Dáil Éireann debate -
Thursday, 2 Jun 1932

Vol. 42 No. 3

Resolution No. 6—Income Tax.

Minister for Finance (Mr. MacEntee)

I move: That the Dáil agree with the Committee in Resolution No. 6:—

That the following rule shall be added to the rules applicable to Case III of Schedule D of the Income Tax Act, 1918, that is to say:—

5. Notwithstanding anything in Schedule A or the rules applicable thereto or Section 187 of the Income Tax Act, 1918, in any case where the annual rent payable for any premises occupied for the purposes of any trade, profession, or vocation is in excess of the annual value ascertained as prescribed by the said Section 187, it shall be lawful for the Revenue Commissioners to cause an assessment to be made upon the person receiving or entitled to such rent in respect of so much of the excess of such rent over the said annual value as will, together with the amount of the assessment, under Schedule A, make up the full amount of the income arising from the letting of such premises.

Any assessment made under this rule shall be computed in accordance with Rule 2 of the rules applicable to this case and subsection (1) of Section 10 of the Finance Act, 1929 (No. 32 of 1929), shall not apply to any income so assessed.

Rent for the purpose of this rule shall be taken to be the full amount payable by the occupier, and in arriving at the amount chargeable under this rule a deduction shall be made for any sums which the person receiving or entitled to the rent is obliged, by agreement with the occupier, to pay or satisfy out of the rent in respect of any rates or assessments which by law are charged upon the occupier, and for the cost of maintenance, repairs, insurance, and management, ultimately paid or borne by the person receiving or entitled to such rent.

Where an assessment under Schedule D is made under this rule no allowance shall be granted under Rules 7 and 8 of No. V of Schedule A or Section 203.

Where a rent in excess of the annual value ascertained as prescribed by the said Section 187 is payable by the person assessed then, in arriving at the amount of the assessment under this rule, no deduction shall be made in respect of such rent, but the person assessed shall on making payment thereof be entitled, in addition to the deduction of income tax which he is entitled to make under the rules of Schedule A, to deduct and retain there out a sum representing the amount of the tax on the excess of the rent over such annual value at the rate or rates of tax in force during the period through which such payment was accruing due.

This Resolution is designed to stop a serious leakage of revenue which arises in large towns where business premises in some cases are let at rents far in excess of the valuations, and in respect of which the owners escape assessment on the amount of the excess. It does not apply to and does not affect in any way private dwellings. nor does it affect those cases in which the proprietor of the business is also the owner of the premises. To take one or two specimen cases. The first is the case of premises which have a valuation of £205, and in which the rent paid is £1,000 per annum, the tenant paying the rates. In another case the valuation of the premises is £300. The rent charged is £1,250 per annum, the tenant paying the rates. The Resolution provides that in such cases the amount by which the rent exceeds the Schedule A assessment based on the valuation shall be assessed under Schedule D on the recipient of such rent, but that where the recipient is liable for any occupier's rates an allowance shall be made and that an allowance shall also be made in respect of repairs, or other outlay, if any, borne by the person assessed. The final paragraph of the Resolution is intended to cover the type of case in which the occupier pays the rent to another person who in turn pays a smaller rent to a third person. The assessment in such case will be made on the second person who is given a right to deduct tax on the full rent payable to the third person.

Mr. Cosgrave

On the Budget debate I asked if an examination had been made as to whether this would interfere with city estates. There is one very large estate in the city of Dublin and one outside of it. The one in the city is the property of the Corporation. Will this affect the Corporation property and to what extent?

Mr. MacEntee

It will affect any property in which the rent paid exceeds the valuation of the premises. It only deals with premises occupied for the purpose of carrying on business.

Mr. Cosgrave

Certainly if it means a reduction of the value of the city estate to the Corporation it would be very serious. It is quite possible that in the case of the city estate, where the income is considerable, it would cost the Corporation a considerable amount of money.

Mr. Dockrell

Would the Minister say if insurance premiums would also be allowed as part of the expenses?

Mr. MacEntee

If borne by the owner.

Professor Thrift

I would like to ask the Minister two or three questions. In the third paragraph, the phrase occurs "the full amount payable by the occupier," and I want to ask the Minister if he has considered the justice of that phrase. I take it that this will come under Schedule D in the future, and, therefore, the owner of a property will be liable for rent for the preceding year, and it will not therefore be possible for anything like fraud to occur. It seems to me to be only just that the owner of such property should pay income tax on the rent which he has received for that property, and very often that is quite a different thing from the actual amount payable on the property, the rent for which the property is let. I do not think it would be just that the owner should be charged tax on money which he has not received at all.

