Brian Cowen (Laois-Offaly, Fianna Fail)

I am not sure what the Deputy means regarding a time limit for the capital allowance. In 1999, a scheme of capital allowances was introduced in respect of qualifying capital expenditure incurred in the construction, refurbishment or extension of a building or part of a building used as a child care facility, where the requirements of the child care pre-school regulations 1996 have been met. An expenditure on any part of a building in use as a dwelling house or part of a dwelling house does not qualify. The allowances apply in respect of expenditure incurred on or after 2 December 1998 and provide for a seven-year write-off period at a rate of 15% in the first six years and 10% in the seventh year. However, budget 2000 provided for accelerated capital allowances at a rate of 100% in one year for both owner-operators and lessors-investors of such facilities with regard to qualifying expenditure incurred on or after 1 December 1999.

With regard to timing options, an owner-operator can opt to increase the 15% allowance for any year up to a maximum of 100% of the qualifying expenditure, which is termed "free depreciation". A lessor or investor can opt to claim the full 100% in the first year only, and unlike the owner-operator, lessors have no choice regarding the percentage of allowances drawn down each year. The full 100% is claimed in year one with any excess carried forward. An owner-operator can set off the capital allowances against taxable income from all sources including PAYE income. This means that owner-operators can opt to draw down as much of the capital allowances, up to 100% in each year, as is necessary, to shelter their income from other sources. On the other hand the investor can offset the 100% initial allowances against rental income from all sources and not just the rental income received from the child care facility operators in year one. If there is insufficient rental income in that year, the maximum an investor can offset against non-rental income is €31,750. The balance of unused capital allowances can only be set off against rental income in the following years.

Capital allowance for child care facilities is one of the many reliefs under detailed review by the Department of Finance in conjunction with the Revenue Commissioners. The final report by the consultants has been received and will be taken into consideration in the 2006 budget and finance Bill.

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