Revenue Tax Briefing

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Revenue Tax Briefing Issue 66, July 2007

Nursing Home Residential Units


The Finance Act 2006 extended the qualifying period for the construction of nursing home residential units from 24 March 2007 to 31 July 2008 but did not impose any particular conditions for availing of the extended termination date, as was the position for other schemes. However, it restricted the amount of the qualifying expenditure for capital allowance purposes to 75% of that incurred in the period 25 March 2007 to 31 December 2007 and to 50% of that incurred in the period 1 January 2008 to 31 July 2008. The same Act also extended the tax life of residential units from 7 to 15 years and the holding period from 10 to 15 years. The Finance Act 2007 (Section 28) has made further changes, arising from a review of the scheme carried out by Indecon Consultants for the Minister for Finance. The purpose of this article is to draw attention to these latest changes.

Finance Act 2007 Changes

The Finance Act 2007 has further extended the qualifying period for the scheme from 31 July 2008 to 30 April 2010. It should be noted that the new 2010 termination date and the other changes outlined below only apply where expenditure is incurred on or after 1 May 2007 under a contract or agreement entered into on or after that date for the construction, refurbishment or development of residential units. Where expenditure is incurred on or after 1 May 2007 under contracts entered into before that date, the new arrangements and requirements do not apply; and, in such cases, the termination date remains at 31 July 2008 with qualifying expenditure being subject to the 75% and 50% expenditure restrictions mentioned above.

The contract or agreement which is relevant for the purposes of the Finance Act 2007 changes will be the contract or agreement which provides for the actual construction, refurbishment or development work to be carried out on a particular project involving residential units. Such a contract or agreement would typically be between a site owner and a development company or a builder as distinct from any building agreement which may be subsequently entered into with investors in the project. Builders or developers should provide written evidence showing whether a contract or agreement was entered into before or on or after 1 May 2007, to the purchasers of residential units, as this may be required in the event of a Revenue audit.

Qualifying Expenditure - Further Restrictions

Expenditure on nursing home residential units governed by contracts or agreements entered into on or after 1 May 2007, though benefiting from the later 2010 deadline, is subject to further restriction. In such cases, expenditure which is to be treated as incurred for capital allowances purposes is reduced to 50% of that actually incurred in the case of individuals and to 75% in the case of companies. For the purposes of the ‘net price paid’ formula in Section 279 TCA, 1997 the numerator in the formula is the figure represented by 50% or 75%, as appropriate, of the expenditure incurred. The denominator in the formula is the total expenditure which was actually incurred before the 50% or 75% restriction is applied. Where the formula does not have to be used as, for example, where an investor already owns a site and independently engages a builder to carry out the construction, the qualifying expenditure will be the amount in the building agreement reduced to 50% or 75% as appropriate.

Holding Period and Tax Life

The holding period is the period for which the units must be held by investors to avoid a balancing event and a possible clawback of capital allowances already claimed. This period has now been increased from 15 years to 20 years. The tax life of a building is the period during which capital allowances can be passed to a subsequent purchaser of the building. The tax life of the units has also been increased from 15 years to 20 years. Both periods start from the time that the units are first used or first used following refurbishment. These new 20 year requirements apply in the case of residential units constructed, refurbished or developed on foot of contracts or agreements entered on or after 1 May 2007.

Certification and Reporting Requirements

New certification and reporting requirements have also been put in place for residential units governed by construction, refurbishment or development contracts or agreements entered on or after 1 May 2007. Before an investor can start to claim capital allowances, the residential units must be certified by the Health Service Executive (HSE) as meeting the relevant conditions contained in the Tax Acts. The HSE cannot certify the units until they have been let for the first time. Annual certification by the HSE is not required.

As part of the certification process, investors must provide information to the HSE in relation to the number and nature of investors, the amount being invested by each investor, the amount of capital expenditure being incurred and the nature of the structures that are being used to facilitate the investment. This information is to be passed on to the Minister for Health and Children and the Minister for Finance. (This information is also required in the case of investment in private hospitals and mental health centres)

Investors must also provide an annual written report to the HSE during the 20 year holding period confirming that the conditions contained in the Tax Acts are being met. The report must also include details of the level of occupation of the unit(s) for the previous year and the age and, as applicable, the nature of the infirmity of the occupant(s).

Occupants of Units

The selection of the occupants of the units must be made by the nursing home involved and these occupants may not be connected with the lessor of the unit. Therefore, it is not possible, for example, for children to purchase units and lease them to their elderly parents. This issue was already covered in Issue 59 of Tax Briefing (April 2005). However, the spouse of an aged or infirm person may now also occupy a unit even though that spouse may not meet the medical certification requirements in his or her own right.

HSE Rent Subsidy Cases

An existing condition requires that at least 20% of the units are made available for renting to persons who are eligible for a rent subsidy from the HSE at a discounted rent. This condition is still required for investors who are individuals but does not have to be met where a company holds the relevant interest in all of the units in a particular development.

Residential Units - Other Issue

Revenue has been asked whether a two-storey house comes within the definition of ‘qualifying residential unit’ in Section 268(3A) TCA 1997. The Revenue view is that such a house does not come within the definition. The relevant part of the definition relates to ‘a house that is comprised in a building of one or more storeys in relation to which building a fire safety certificate under Part III of the Building Control Regulations 1997... is required’. As a two-storey house is not a house comprised in a building of one or more storeys, and as a fire safety certificate is not required in respect of a two-storey house, it cannot meet the definition of a ‘qualifying residential unit’.