Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

342 Capital allowances in relation to construction or refurbishment of certain commercial premises

Summary

A scheme of capital allowances is made available in respect of capital expenditure incurred in the qualifying period on the construction or refurbishment of certain commercial premises (that is, buildings which are not industrial buildings or structures for tax purposes, for example, shops, restaurants, etc) in designated areas and in respect of capital expenditure incurred in the qualifying period on the refurbishment of such premises on designated streets. The allowances are restricted to a maximum 50 per cent write-off of the capital expenditure incurred. The allowances available are —

  • annual writing-down allowances of 2 per cent (available to both owner-occupiers and lessors),
  • an industrial building (initial) allowance of 25 per cent (available to both owner-occupiers and lessors), and
  • accelerated writing-down allowances (free depreciation) of 50 per cent (available only to owner-occupiers).

Details

Qualifying premises

(1)(a) This provision defines the types of buildings or structures, expenditure on the construction or refurbishment of which may qualify for relief if the work is carried out in the qualifying period. Firstly, the site of the building or structure must be wholly within a designated area or the building or structure must front on to a designated street. Secondly, the building or structure must not be an industrial building or structure, nor must it be in use as or as part of a dwelling house. Thirdly, the building or structure must be in use for the purposes of a trade or profession or, whether or not it is so used, must be let on a commercial basis. Finally, subject to the following exceptions, the building or structure must not be in use as or as part of an office.

(1)(b) If the site of the building or structure is not within any of the county boroughs of Dublin, Cork, Galway, Limerick or Waterford, the building or structure may be in use as or as part of an office. Where the site of the building or structure is within any of the county boroughs of Dublin, Cork, Galway, Limerick or Waterford, then, if only part of the building or structure is in use as or as part of an office and the capital expenditure incurred in the qualifying period on the construction or refurbishment of that part is not more than 10 per cent of the total capital expenditure incurred on the construction or refurbishment of the whole building or structure in that period, the whole building or structure is treated as a qualifying premises.

Application of law relating to industrial buildings or structures

(2)(a) Subject to the modifications set out in subsections (3) to (6), the provisions of the Tax Acts relating to capital allowances for industrial buildings or structures apply to qualifying premises, despite anything to the contrary in those provisions (for example, the exclusion of allowances for retail shops in section 268). Those provisions, which specifically relate to the use of premises for a trade, are so applied as if a qualifying premises were at all times it is a qualifying premises an industrial building or structure within section 268(1)(a) (for example, a mill, factory or other similar premises) and as if any activity carried on in the qualifying premises which is not a trade were a trade. The reference to the qualifying premises being so treated “at all times at which it is a qualifying premises” ensures that a change in the nature of the use of the premises from, say, use as a shop to use as a restaurant constitutes continuance of use as a qualifying premises.

Allowances available – designated areas

(2)(b) Allowances are available only in respect of capital expenditure incurred on the construction or refurbishment of a qualifying premises during the qualifying period (see subsection (7)).

The effect of subsection (2)(a) is to make annual writing-down allowances of 4 per cent available under section 272 in respect of qualifying expenditure. By virtue of subsection (6), however, the writing-down allowances are halved to 2 per cent. The writing-down allowances are available to both owner-occupiers and lessors of qualifying premises.

(4)(b) Free depreciation (an acceleration of the annual writing-down allowances) of up to 100 per cent of qualifying expenditure is made available under section 273. By virtue of subsection (6), however, the free depreciation entitlement is halved to 50 per cent. Free depreciation is available only to owner-occupiers of qualifying premises.

Allowances available – designated streets

(2) & (4) The same regime of capital allowances (2 per cent annual writing-down allowances, 25 per cent industrial building (initial) allowance and 50 per cent accelerated writing-down allowances (free depreciation)) as is available in the designated areas is also available in the case of the designated streets, but the allowances are available only in respect of qualifying expenditure incurred on the refurbishment of qualifying premises. (The allowances are not available in respect of construction expenditure on such premises.)

(3)(a) In addition, in order for the allowances to apply in the case of qualifying refurbishment expenditure, 2 conditions must be satisfied. These are that—

  • the qualifying premises must be comprised in a building or structure in existence on 1 August, 1994, and
  • apart from the capital expenditure incurred on the refurbishment of the qualifying premises in the qualifying period, expenditure must also be incurred on the existing building which qualified for relief under—
    • section 347, which provided relief for expenditure incurred on the conversion of certain buildings into rented residential accommodation,
    • section 348, which provided relief for expenditure incurred on the refurbishment of multi-dwelling rented residential accommodation, or
    • section 349, which provided relief for expenditure incurred on the construction or refurbishment of owner-occupied residential accommodation.

(3)(b) Moreover, the amount of the capital expenditure incurred on the refurbishment of the qualifying premises which qualifies for capital allowances is confined to an amount which does not exceed the aggregate amount of the expenditure incurred on the residential element of the existing building which qualified for relief under sections 347, 348 and 349.

Balancing charge

(5) Where a sale or other event which normally might give rise to a balancing charge under section 274 occurs in relation to a qualifying premises, a balancing charge is not to be made if that event occurs more than 13 years after the qualifying premises was first used or, in the case where refurbishment expenditure on the qualifying premises qualified for capital allowances, more than 13 years after that expenditure was incurred.

Allowances halved for qualifying expenditure

(6)(a) This provision provides that only one-half of the writing-down allowances, industrial building (initial) allowance and free depreciation which would otherwise apply are available. In effect, therefore, annual writing-down allowances of 2 per cent, an industrial building (initial) allowance of 25 per cent and free depreciation of 50 per cent are available in respect of capital expenditure incurred in the qualifying period on the construction or refurbishment of qualifying premises, and there is an overall cap of 50 per cent on the amount of such expenditure which can be written off. Any balancing allowances or charges arising are similarly restricted to one-half of the allowance or charge which would otherwise arise.

(6)(b) The allowances and charges are computed in the first place as if the one-half restriction did not apply and the resultant allowances or charges are then reduced by one-half.

(6)(c) The operation of section 274(8) is not affected by this mechanism. Thus, the amount of a balancing charge cannot exceed the amount of the capital allowances actually made to the taxpayer.

Qualifying expenditure

(7) The capital expenditure which is to be relieved must be expenditure incurred on work carried out during the qualifying period. Where work commences, but is not completed, in the qualifying period, only the part of the expenditure referable to the work carried out in that period qualifies for relief.

This provision negates, for the purposes only of determining the amount of expenditure to be relieved under this section, other provisions of the Tax Acts which, by treating expenditure as incurred later than the carrying out of the work, might otherwise deprive a person of relief under this section. The provisions so negated are —

  • section 279 which deals with a case where an industrial building or structure is bought before it is used or within one year of it commencing to be used and provides for certain expenditure to be treated as having been incurred when the purchase price becomes payable,
  • section 316(2) which for the purposes of capital allowances for industrial buildings or structures treats expenditure as incurred when the sum in question becomes payable, and
  • section 316(3) which for the purposes of industrial building (initial) allowances treats expenditure incurred before a trade commences as incurred when the trade commences.

Relevant Date: Finance Act 2018