Annex 1: Minor Changes in the Law Change 101: Repeal of section 817 of ICTA: Schedule 1
This change concerns the repeal of section 817 of ICTA.
Section 817 of ICTA can trace its origins back almost unchanged to the 1803 Income Tax Act. The general clarifications it provides may have served some useful purpose in the early years of income tax. But they are no longer required.
The section is a profit calculation rule. It applies in “arriving at the amount of profits or gains”. It does not apply to deductions made after those profits have been calculated. The scope of the word “profits” is not clear. Section 817 of ICTA is not included in the definition of “profits” in section 6 of ICTA. Given the restrictions in section 38 of TCGA, section 817 of ICTA could have no application to the calculation of chargeable gains even if it were thought capable of applying to that element of the corporation tax profit.
Section 817 of ICTA appears to apply to the calculation of the income element only of corporation tax profits.
The primary purpose of the section is set out in subsection (1)(a). This provides that no deduction is allowed in calculating the profits unless the deduction is “expressly enumerated in the Corporation Tax Acts”. This Act and those parts of the corporation tax code that are not yet rewritten set out what deductions are to be allowed in calculating the various types of profit. There is no need for a general rule that says no other deductions are to be allowed.
Subsection (1)(b) denies a deduction for an annuity or other annual payment from which income tax is deducted and which is paid out of the profits. A payment made out of the profits pre-supposes that the profits have been calculated. Such a rule can have no application in calculating the amount of the profits.
Subsection (2) denies a deduction for a loss of capital or a loss in a trade or office or profession. In this Act the treatment of capital is dealt with in the rules that set out how to calculate profits from different sources. There is no method of calculation that would allow a deduction for a trade loss in calculating the profit from another trade or source. It is not clear what is meant by a loss in an office. If it means an excess of expenses over income again there is no method of calculation that would allow a deduction for this negative amount in calculating the profit from another source.
Section 817 was repealed for income tax by the amendments made by paragraph 327 of Schedule 1 to ITTOIA.
This change completes for all tax purposes the repeal of a rule restricting deductions.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.