I want to suggest also to the Minister that something more explicit should appear in the Finance Bill in reference to the terms "maintenance and repairs." Otherwise, there will be a lot of doubt and ambiguity as to what can properly be accounted as charges for maintenance and repairs. My third point is this. It would appear from the last paragraph of the Resolution that the tenant or rent payer will be allowed to deduct the income tax on the rent, when he is paying the rent, and I suggest to the Minister that that is quite a wrong proceeding, because it ought to be possible for the landlord, when making his payment of the income tax, to get allowed for whatever his costs on maintenance and repairs, and so on, have been. He should not have to go to the lengthy process of recovery. The tenant cannot possibly know what deduction the landlord is entitled to make. The landlord is the only person who could fill up his form properly and show what allowances he was entitled to, and what his expenses had been. I am not moving amendments on the matter at the moment, but I ask the Minister to consider these points when preparing the Finance Bill.

Mr. McGilligan

There are three things I would like to inquire about in connection with this Resolution. The phrase occurs, in the first paragraph of Resolution No. 6, at the relative point "the annual rent payable for any premises occupied for the purposes of any trade, profession or vocation." The Minister said that this does not apply to private houses.

Mr. MacEntee

Private dwellings.

Mr. McGilligan

Suppose a private dwelling-house is used for the purpose of a doctor's profession, does that apply? Which category is the house in? Is it the dwelling-house that overrides the house used for the purpose of a trade, profession or vocation, or does the element of professional or vocational use override the house that is mainly used as a dwelling-house, or is there going to be some examination turning on the point as to whether it is or is not mainly used as a dwelling-house or mainly used for the purpose of a profession or vocation? The same matter will arise in connection with houses occupied by persons who are practising at law, whether it can be said that, because they keep libraries in their house, and because, at times, consultations go on there, they are using the house for the purpose of a profession or vocation. That is one point. The second point is the case of the owner who is also an occupier. He is not in receipt of any rent because he himself is the owner. Is there going to be some rent assessed on that premises and charged to the person? Thirdly, this tax is estimated in this year to bring in only £13,000, but it is hoped that it will bring in an immense amount of money hereafter. Why the small amount this year, in contrast with the hopes held out for the future?

Mr. Good

Would the Minister say whether this proposal will apply to a number of small shops all over the city? In a number of these cases, these shops are a portion of the letting of the house, the upper portion of the house, in some cases, being set in tenements. In those circumstances, would it not be advisable, instead of raising a big question of this kind, which may involve difficulties, to put a limitation on the valuation, and start at a valuation, say, in excess of £25? Otherwise, it seems that a problem is going to arise in a very large number of lettings in some of our poorer streets.

Mr. Anthony

I am quite in sympathy with this Resolution, but I would like to ask the Minister how he proposes to administer it. I preface what I am going to say by the statement that I am in sympathy with it, but we do find in a number of country towns, and even cities, professional men, such as dentists and doctors, who pay weekly visits to outlying districts and I would like to know whether the Minister would consider in such a case, the whole of the premises as being occupied by that dentist or that medical man, a physician, possibly, as instanced by Deputy McGilligan, a few moments ago. I can quite see an amount of difficulty in obtaining revenue, and I would like to know how the Minister proposes to act in such a case. The Minister must be aware— let us take Dublin or Cork—that many of the leading dentists visit outlying districts, where they have premises taken, possibly by the year, or by the quarter. Does he propose in those cases to designate these places according to the Act, as "premises occupied for the purpose of any trade, profession or vocation"?

Mr. Dillon

Would the Minister say what is the position of a person holding a freehold under this section? Has he simply got the old valuation basis or how exactly is he situated?

Mr. MacEntee

Arising out of the question Deputy Dillon has asked, I would like to emphasise that this only applies to a case where there is a rent paid, and that, therefore, it does not affect at all the question of the owner-occupier. In the case of doctors' or lawyers' residences, if the occupier owned the residence, he would be quite outside the scope of this Bill and the occupier, under no circumstances, is liable for the tax. It is the owner who pays the tax where the rent exceeds the valuation of the premises. I did not quite catch the force of Deputy Thrift's point when he said that we propose to assess the tax on the rent payable, but he seemed to indicate that that amount might be something different from the rent received, presumably, through a default of the tenant. Of course, the tax is an income tax, and if the rent payable is not collectable, I cannot see how the owner would be made liable for something he had not received.

Professor Thrift

But the word "payable" would surely make him liable for income tax on the full rent at which the house had been let?

