Section 229: depreciation and gains relating to tonnage tax assets

Splitting the written down value on entering the scheme

For the first tax year the tonnage tax scheme applies, depreciation is computed on the written down value of qualifying ships as determined by apportioning the existing block of ship/inland-vessel assets between qualifying assets and other assets, in the ratio of their respective book written down values as on the last day of the preceding tax year (a formula is prescribed for this apportionment).

The resulting block of qualifying assets constitutes a separate block of assets for the purposes of this Part.

Assets moving between blocks

If an asset in the block of qualifying assets begins to be used for purposes other than the tonnage tax business, an appropriate portion of written down value is moved out of the qualifying-assets block into the block of other assets (by a prescribed formula), and vice versa when an "other asset" begins to be used for the tonnage tax business.

Depreciation for the tax year on such a moving asset is allocated between the two blocks in the ratio of the number of days it was used for the tonnage tax business versus other purposes.

Ongoing depreciation treatment

Depreciation on the block of qualifying assets and the block of other assets is allowed as if the written down value determined on entry into the scheme had simply been brought forward from the preceding tax year.

"Book written down value" means the written down value as shown in the company's books of account.

Capital gains on qualifying assets

Profits or gains from the transfer of a capital asset forming part of the block of qualifying assets are chargeable to tax under Sections 67 and 74, with capital gains computed under Sections 67 to 81. For this purpose, Section 74 applies as if references to "written down value of the block of assets" instead read "written down value of the block of qualifying assets" (as computed under this section).

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