Richard Bruton (Dublin North Central, Fine Gael)
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Question 138: To ask the Minister for Finance his estimate of the potential value of the capital allowances write off on the construction of a private hospital; if these will be written off against all sources of rental income and other non-rental income; and if a funding package based on 25% equity, 75% loan will yield an investor a tax rebate close to 90% of the initial equity invested. [18882/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Capital allowances are available in respect of capital expenditure incurred on the construction of certain qualifying private hospitals. The Health Service Executive, in consultation with the Department of Health and Children, must certify that a hospital that wishes to qualify contains minimum facilities, meets capacity requirements and makes available not less than 20% of its capacity for the treatment of public patients. The expenditure can be written off over seven years, at a rate of 15% per annum over the first six years and 10% per annum in the seventh year.

Companies, the trustees of a trust, individuals involved in the operation and management of the hospital and property developers are excluded from the scope of the capital allowance regime for private hospitals. That is necessary to ensure EU agreement to the scheme from a state aid perspective. Allowances are, therefore, only available to other individual investors investing in private hospitals. As passive investors, such individuals are subject to restrictions on the amount of allowances they can set sideways against non-rental income. Allowances must be set against rental income. If the allowances exceed the rental income, the amount that can be set against the individual's non-rental income in any one tax year is restricted to €31,750.

The source of an investor's funds or the proportion of equity and loan finance does not affect the amount of capital allowances that can be claimed in a particular case. Rather, the value of the capital allowances will depend on the construction costs incurred. Allowances are only available in respect of the costs incurred in constructing the building. There are no allowances for the cost of acquiring the site or other non-construction costs such as marketing and selling the completed building. Therefore, buildings which qualify for capital allowances are often marketed on the basis that they will qualify for 80% or 90% relief, for example. Such percentages are a reflection of the cost of site acquisition and other non-construction costs not qualifying for capital allowances.

Finally, the potential value of capital allowances to an individual investor depends on the detailed arrangements applying in a particular case. It depends especially on that individual's share of the construction expenditure incurred, calculated at the individual's marginal rate of tax at 42%. It will also depend on the individual's circumstances, such as his or her capacity to absorb the allowances as they come on stream over the seven-year write-off period. If the individual has insufficient income against which the write-off can be made, the unused allowances have to be carried forward and set against rental income in future years.