Corporation Tax Act, 1976

Disallowance of reliefs in respect of bonus issues.

89.—(1) This section has effect where any person (in this section referred to as “the recipient”) receives an amount treated as a distribution by virtue of—

(a) section 84 (2) (c) (d),

(b) section 85, or

(c) section 86 (1),

and in the following provisions of this section a distribution falling within paragraph (a), (b) or (c) is referred to as a “bonus issue” and “relevant tax credit”, in relation to a bonus issue, means the tax credit to which the recipient of the bonus issue becomes entitled under section 88 in respect of the bonus issue.

(2) Subject to subsection (5), if the recipient is entitled by reason of—

(a) any exemption from tax, or

(b) the setting-off of losses against profits or income, or

(c) the payment of interest,

to recover tax in respect of any distribution received by him, no account shall be taken, for the purposes of any such exemption or set-off or payment of interest, of any bonus issue or relevant tax credit received by him.

(3) Subject to subsection (5), a bonus issue and the relevant tax credit shall be treated as not being franked investment income within the meaning of section 24 (franked investment income and franked payment).

(4) Subject to subsection (5), the relevant tax credit relating to a bonus issue shall not be available to set against any income tax which the recipient is entitled to deduct under section 433 , or with which he is chargeable by virtue of section 434 , of the Income Tax Act, 1967 .

(5) Nothing in subsections (2) to (4) shall affect the proportion (if any) of any bonus issue made in respect of any shares or securities which, if it were declared as a dividend, would represent a normal return to the recipient on the consideration provided by him for the relevant shares or securities, that is to say, those in respect of which the bonus issue was made and, if those securities are derived from shares or securities previously acquired by the recipient, the shares or securities which were previously acquired; nor shall anything in those subsections affect the like proportion of the relevant tax credit relating to that bonus issue.

(6) For the purposes of subsection (5)—

(a) if the consideration provided by the recipient for any of the relevant shares or securities was in excess of their market value at the time he acquired them, or if no consideration was provided by him for any of the relevant shares or securities, the recipient shall be taken to have provided for those shares or securities consideration equal to their market value at the time he acquired them; and

(b) in determining whether an amount received by way of dividend exceeds a normal return, regard shall be had to the length of time previous to the receipt of that amount that the recipient first acquired any of the relevant shares or securities and to any dividends and other distributions made in respect of them during that time.