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employees is exempt from Employer's PRSI. A saving equal to
the Employer's PRSI on the benefit provided to the employee
is made. The benefit is the difference between the cost to the
employee and the open market rate for the service provided.
Capital Allowances
Capital allowances are available to employers that have
taxable income. The capital allowances can be offset against
income from the childcare centre and other income. Section
5.3 elaborates on the use of capital allowances against taxable
income.
5.2.5 Benefit to the Employee
If the conditions outlined in Sections 5.2.2 and 5.2.3 are
satisfied, then the value of childcare services to the employee
is not subject to Income Tax, PRSI or Health Contribution. The
benefit could be savings of 42% Income Tax, Employee PRSI
and Health Contribution on the cost of the childcare facilities
to the employee.
5.3 Capital Allowances
5.3.1 Introduction
Capital allowance is a method of tax depreciation used to
reduce taxable trading income over a set number of years.
Accelerated capital allowances at a rate of 100% are available
in the first year on childcare facilities which meet the required
standards for such facilities, as provided under the Childcare
Act 1991 and the Child Care (Pre-School Services) Regulations,
1996. The relief is available to all childcare facilities whether
provided by employers or commercial childcare operators. The
relief is available to both owners of facilities and investors
who wish to invest by way of leasing arrangements. The
allowances apply in respect of expenditure incurred on and
from December 1st 1999 on the construction, extension or
refurbishment of childcare facilities. Expenditure incurred on
the conversion of a building to a qualifying childcare facility is
also eligible for relief.
These capital allowances are also available as 15% for the first
6 years and 10% in year 7.
5.3.2 Impact of Capital Allowances
Employer (Company)
Employer A Ltd constructs a childcare centre for €500,000
(excluding site costs) and leases it to a childcare operator for
€20,000 per annum. Employer A Ltd has other income of
€100,000 per annum.
Tax relief available to Employer A Ltd. is:
Year 1 €
Qualifying Expenditure
Capital Allowances
Employer A Ltd Annual Income
Capital Allowances
Excess Capital Allowances
Employer A Ltd’s annual income comprises of income from
leasing the childcare centre to the childcare operator and the
profits of the immediately preceding accounting period. The
remaining unused capital allowances can be carried forward
and used against the rental income of Employer A Ltd.
Employer (Individual)
500,000
500,000
120,000
(500,000)
380,000
Employer B Individual constructs a childcare centre for
€500,000 (excluding site costs) and leases it to a childcare
operator for €20,000 per annum. Employer B Individual has
other income of €120,000 per annum.
Tax relief available to Employer B Individual is:
Year 1 €
Qualifying Expenditure
Capital Allowances
Employer B Individual Rental
Income
Capital Allowances
Excess Capital Allowances
Salary
Excess Capital Allowances
Restricted
Taxable Salary
Excess Capital Allowances Carried
Forward
500,000
500,000
20,000
(500,000)
480,000
120,000
31,743
88,257
448,257
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