Transitional Arrangements for Property Incentive Schemes Binding Contracts - Further Clarification (1)

One of the conditions for availing of the extended termination date of 31 July 2008 for some of the property incentive schemes is that a binding contract in writing, under which expenditure on the construction or refurbishment of a building or structure is incurred, must be in place for the particular building or structure on or before 31 July 2006. The extended deadline for the following buildings or schemes is subject to such a condition:

• Hotels (‘accelerated’ allowances only)
• Holiday Camps (‘accelerated’ allowances only)
• Registered Holiday Cottages
• Urban Renewal (commercial and industrial buildings)
• Rural Renewal (commercial and industrial buildings)
• Town Renewal (commercial and industrial buildings)

Clarification has been requested about certain aspects of this condition.

‘Self-Construction’

Revenue has been asked for a view about the need for a binding contract in a situation where the construction or refurbishment work on a building or structure is being carried out by the site owner, being either an individual or a company. Having regard to the fact that the projects in question all relate to commercial buildings and premises, Revenue would expect that most of these are unlikely to be undertaken by one person and that they would invariably involve the engagement of third parties to carry out some, or all, of the actual construction or refurbishment work. As there is a specific statutory requirement for a binding contract in writing to be in place by 31 July 2006, Revenue will expect that, in the absence of a global contract for the construction or refurbishment of a building, individual contracts for various elements of the construction or refurbishment work will be in place by that date.

Parties to contract

As already stated, the binding contract must be one under which expenditure on the construction or refurbishment of the particular building or structure is incurred. It will be a question of fact in each case whether the contract meets this requirement. It is not necessary that the contract provide for investor entitlement to the capital allowances. It is sufficient that it provides for a binding commitment to the initial construction or refurbishment expenditure. The legislation is silent about the parties to such a contract. The type of contract put in place will depend on the type of project and the various parties involved in the development. It is not, therefore, possible to be prescriptive about the type of contract that Revenue would regard as satisfying the condition. Possible examples of acceptable contracts are:

• A development agreement between a site owner and a development company that is responsible for delivering over a completed building;
• A building agreement between a site owner/development company and a builder; or
• A building agreement between an investor and a development company/builder.

Where there is a single global contract for a project comprising several individual buildings, the condition will be regarded as satisfied for each individual building. Where there are separate contracts for each building, for example, building agreements with each investor, and no single global contract, each building agreement will have to be in place on or before 31 July 2006.

Direct Taxes Interpretation and International Division
Business Income Tax Branch
Stamping Building
Dublin Castle

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