Revenue Note for Guidance

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Revenue Note for Guidance

843 Capital allowances for buildings used for third level educational purposes

Summary

The section provides for a scheme of capital allowances in respect of capital expenditure incurred on certain buildings or structures used for the purposes of third level education, including third level health and social services education or training. Such expenditure must be approved by the Minister for Education and Science or, as may be appropriate, the Minister for Health and Children, and it must also have the consent of the Minister for Finance. The measure covers both construction expenditure and expenditure on the provision of machinery or plant. Capital allowances are provided in respect of qualifying expenditure incurred in the qualifying period at the rate of 15 per cent per annum for 6 years with the balance (10 per cent) being written off in year 7.

The qualifying period for the scheme commenced on 1 July 1997 and ends on 31 December 2006 or, where work to the value of 15 per cent of the constructions costs of the building or structure involved is carried out by that date, it ends on 31 July 2008.

Where a project qualifies for the extension to 31 July 2008, the amount of qualifying expenditure incurred in the year 2007 and in the period 1 January 2008 to 31 July 2008 is restricted to 75 per cent and 50 per cent respectively of the amount attributable to the period involved.

To be eligible for the allowances, the premises must be in use for the purposes of third level education or, as respects expenditure incurred on or after 1 October 1999, associated sporting or leisure activities provided by an approved institution and must be let to that institution. In addition, the approved institution must have raised a sum of money (none of which has been met directly or indirectly by the State) before construction begins which is equivalent to at least 50 per cent of the total qualifying expenditure. The Minister for Finance must certify that this has happened and that the sum is to be used solely for the purpose of paying interest, rent and eventually buying back the new premises at the end of the lease period. A certificate must be issued by the Minister before the start of construction. No certificate may be issued unless an application was made before 1 January 2005.

With effect from 6 April 1999, there is provision for the delegation to An tÚdarás of the powers and functions of the Minister for Education and Science and the Minister for Finance in relation to certain institutions where both those Ministers agree to such delegation.

It should be noted that the 31,750 annual limit on the amount of capital allowances which an individual passive investor may set off against non-rental income applies to capital allowances given under this section (see section 409A for details). Owner-operators and corporate investors are not affected by this limit.

Details

Definitions

(1)approved institution” effectively means third level institutions which are not publicly funded as well as those which receive public funding and provide courses to which the higher education grant schemes approved by the Minister for Education and Science apply (for example, universities, DITs and RTCs). With effect from 6 April 2001, the definition also includes bodies providing third level health and social services education or training which are approved by the Minister for Health and Children and are in receipt of public funding in respect of the provision of such education or training.

qualifying expenditure” covers not only capital expenditure on the construction of new buildings or structures but also capital expenditure on machinery or plant for any such project. The expenditure must be approved by the Minister for Education and Science or, as may be appropriate, the Minister for Health and Children and have the consent of the Minister for Finance.

qualifying period” is the period commencing on 1 July 1997 and ending on 31 December 2006, or where the conditions of subsection (1A) are met, it ends on 31 July 2008.

qualifying premises” means a building or structure which is let to a third level educational institution and which is used for the purposes of third level education or, as respects capital expenditure incurred on or after 1 October 1999, associated sporting or leisure activities. The leasing arrangement allows the lessor to claim the capital allowances provided for in the section.

Extended termination date of 31 July 2008

(1A) An extended termination date of 31 July 2008 will apply in cases where work to the value of at least 15 per cent of the actual construction costs of a building or structure is carried out by 31 December 2006. The person who carried out the work or, where that person sells the building or structure involved, the person who is claiming the capital allowances must be able to show that this 15 per cent condition was satisfied.

Entitlement to capital allowances and amount of expenditure which may qualify

(2)(a) & (b) Industrial buildings capital allowances are applied to qualifying expenditure as if the qualifying premises were a factory or similar type of premises in which a trade is carried on. Qualifying expenditure in so far as it is met by way of grants does not have to be excluded.

(2A) Allowances for qualifying expenditure incurred will be given only in so far as the expenditure is incurred in the qualifying period.

(3) Qualifying expenditure incurred in the qualifying period is to be written off at 15 per cent per annum for 5 years and 10 per cent in year 7.

(9) Capital expenditure incurred on the construction of a qualifying premises will be treated as having been incurred in the qualifying period only to the extent that such expenditure is attributable to work on the construction of the premises which is actually carried out during the qualifying period.

Qualifying expenditure limited to 75 per cent of amount incurred in 2007 and 50 per cent of amount incurred in the period 1 January 2008 to 31 July 2008

(2) The application of law relating to industrial buildings or structures is subject to the provisions of sections 270(4), 270(5), 270(6) and section 316(2B). Under those sections, any capital expenditure incurred in the year 2007 and in the period 1 January 2008 to 31 July 2008 is subject to respective reductions to 75 per cent and 50 per cent of the relevant amount for the period involved. Where a building or structure is sold and section 279 applies, that section is applied in a modified way to reflect the restrictions. Finally, capital expenditure on the construction of a qualifying premises is treated as incurred in a period only to the extent that it is attributable to work actually carried out in that period (see notes on sections 270 and 316).

Private funding and Ministerial certification

(4) The entitlement to capital allowances is conditional on an approved institution raising or securing a sum of money which is at least equivalent to 50 per cent of the qualifying expenditure for the project. This sum must be raised from private sources (i.e. none of it may be met directly or indirectly by the State) in advance of the start of any construction and is separate from the actual qualifying expenditure. The Minister for Finance must be able to certify that the money has been raised or secured and that it is to be used solely for the following purposes —

  • paying interest on borrowings used to fund the construction and equipping of the qualifying premises,
  • paying rent on the qualifying premises for such time as it is leased by the approved institution, and
  • buying back the qualifying premises at the end of the lease period.

(7) The Minister for Finance (or An tÚdarás where authority has been delegated) may not issue a certificate unless an application has been made prior to 1 January 2005.

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 7 years after the qualifying premises was first used.

Commencement

(6) The section operates from 1 July 1997.

Delegation of authority

(8) With effect from 6 April 1999, the Minister for Education and Science and the Minister for Finance may agree to delegate to An tÚdarás the powers and functions conferred on them in relation to the scheme as it applies to institutions under the aegis of the Minister for Education and Science. The delegation of authority may be a general one or may be more specific relating to a particular project or premises.

Relevant Date: Finance Act 2020