Nursing Homes Residential Units

Section 268 TCA 1997 provides capital allowances for capital expenditure incurred on registered nursing homes and associated residential units that are constructed on the site of, or on a site immediately adjacent to the site of, the nursing home. The expenditure may be written off over 7 years at the rate of 15% per annum for the first six years and 10% in the final year. It is open to investors, who need not be connected with the nursing home, to purchase a residential unit. Capital allowances are not available for owner-occupiers. The intention in granting the capital allowances was that the residential units would essentially be used as an extension of the nursing home itself in the provision of an enhanced service to its elderly or infirm clientele. It is expected that investors in residential units would lease those units to the nursing home in return for a rent paid to them by the nursing home. The legislation requires the nursing home to assume responsibility for the operation or management of the residential units and to provide back-up medical care, including nursing care for occupants of the residential units.

Revenue is concerned at the way in which some of the nursing home residential unit developments are being marketed. They are being marketed as retirement villages for people over 55 years of age. It should be noted that the residential units must be designed and constructed to meet the needs of persons with disabilities, including in particular the needs of persons who are confined to wheelchairs. The occupant of a residential unit must be medically certified as requiring such accommodation because of old age or infirmity. It is not sufficient for an occupant to be merely over 55 years of age; he or she must have the appropriate medical certification. It should also be noted that it is possible to be less than 55 years of age and to be medically certified as infirm.

A second concern is that the residential units are being marketed as being available for purchasers’ own elderly relatives. It should be noted that, in order to come within the definition of “qualifying residential unit”, residential units must be managed or operated by the relevant nursing home. Revenue takes the view that the operation or management of a residential unit includes the letting of that unit and the selection of occupants for it by the nursing home. It is not open to the purchasers of residential units to select occupants for them. It should also be noted that the following further conditions apply;

• At least 20% of the residential units in a development must be made available for renting to persons who are eligible for a rent subsidy from a Health Service Executive (formerly known as a Health Board), and
• The rent charged for such units cannot exceed 90% of the rent which is charged for units used by persons not eligible for a rent subsidy.

It is important to note that if these latter requirements are not met, residential units are not qualifying units. In such a situation, none of the units in a development would qualify for capital allowances. Where, in respect of residential units, a nursing home is unable to show that these requirements are being met, Revenue will take the view that the residential units in question are not being operated or managed by the nursing home and that they are not, therefore, entitled to capital allowances.

Enquiries on this article should be addressed to -

Business Income Tax Unit
Direct Taxes Interpretation and
International Division
Stamping Building
Dublin Castle
Dublin 2