RESTRICTION ON CAPITAL ALLOWANCES

The Budget Statement of 3 December announced a number of restrictions on the capital allowances on buildings that an individual passive investor can claim against non-rental income. An annual cap of £25,000 against non-rental income was applied in the case of the capital allowances on all buildings except for certain hotels. In the case of hotels, the capital allowances were ring-fenced to rental income except for hotels of a certain standard located in counties Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon and Sligo excluding any designated seaside resorts in these counties. These restrictions were contained in Financial Resolution No 6 which was passed by the Dail on Budget night.

Transitional arrangements were provided for certain pipeline projects where specified conditions were met. In order to meet genuine difficulties which the transitional arrangements have caused for some projects which were well advanced on Budget Day, I have decided to make some changes to these transitional arrangements.

One of these conditions was that the individual passive investor had to sign a binding contract in writing in regard to the investment in question before 1 February 1998.

Because of the necessity to obtain EU Commission approval for an extension of the timeperiod for some of the capital allowances concerned and also to allow more time for the various arrangements involved for particular projects to be completed, I have decided to extend this contract signing deadline to 1 May 1998. The capital allowances in respect of which EU approval is being sought for the period until 31 December 1999 are those for buildings located in the Custom House Docks Area in Dublin.

In addition, I have decided that it will not be necessary for investors to meet the condition of having preliminary commitments in writing prior to Budget Day in the case of any project where the IDA had in the two year period prior to 3 December 1997 given approval for grant aid. Other possible modifications to the transitional arrangements are still being examined.

Business Expansion Scheme (BES)

Changes to the Transitional Arrangements Introduced on 3 December 1997.

Introduction

In my Budget Statement on 3 December 1997, I announced that the aggregate amount that a company can raise under the BES was being reduced from £1 million to £250,000 with effect from Budget Day. This was done to refocus the BES on start-up/small companies who find it hard to raise finance elsewhere.

To cater for projects that were well advanced prior to Budget Day, the Budget night Financial Resolution included transitional arrangements for such BES Projects.

To satisfy the transitional arrangements for individual companies raising their own funds the following conditions, inter alia, had to be met:

- the shares in the company had to be issued before 30 June 1998;

- the company must prove to the Revenue Commissioners that before Budget Day it had the intention to raise money under the BES;

- In addition, companies also needed to have had binding contracts in place committing them to spend at least 25% of the money they intended raising.

It has come to my attention that these transitional arrangements are causing unintended difficulties for a small number of companies who fall foul of the requirements particularly the 25 per cent expenditure commitment.

Under the BES applicable up to Budget Day, any company wishing to raise in excess of £250,000 required a certificate from a certifying agency e.g. Forbairt, to the effect that the project would create or save jobs. This required the submission of a complete business plan and a detailed analysis of the proposal by the development agency concerned. I am satisfied that projects that went through this procedure should be allowed to proceed.

Having considered the matter carefully I have decided to extend the transitional arrangements as follows:

- Projects that had been certified prior to 3 December 1997 by a development agency will be able to raise the finance certified. (The need for binding contracts no longer applies in these cases).

- The deadline for the issue of shares to investors is being extended from 30 June 1998 to 30 September 1998.

Seed Capital Scheme

The BES reduction to £250,000 also affected the Seed Capital Scheme. Typically, seed capital projects involve promoters who give up employment to start their own qualifying business and this scheme provides seed capital by way of tax relief for that purpose. It is not unusual for Seed Capital projects to also seek BES monies. To ensure that the Budget day change does not impact unduly on these people I have decided to allow seed capital projects to raise £500,000 provided that no more than £250,000 of this £500,000 is raised under the BES. This means that a seed capital project can raise the full £500,000 under the Seed Capital Scheme or a combination of seed capital finance and BES funds i.e. £250,000 seed capital finance and £250,000 BES.