can use only 231,750 of those specified reliefs because of existing restrictions in the Tax Acts. Therefore, the restriction does not apply to her as the specified reliefs used by her are less than the threshold amount. Additionally, 50% of her adjusted income (i.e. 452,500) is greater than the specified reliefs used by her in the year. Her adjusted income (T+S) - R is: (683,250 + 231,750) 10,000 = 905,000 The relief disallowed to her in 2007 because of the normal ring-fencing provisions (i.e. excess capital allowances of 120,000 and excess section 482 relief of 8,250) will be carried forward to 2008 and, if used in that year, will be taken into account in deciding whether the restriction applies in 2008. 10 Allowable amount is 200,000 see paragraph 5.2 11 Allowable amount is 31,750 see paragraph 5.2 19

Examples 6, 7 and 8 Paragraph 7: Exempt income cases 6. Ms. Frawley has exempt artist s income of 240,000 in 2007. She also has taxable income of 100,000. She has no ring-fenced income and has not availed of other specified reliefs. The restriction does not apply in this case. 7. Ms. Giles has exempt artist s income of 240,000 in 2007. She also has taxable income of 300,000. She has no ring-fenced income but has availed of 25,000 BES relief. The restriction does not apply in this case. Adjusted income is 565,000 (taxable income of 300,000 + specified reliefs of 265,000) and 50% of this amount ( 282,500) is greater than the specified reliefs used. 8. Mr. Healy has exempt artist s income of 300,000 in 2007. He also has taxable income of 100,000 that includes ring-fenced income of 10,000. He has availed of 25,000 BES relief. His adjusted income is: (T +S) R i.e. (100,000 + 325,000) 10,000 = 415,000 His threshold amount is: 250,000 x A (415,000) = 244,118 (see Example 4) B (425,000) His recalculated taxable income per formula T + (S Y) in section 485E is as follows: 100,000 + (325,000 244,118) = 180,882 The excess relief of 80,882 arising in 2007 can be carried forward to 2008. It will be regarded as a specified relief to the extent that it is used in that year. Example 9 Paragraph 8.3: Carry forward of excess relief in exempt income cases 9.1 Individual has only exempt income in 2007 and 2008 In 2007 Mr. Irwin earned 1m net of expenses from his musical compositions. This is his only source of income. However, as his exempt income exceeds the threshold of 250,000 the restriction applies. Adjusted income for 2007 is 1m i.e. add specified reliefs (exemption of 1m) to taxable income of nil. Threshold amount is 250,000. The restriction limits his relief to the greater of the threshold amount of 250,000 and 50% of the adjusted income amount. In this case this is 500,000. The remaining 500,000 will be added back to Mr. Irwin s taxable income for 2007 to give recalculated taxable income of 500,000. In 2008, the excess relief of 500,000 not given in 2007 is available to be deducted from total income. However, if Mr. Irwin s income situation in 2008 is the same as that in 2007, then there will be no income against which he can set the relief, as his only source of income is exempt income. Furthermore, the exemption that he receives in relation to the income arising in 2008 is again a specified relief and a similar restriction, as in 2007 above, will apply. Therefore, at the end of 2008 there will be excess relief going forward to 2009 of 1m i.e. 500,000 restricted in 2007 and 500,000 restricted in 2008. 9.2 Individual has exempt income and other income in 2008 If Mr. Irwin has exempt income of 1m and other income of 600,000 in 2008, the excess relief of 500,000 carried forward to 2008 will reduce taxable income to 100,000 in that year. Specified reliefs used in 2008 will be 1.5m i.e. 1m exemption and excess relief allowed of 500,000. The adjusted income will be 1.6m (i.e. taxable income of 100,000 and specified reliefs of 1.5m). The allowable amount of specified reliefs will be 800,000 (50% of adjusted income) and the 700,000 excess of specified reliefs must be added back to the taxable income of 100,000 to give recalculated taxable income of 800,000. In this scenario there will be excess relief to be carried forward from 2008 to 2009 of 700,000. 20

Example 10 Paragraph 9: Order of set-off 10. Ms. Jones has taxable employment income of 300,000 in 2007. She purchases a property qualifying for section 23 type relief of 390,000. The gross rent is 20,000 and the normal rental deductions are 4,000. She has other Irish rental income of 380,000 and the normal rental deductions are 35,000. Her rental computation for 2007 is as follows: S23 property - Other properties - Gross Rent 20,000 380,000 Deductions (4,000) (35,000) s. 23 relief (390,000) Nil Net profit (loss) (374,000) 345,000 The overall position is a loss of 29,000. Therefore no amount of Case V income will be charged and Ms. Jones s taxable income for the year is 300,000. As section 485C(3) provides that the normal rental deductions are granted in priority to the section 23 type deduction, the amount of specified reliefs used by Ms. Jones in 2007 is 361,000-16,000 to cover rents from the section 23 property and 345,000 to cover rents from the other properties. Adjusted income: Taxable income 300,000 Specified reliefs 361,000 Adjusted income 661,000 Ms. Jones s allowable amount of specified reliefs is limited to 330,500, i.e., 50% of the adjusted income as this is greater than the threshold amount of 250,000. Her recalculated taxable income for the year per the formula T + (S-Y) is as follows: 300,000 + (361,000 330,500) = 330,500 The amount restricted in 2007 (i.e. 30,500) will be carried forward as excess relief to 2008 to be deducted from her total income in that year. In addition, the rental loss of 29,000 that arose in 2007 will be available against rental income in 2008. To the extent that both are used in 2008 they will be specified reliefs in that year together with any other specified reliefs actually used in 2008. Example 11 Paragraph 11: Balancing Charge 11. Mr. Keane incurred capital expenditure of 2m on a hotel in 2003 and sells it on 1 January 2009 for 2,500,000. Capital allowances of 300,000 were granted in each of the years 2004 to 2008 and he had other specified reliefs of 100,000 each year. In 2007 Mr. Keane s specified reliefs of 400,000 were restricted to 250,000 and in 2008 his specified reliefs of 550,000 ( 400,000 for 2008 plus excess relief forward of 150,000 from 2007) were restricted to 380,000 (i.e. restriction of 170,000). Section 485G deems Mr. Keane to have received the full benefit of the capital allowances despite the restriction. The excess relief forward from 2007 and 2008 to 2009 of 170,000 was not used in 2009. The tax written down value of the building is 500,000. A balancing charge of 2,000,000 potentially arises but this is limited under section 274(8) to the allowances already granted of 1,500,000. However, as Mr. Keane did not receive the full benefit of these allowances because of the restriction, the balancing charge is to be reduced. The reduction is the amount of the excess relief of 170,000 or, if lower, the sum of the amounts calculated, in accordance with the formula referred to in paragraph 11, as follows: 2007: 300,000 x 150,000/400,000 = 112,500 2008: 300,000 x 170,000/550,000 = 92,727 Total 205,227 21