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

Summary

This section provides for the granting of capital allowances in respect of capital expenditure incurred in the qualifying period on the construction or refurbishment of commercial buildings or structures which are situated in a qualifying resort area and which are in use in the operation of certain tourism facilities. The facilities in question are tourist accommodation facilities which are registered or listed under the Tourist Traffic Acts, for example, Bord Fáilte registered bed and breakfast accommodation, and such other classes of facilities as may be approved of by the Minister for Tourism, Sport and Recreation in consultation with the Minister for Finance.

The capital allowances available are similar to those provided by section 352 in relation to certain industrial buildings or structures (hotels, holiday camps and holiday cottages) in qualifying resort areas, namely —

• an industrial building (initial) allowance of 50 per cent (available to both owner-occupiers and lessors),
• annual writing-down allowances of 5 per cent (available to both owner-occupiers and lessors), and
• accelerated writing-down allowances (free depreciation) of 75 per cent (available only to owner-occupiers).

In the case of capital expenditure incurred on refurbishment, these allowances are available only where the amount of such expenditure is not less than an amount equal to 20 per cent of the market value of the building or structure immediately before the refurbishment.

Details

Definitions

(1) “qualifying premises”: this definition outlines the types of buildings or structures, expenditure on the construction or refurbishment of which may qualify for capital allowances if the work is carried out in the qualifying period. Firstly, the site of the building or structure must be wholly within a qualifying resort area. Secondly, the building or structure must not be an industrial building or structure (for example, factory, hotel, holiday camp, registered holiday cottage). [Section 352 provides for a special regime of capital allowances in the case of hotels, holiday camps and holiday cottages in the qualifying resort areas.] Thirdly, the building or structure must be in use for the purposes of the operation of one or more “qualifying tourism facilities”. Finally, any part of a building or structure in use as or as part of a dwelling house, other than a tourist accommodation facility of the type referred to in the definition of “qualifying tourism facilities”, will not be treated as a qualifying premises.

“qualifying tourism facilities” are tourist accommodation facilities registered by Bord Fáilte Éireann under Part III of the Tourist Traffic Act, 1939, or specified in a list published under section 9 of the Tourist Traffic Act, 1957, and such other classes of facilities as may be approved of by the Minister for Tourism, Sport and Recreation in consultation with the Minister for Finance.

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. 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 capital allowances continue to be available only as long as the building or structure remains a qualifying premises.

Allowances available

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

(4)(a) An industrial building (initial) allowance of 50 per cent is made available under section 271 in respect of qualifying expenditure on the construction or refurbishment of qualifying premises. The allowance is available to both owner-occupiers and lessors of such premises.

(4)(b) Annual writing-down allowances of 5 per cent are made available under section 272 in respect of qualifying expenditure on the construction or refurbishment of qualifying premises. The allowances are available to both owner-occupiers and lessors of such premises.

(4)(c) Accelerated writing-down allowances (free depreciation) of 75 per cent are made available under section 273 in respect of qualifying expenditure on the construction or refurbishment of qualifying premises. Free depreciation is available only to owner-occupiers of such premises – it is not available to lessors.

Refurbishment – additional condition for entitlement to allowances

(3) In a case where capital expenditure is incurred in the qualifying period on the refurbishment of qualifying premises, the capital allowances are available only if the amount of the capital expenditure so incurred at least equals 20 per cent of the market value of the premises immediately before that expenditure was incurred.

Prevention of abuse

(5) Provision is made to prevent abuse of the reliefs whereby a person could operate a premises as a registered or listed tourist accommodation facility for a short time, claim capital allowances (of up to 75 per cent free depreciation in year one) in respect of the expenditure incurred on its construction or refurbishment and then cease to operate as a registered or listed tourist accommodation facility (the premises could, for example, be turned into a private residence) without any consequences.

To prevent such abuse, the event of a tourist accommodation facility ceasing to be registered or listed by Bord Fáilte is treated as an event giving rise to a balancing charge in respect of the capital allowances made in respect of the expenditure incurred on the premises.

For the purposes of the application of a balancing charge on the occurrence of such an event, “sale, insurance, salvage or compensation moneys” (defined in section 318) are treated as arising in an amount equal to the aggregate of —

• the premises’ written down value for capital allowance purposes immediately before the event, and
• the amount of the capital allowances granted in respect of the expenditure on the construction or refurbishment of the premises.

This ensures that a balancing charge arises on that event, and the amount of the charge will be the amount of the capital allowances granted. In effect, therefore, the allowances given will be clawed back.

Balancing charge

(6) 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, including the event of a tourist accommodation facility ceasing to be registered or listed by Bord Fáilte which is treated as a balancing event by virtue of subsection (5), a balancing charge is not to be made if that event occurs more than 11 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 11 years after that expenditure was incurred.

Qualifying expenditure

(7) The capital expenditure which is to qualify for the capital allowances must be expenditure incurred on construction or refurbishment work actually 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 the allowances.

This provision negates, for the purposes only of determining the amount of expenditure which is to qualify for the capital allowances, 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 the allowances. 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.

Bar on double relief

(8) Where, by virtue of this section, capital allowances are given in respect of capital expenditure incurred on the construction or refurbishment of a qualifying premises, no relief is given in respect of that expenditure under any other provision of the Tax Acts.

Relevant Date: Finance Act 2021