Revenue Note for Guidance
This section provides for a scheme of capital allowances in respect of capital expenditure incurred in the period from 1 December 1999 to 30 September 2010 or, where certain qualifying conditions are met, 31 March 2011 or 31 March 2012 on the construction, refurbishment or conversion of a building or part of a building used as a qualifying child-care facility.
Qualifying expenditure is written off over a 7-year period by way of annual allowances at the rate of 15 per cent per annum for 6 years and 10 per cent in year 7. Moreover, an initial allowance of 100 per cent is available to both owner-operators and lessors of qualifying premises, while accelerated annual allowances (free depreciation) of up to 100 per cent are available to owner-operators of such premises.
In relation to qualifying premises that are first used (or first used after refurbishment) on or after 1 February 2007, the tax life of these and their holding period for balancing allowance and balancing charge purposes is increased to 15 years. However rates of allowances remain unchanged.
In certain circumstances, property developers are excluded from qualification for the scheme of allowances as are persons connected with property developers as respects expenditure incurred on or after 1 January 2008.
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.
(1) “property developer” means a person whose trade consists wholly or mainly of the construction or refurbishment of buildings or structures with a view to their sale.
“qualifying expenditure” is capital expenditure incurred on the construction, conversion or refurbishment of a qualifying premises.
“pre-school child”, “pre-school service” and “qualifying premises”: These definitions serve to identify the type of childcare facility which qualifies for the scheme of capital allowances. To qualify for the allowances, a childcare facility must meet the requirements of the Child Care Act 1991 in relation to a pre-school service which it provides and, in particular, the operator of such a facility must be in a position to show that he or she has, in accordance with the Child Care (Pre-School Services) (No. 2) Regulations 2006, formally notified the local health board that he or she has set up or is operating such a service. The Child Care Act 1991 focuses on children under the age of 6 and includes any pre-school, play group, day nursery, crèche, day-care or other similar service for those children. Therefore, childcare facilities must cater for children under the age of 6 if they are to qualify for the allowances. However, facilities catering for children aged over 6 will also qualify for the allowances as long as they also cater for children under 6.
“qualifying period” means the period commencing on 1 December 1999 and ending –
(2) Subject to subsections (2A) to (5), the law governing industrial buildings capital allowances is applied to qualifying expenditure as if the qualifying premises were a factory or similar type premises in which a trade is carried on.
(2A) Only qualifying expenditure incurred in the qualifying period can qualify for capital allowances.
(3) Qualifying expenditure incurred in the qualifying period may be written off over 7 years at the rate of 15 per cent per annum for the first 5 years and 10 per cent in year 7. For qualifying premises that are first used (or first used after refurbishment) on or after 1 February 2007, the tax life of these buildings and structures is increased to 15 years in line with the 15-year holding period for balancing event purposes. However, the period over which expenditure is written-off (and rates) remains at 7 years.
(3A)(a) An industrial building allowance (“initial allowance”) of 100 per cent is available under section 271 in respect of qualifying expenditure incurred in the qualifying period.
(3A)(b) Alternatively, accelerated annual allowances (“free depreciation”) of up to 100 per cent are available under section 273 in respect of similar qualifying expenditure.
(4) Where a sale or other event which might give rise to a balancing allowance or charge under section 274 occurs in relation to a qualifying premises, a balancing allowance or charge is not to be made if that event occurs more than 10 years after the qualifying premises was first used or, in a case where the qualifying expenditure is expenditure on refurbishment, more than 10 years after the expenditure on refurbishment of the qualifying premises was incurred.
(4A) For qualifying premises that are first used, or first used after refurbishment on or after 1 February 2007, the holding period for balancing allowance and balancing charge purposes is increased to 15 years from first use or first use after refurbishment.
A balancing charge may also arise where a childcare facility ceases to be a qualifying one (see section 274(2A)). This provision applies to such facilities that are first used (or first used after refurbishment) on or after 1 January 2005. For the purposes of calculating the balancing charge to be made, section 318(e) deems an amount of money to have been received.
(5) As respects qualifying expenditure incurred in the qualifying period, a property developer who holds the relevant interest (within the meaning of section 269) in a qualifying premises is not entitled to capital allowances under this scheme where either the property developer or a person connected (within the meaning of section 10) with the property developer incurred the qualifying expenditure on the qualifying premises.
As respects qualifying expenditure incurred on or after 1 January 2008, a person who holds the relevant interest (within the meaning of section 269) in a qualifying premises is not entitled to capital allowances under this scheme where he or she is connected with a property developer and the qualifying expenditure on the qualifying premises is incurred by either the connected person or the property developer, or by some other person connected with the property developer.
(6) This section applies to determine the termination date for incurring qualifying capital expenditure in relation to the construction, refurbishment or conversion of certain childcare facilities.
The termination date for the scheme is 30 September 2010, unless certain qualifying conditions are met, in which case the termination date for qualifying expenditure on pipeline projects is extended. These qualifying conditions depend on the type of work to be carried out and whether or not the work requires planning permission.
Where the work to be carried out does not require planning permission as, for example, certain types of refurbishment work, the termination date will be 31 March 2011 so long as at least 30% of the construction, refurbishment or conversion costs have been incurred on or before 30 September 2010. Where the work to be carried out requires planning permission, the termination date will be 31 March 2012 so long as a full and valid application for planning permission has been submitted on or before 30 September 2010 and is acknowledged by the relevant planning authority.
(7) This provision ensures that it is not possible to circumvent the termination dates by making advance payments for work that will be carried out after those dates by providing that only the amount of the expenditure that is attributable to work actually carried out before those dates will qualify for capital allowances.
Relevant Date: Finance Act 2018