Revenue Tax Briefing Issue 60, August 2005
The Finance Act 2004 extended the termination date for a number of property-based tax incentive schemes from 31 December 2004 to 31 July 2006 subject to certain transitional requirements being met. The purpose of the extension was to facilitate the orderly completion of projects already in the pipeline. The new termination date of 31 July 2006 applies only to projects in respect of which a valid application for full planning permission was received by the relevant local authority on or before 31 December 2004. Thus, the benefit of the 31 July 2006 time extension applies to expenditure incurred on or before that date on the construction, refurbishment or conversion of a building or structure, where that expenditure is expenditure in respect of work which is covered by a valid application for full planning permission received by the relevant local authority on or before 31 December 2004. Under planning and development legislation local authorities may not accept planning applications during the period 24 December to 1 January. Despite some local authorities making arrangements to accommodate applicants, it appears that some who attempted to submit applications within the period 24 December 2004 to 31 December 2004 were unable to do so. In the circumstances, Revenue are prepared to make allowances for this situation and will regard planning applications acknowledged as received by local authorities on or before 7 January 2005 as meeting the statutory deadline. Therefore, references throughout this article to 31 December 2004 should be read as references to 7 January 2005.
The schemes affected are -
The Finance Act 2004 also extended the deadline for the urban renewal scheme to 31 July 2006 again where certain transitional requirements are met. The extension applies only to projects in respect of which 15% of the total project costs had been incurred on or before 30 June 2003 and a certificate to this effect had been received from the relevant local authority on or before 30 September 2003.
The purpose of this article is to clarify issues raised in relation to satisfying the various transitional requirements in order to qualify for the extended 31 July 2006 deadline. As well as the schemes mentioned above, similar issues arise in the case of the transitional requirements for certain hotel projects. For hotel projects for which the necessary requirements are satisfied, allowances may continue to be claimed over 7 years instead of the 25 year write-off period introduced for new hotel projects.
Section 372AL(1A) TCA 1997 provides the legislative basis for the extended deadline of 31 July 2006 for the residential element of the various schemes mentioned above. Sections 372AA, 372L, 372A(1B) and 372U TCA 1997 do likewise for the commercial and industrial elements of the town renewal, rural renewal, living over the shop and park and ride schemes respectively. The provisions ensure that expenditure incurred on or before 31 July 2006 will qualify for relief provided that it is expenditure incurred on work that is covered by a valid application for full planning permission that was received by the relevant local authority on or before 31 December 2004. The time extension does not apply to projects where the application for planning permission was received after that date. It should also be noted that where a valid planning application for full planning permission was received on time, relief is only available in respect of expenditure on actual work covered by that particular application. It does not extend to expenditure on additional work as would arise where the applicant decides to extend the scale of the project subsequent to the qualifying planning application deadline.
In this regard, Revenue is concerned at some notices that have appeared in newspapers after the 31 December 2004 deadline indicating that “significant further information has been lodged with ____ County Council under planning reference xxx, 2004”. In some cases the “significant further information” referred to would have the effect of substantially increasing the scale of projects already submitted. Where a project proceeds on the basis of the planning application that is submitted by 31 December 2004, only expenditure incurred on the basis of the original project will qualify for relief and that expenditure incurred on any extension or addition to a project will not qualify for relief. In such a situation it will be necessary for the total expenditure to be apportioned between the qualifying and the non-qualifying work. If, on the other hand, the planned extension gives rise to the need to make a further planning application after 31 December 2004 to cover the revised or extended project, then none of the expenditure incurred on that project will qualify for relief. The position is the same where an applicant is required for any other reason to submit a further planning application in respect of a project after 31 December 2004. In all such cases no relief is available.
A person who owns a site or a building that is to be refurbished or converted may wish to sell the site or the building after he or she has applied for or obtained planning permission. In such a situation the purchaser of the site or the building will be treated in exactly the same way as the original applicant or vendor and will only qualify for relief to the extent that the work that is carried out on the project is that provided for in the original valid application for full planning permission received on or before 31 December 2004.
Qualifying capital expenditure for the purposes of availing of the extended deadline of 31 July 2006 means capital expenditure incurred on construction, refurbishment or conversion work covered by a valid application for full planning permission received by a local authority on or before 31 December 2004. For capital allowances purposes the general position is that expenditure is incurred not when the amounts in question are paid but rather when those amounts become legally payable to the person carrying out the work. However, this does not apply in the case of the extended termination date for the incentive schemes covered in this article and for hotel projects. Instead, only so much of the expenditure incurred as is properly attributable to work that is actually carried out in the period up to 31 July 2006 can be treated as having been incurred in that period.
Following are a number of examples. These are for illustrative purposes only and are not intended to convey any view on the workings and decisions of the planning process.