Mr. MacEntee

The same thing applies, I believe, in a lot of other cases, but the Deputy may be quite certain that the Revenue Commissioners are not going to try to collect tax on any income which has not, in fact, been received by the taxpayer.

Professor Thrift

The Finance Bill will make it clear?

Mr. MacEntee

The Finance Bill will, I think, make that clear. We have got to understand this, in regard to the whole of the income tax law, and I am sure that Deputy Blythe will agree with me, that it could not be possible to cover every particular case, and it is because of that, that you have Special Commissioners to adjudicate in matters which could not possibly be covered by any Act of the legislature, and this is possibly one of them. I am quite certain that, if the case should arise, it would be decided by the Special Commissioners in favour of the man who had not received income on which he was being assessed.

Mr. O'Neill

Would the Minister, in that case, consider the substitution of the word "received" for "payable"? A lot of rents are payable, but they are not paid, and it might make the thing very much clearer.

Mr. MacEntee

We are putting this before you in this way, so that you may, more or less, have material for discussion on the Committee Stage of the Finance Bill. If any Deputy cares to put down amendments covering the points which have been raised, I will have them considered. I could not possibly give a promise, at this stage, to accept or reject any proposal which might be flung at me across the House, because I do not know what the implications of the proposal might be.

Professor Thrift

I think the Minister has already accepted the principle to which I have referred. Surely, he agrees that under Schedule D. the taxpayer will only be liable for tax on money which he received in the preceding year.

Mr. MacEntee

I am not sure whether it is necessary to have any alteration in the wording of the Resolution in order to ensure that. I think the point the Deputy has referred to is covered by the ordinary practice in regard to the income tax law.

Professor Thrift

I can assure the Minister that there are serious legal doubts on the point.

Mr. MacEntee

I shall have the matter further examined.

Mr. Little

It is always valuable to get on record at this stage a question which may be examined later. I should therefore, like to ask whether income tax will be payable in respect of premises which have become vacated. If the word "payable" is used, it will make the matter doubtful. Is not income out of rents on exactly the same basis as any kind of unearned income —say income from dividends? I do not wish to press the Minister for answer to these questions at the moment but it is useful to get questions of this nature on record, so that they may be dealt with subsequently.

Mr. Gilligan

In order that we may be in a position to frame amendments——

Mr. MacEntee

May I say that I was concluding the debate?

An Ceann Comhairle

The Minister rose to conclude the debate.

Mr. McGilligan

May I suggest that if we are not going to have this process of question and answer allowed after a Minister has made a statement, every Deputy who rises to speak will feel himself bound to exhaust the entire question in a series of hypotheses in order to have a clarifying statement from the Minister? Is it agreed that the equity of the situation rests with Deputy Thrift in the case to which he referred and that all that is required is to get an amendment framed in the proper form? Where a tenant defaults and rent payable is, in fact, not paid, will this section be applied only to the amount of money received?

Mr. MacEntee

I should say "yes" to that but I must have proper safeguards against evasion.

Mr. McGilligan

Certainly.

Mr. MacEntee

It might be that, by collusion with the owner, the occupier would not pay rent. With regard to the question raised by Deputy Little, premises might be vacant and yet rent might be paid in respect of them. If rent has actually been collected, the tax should be collected also.

Mr. Little

But if not, not.

Mr. MacEntee

If not, not.

Mr. Good

The Minister has not replied to the question I put. I do not know whether I made it clear or not.

Mr. MacEntee

That was the case of the shop dwelling-house?

Mr. Good

Suppose a tenement house is let and the tenant in the lower rooms opens a shop, does the whole of that tenement house become a business premises?

Mr. MacEntee

I should like to consider that. There is a provision in the valuation law to assess the valuation of a shop separately from the residential portion of the premises. That might come into force here. Owing to the practical difficulty of getting the new proposals into operation, Deputy Good may be satisfied that cases of this kind are not likely to arise in the present financial year. With regard to the question put by Deputy McGilligan as to why we had made such a low estimate of the yield, that is due to the fact that it will take some time— possibly a considerable time — to get the premises into assessment.

Mr. McGilligan

What about an estimate for a full year when the premises are liable?

Mr. MacEntee

We are not in a position to give that yet.

Professor Thrift

Does the Minister feel that he can secure in the Bill that this charge for maintenance and repairs will be explained sufficiently to include everything which could be regarded properly as capital expenditure?

Mr. MacEntee

"Maintenance and repair" is an existing phrase in the Act and it would be interpreted in the same way, according to our intention.

Resolution agreed to.