Revenue Tax Briefing Issue 50, October 2002
Capital allowances are available in respect of capital expenditure incurred on the construction, or refurbishment of buildings used as private registered nursing homes. The allowances are available in respect of expenditure incurred on or after 3 December 1997. (Section 268 (1)(g) and (9)(d) TCA 1997).
The nursing home must be a nursing home within the meaning of Section 2 of the Health (Nursing Homes) Act, 1990, which is registered under Section 4 of that Act. Each health board establishes and maintains a register of nursing homes in its functional area. These registers are available for inspection by members of the public. When a health board registers a nursing home, a certificate of registration is issued to the registered proprietor.
The writing down allowance to be granted is at a rate of 15 per cent per annum for 6 years, and 10 per cent in year 7, of the capital expenditure incurred on the construction or refurbishment of the registered nursing home.
Construction costs include the cost of site renovation, preparation and landscaping. The cost of the site does not qualify for capital allowances.
Refurbishment means any work of construction, reconstruction, repair or renewal, including the provision of water, sewerage or heating facilities carried out in the course of the repair or restoration, or maintenance in the nature of repair or restoration, of the building or structure.
Section 33 Finance Act 2002 amends Section 268 TCA 1997 to provide for a scheme of capital allowances for expenditure incurred in the five years commencing with the passing of the Finance Act 2002 i.e. 25/03/2002, on the construction or refurbishment of housing units associated with a registered nursing home.
The housing units must be constructed on a site of, or on a site, which is immediately adjacent to the site of, a registered nursing home.
The writing down allowance to be granted will be at a rate of 15 per cent per annum for 6 years, and 10 per cent in year 7, of the capital expenditure incurred on the construction or refurbishment of the housing units.
The letting of the units to a management company, which sub-lets them to qualifying individuals, will not affect an investor’s entitlement to relief providing all the other conditions of the scheme have been met.
Although the write-off period is 7 years, a balancing charge will arise if a qualifying nursing home or a qualifying unit is sold or ceases altogether to be used within 10 years of first being used or, in the case of capital expenditure on refurbishment of a qualifying nursing home or a qualifying unit, within the 10 year period after the capital expenditure on the refurbishment was incurred.
There is a restriction on the amount of capital allowances a passive investor may set against non-rental income. The amount of the capital allowances for the year of assessment, which may be set off against an individual’s other income in such cases, is restricted to €31,750. (Section 409A TCA 1997.)
A passive investor is an investor who lets the property to an operator or is an individual who is not an active partner in a partnership trade of operating or managing the nursing home. An active partner is a partner who works for the greater part of his/her time on the day-to-day management or conduct of the partnership trade.