Mrs. Murphy submitted a valid application for full planning permission for the construction of a house to a local authority under the rural renewal scheme on 1 December 2004. Planning permission was granted for the house on the basis of the planning application received and no revisions were required. If all work on the house is carried out on or before 31 July 2006 in accordance with the planning application the full amount of the expenditure incurred will qualify for relief.
Mr. O’Brien submitted a full and valid planning application for the living over the shop scheme on 5 December 2004. The local authority was not satisfied with the amount of private open space and refuse storage area that was proposed. However, it accepted the planning application but required Mr. O’Brien to provide an additional balcony and a covered storage area in the rear yard. Conditions relating to the additional work were attached to Mr. O’Brien’s planning permission. The cost of constructing the additional balcony and the covered storage area will qualify for relief as this work was necessary to meet the local authority’s requirements in relation to the valid planning application submitted before the deadline.
Where a planning application in respect of a project is received by a local authority after 31 December 2004, expenditure on that project will not qualify for relief. This is also the position where a planning application, originally made on time, is refused by a local authority and a further application is subsequently made after the 31 December deadline. The same position holds where an applicant, having successfully obtained planning permission before 31 December 2004, wishes to make changes to a project necessitating the submission of a further planning application after the deadline. Finally, any expenditure incurred on any additional work or any extension to a project outside or beyond the terms of a valid planning application received by 31 December 2004 will not qualify for relief.
Mr. Ryan submitted a full and valid planning application for an apartment block to be used as student accommodation on 20 December 2004. In January 2005 he decided to alter the project by adding an extra floor comprising four apartments. The local authority required him to submit a further planning application for the entire apartment block. None of the expenditure incurred on the apartment block will qualify for relief as work on the project will have proceeded in accordance with the second planning application submitted after 31 December 2004.
The Finance Act 2003 provided that the write-off of capital expenditure incurred on hotels would be made over 25 years instead of over 7 years. However, transitional provisions were put in place to retain the 7 years write-off regime to cater for certain pipeline projects. These transitional provisions ensure that where capital expenditure is incurred on a hotel project on or before 31 July 2006 and that project is the subject of a valid application for full planning permission received by the relevant local authority on or before 31 December 2004, the expenditure can be written off at the rate of 15% per annum for the first 6 years and 10% in year 7. For all other hotel projects the new 25-year write-off regime applies.
The position outlined above in relation to the treatment of the transitional provisions pertaining to the various property incentive schemes also applies in the case of pipeline hotel projects.
The Finance Act 2003 terminated the availability of capital allowances for expenditure incurred on holiday cottages. However, transitional provisions were put in place to cater for certain pipeline projects. These transitional provisions ensure that where capital expenditure is incurred on a holiday cottage on or before 31 July 2006 and that holiday cottage is the subject of a valid application for full planning permission received by the relevant local authority on or before 31 December 2004, capital allowances will be available in respect of that expenditure.
The position outlined above in relation to the treatment of the transitional provisions pertaining to the various property incentive schemes also applies in the case of pipeline holiday cottage projects.
The 31 December 2004 deadline for the submission of planning applications does not apply in the case of the urban renewal scheme. Instead, to qualify for the extended termination date of 31 July 2006, a developer or other person must have incurred 15% of the total cost of a project on or before 30 June 2003 and a certificate to this effect must have been received from the relevant local authority on or before 30 September 2003. It is not open to the recipient of the certificate to subsequently increase the scale of the project for which the certificate was issued.
The relevant legislation requires the certificate to be given to the person carrying out the project or development. However, Revenue published a precedent in 1998 stating that -
“In the event of a development site being sold, the person constructing, converting or refurbishing the building may be regarded as the person to whom the relevant local authority has given a certificate under Section 339(2)(a) TCA 1997 if no change occurs in the project as submitted by the vendors.”
Section 339(2)(a) TCA 1997 refers to the 1994 urban renewal scheme. Revenue also applies this precedent to the current urban renewal scheme and, in the circumstances, interprets it strictly. It does not hold in situations where the purchaser(s) of a site or a building for which a 15% certificate has been issued makes changes to the original project which was the subject of the certificate or substitutes new plans for those already submitted to the local authority by the vendor when applying for the certificate. While the physical aspects of a project must not change following the sale of the site or building, an increase in costs due to delay in proceeding with the project will not invalidate the project for relief purposes.
Where a site is split into separate parts before being sold on or otherwise transferred, the separate parts will be considered by Revenue as a whole for the purposes of deciding whether there has been a change in the project. Any development undertaken by or on behalf of the new owners of individual parts of a site, for instance, must combine to deliver the project in respect of which the local authority issued the original certificate. Therefore, the entitlement to relief of each of the parties carrying out the project will depend on the actions of the other parties involved.
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