Can the Minister briefly explain the purpose of this section which deals with divorce?
SECTION 5.
Question proposed: "That section 5 stand part of the Bill."
This section brings the income tax provisions contained in sections 49 of the Family Law Act, 1995, and section 32 of the Family Law (Divorce) Act, 1996, into the tax code. Both these sections allow a divorced couple who are both resident in the State, have not remarried and in whose case there is an enforceable maintenance agreement, to opt — similar to separated couples — for joint assessment for tax purposes. It is a rationalisation and harmonisation of existing provisions.
Question put and agreed to.
NEW SECTIONS.
I move amendment No. 11:
In page 14, before section 6, to insert the following new section:
6. — (1) Section 127 of the Income Tax Act, 1967, is hereby amended by the insertion of the following after subsection (5):
'(5A) (a) Notwithstanding the provisions of subsection (5), regulations made in accordance with the provisions of paragraphs (f) and (g) of subsection (1) shall not apply to an employer (being an individual) who pays emoluments to an employee engaged by that employer in a domestic employment where—
(i) the emoluments from that employment are less than £30 per week, and
(ii) the employer has only one such employee.
(b) In this subsection —
"domestic employee" means an employee who is employed solely on domestic duties (including the minding of children) in the employers private dwellinghouse;
"domestic employment" means employment by reference to which an employee is a domestic employee.'.
(2) This section shall apply and have effect as on and from the 6th day of June, 1997.".
This is an amendment to existing legislation, section 127 of the Income Tax Act, 1967. The two Opposition Deputies present and Deputy Penrose may recall a debate we had last year regarding the administrative burden of employing a person in one's home for a few hours a week. I could relate to this from a personal point of view, and I declared an interest last year, which I reaffirm. I have direct experience of employing someone for three hours, one day a week in my home. The compliance from an administrative point of view for an employer to be legally compliant was onerous. I asked the Revenue Commissioners to bring forward a simplification of the system in which the burden of compliance could be eased for domestic employers and employees. This amendment is designed to give effect to that.
This is a good idea. I defy any member of the committee to say they can comply with the PAYE regulations in respect of a gardener or cleaner who works in their home. It is mind boggling and if one attempts to do it, one must walk away and admit one cannot comply. One would have to employ an accountant to fill out the forms and work it out.
However, the amendment does not go far enough. It is not sufficient to keep the amount at £30 per week because £30 per week is not a huge sum of money. If the person is working every day, it works out at roughly £6 per day and, if he or she is working for two or three hours per day at gardening, childminding or other domestic duties, £30 per week is not sufficient. The Minister should consider increasing the amount to £50 or £60 per week. I can envisage an elderly lady who might have a cleaning lady who comes to work in her house each day. The cleaning lady is probably earning £7 or £8 per day, as it is hardly worth her while coming in for less if she spends three hours looking after an elderly person. The sums of money we are discussing are too conservative.
I presume domestic employment covers activities around the house, gardening and so forth. I do not see why it is confined to one person. It does not make it easier for an old lady because she does not intend to get an accountant if she has a gardener working for her. The principle of the amendment is right but the Revenue Commissioners have boxed the Minister into a position that is too constrained. If an old lady in Sandymount has a gardener and a domestic cleaner who work for her, this amendment does not apply because she does not have one such employee. Second, £30 per week is not enough to make sense of the provision.
We are not simply discussing wealthy people because ordinary people, especially the elderly, will fall into this category. On Report Stage the Minister should increase the amount to £50 per week and omit the single employee provision. The latter appears to be included as a result of some Revenue Commissioners official's notion of social justice. He or she appears to want to avoid the possibility of somebody with a retinue of about 20 servants benefiting. However, that situation no longer exists. In this case we are talking about two people who work in a household quite frequently. One might work for three days each week while the other might come in on another three days. Subparagraph (ii) would hammer that and the limit of £30 per week is too low. There will not be massive tax evasion in this area because almost all of it is in the black economy anyway.
The Minister has already answered my question which related to the definition of a domestic employee. Subsection (b) states an employee "employed . . . in the employer's private dwelling house". The "dwelling house" can mean the house and an acre, so it can apply to a gardener.
If you have a childminder and a cleaner you cannot avail of this provision. They must both be on PAYE.
The Minister at least recognised the validity of the argument forcefully made by all members of the committee last year and I thank him for taking it into account. This is an area where bureaucracy went mad. If you employed somebody, you were smothered in paperwork for the sake of paying them between £25 and £40 per week. The Revenue Commissioners sent the same amount of documentation as if one had 25 employees. It was most off-putting.
I agree with Deputy McDowell. Many old people pay others to do a little work around the house. They do not want to be seen to be looking for work to be done for nothing. However, that old person could in theory have to furnish monthly returns and a P35 at the end of the year. They would have to pay about £400 to an accountant to do that.
The Minister is moving in the right direction but £30 per week is not much money. A person who is caring for an elderly person would usually work six days per week and £30 represents £5 per day. One would not oil the spokes of the bicycle for £5. Perhaps the Minister would look at this again on Report Stage. It should be possible to increase the amount by £10. I have another category of people in mind with regard to this provision. Home helps are poorly paid but they provide a tremendous service. They are in the income tax system even though they are paid a pittance. Who will supply a service for £3 or £4 per day? Up to now these people's incomes were taxable. This is a matter of social solidarity because home helps help people who, for various reasons, live alone. They are not overpaid and we should ensure they are not lumped with the same taxation burden.
I am delighted with this provision and I do not doubt the Minister will break through the logjam in this area.
Their incomes are still taxable.
That is the problem. Can we not widen the definition? Home helps are people who do far greater service for the community than politicians who spout all day. They do the practical work while we verbalise. I feel very strongly about this matter because someday we will be old and hopefully there will be such people to help us. Home helps have been forgotten.
The Minister's officials explained during the briefing earlier that this provision does not exempt these employees from taxation, only from PAYE. They also emphasised that it does not exempt the employer from paying PRSI or returning a P35, which is almost as complex as the PAYE documentation.
I agree with Deputy Penrose that the Minister should go further with this concept. He has addressed the issue we raised last year, but we need a simple system of a flat rate contribution of a certain amount which does not require a calculation. Tax and welfare should be out of the equation because this area is already in the black economy. If the Minister heard of a tax inspector who chased an elderly lady in Sandymount for failing to comply with PAYE regulations for the home help and the gardener, he would sack him for enforcing the law. The law in these circumstances is not enforceable and, as such, should not exist.
The Minister has gone some way on PAYE but he will have to get the Minister for Social Welfare, Deputy De Rossa, to move on the P35 issue. We are allowing somebody to employ a person in circumstances where the employer can simply fill out a declaration certifying that they have not earned more than a certain amount and send a cheque.
I appreciate the complimentary comments made by various Deputies. I am trying to respond to the debate which was well animated last year and perhaps the previous year. This is not the full picture because PRSI compliance from the employer's point of view is the same. I would like to declare my interest in that a person comes to my house for three hours each week and I get the same degree of documentation to complete which Intel gets, which is nonsense. Commissioner Quigley of the Revenue Commissioners has indicated that it is the intention that we have one page on which all the requirements necessary for a person in that category, from an employer's point of view——
Tax and social welfare
——would be met and there would be a single cheque. The employer's PRSI obligations would be discharged in a single money transaction for the year. That deals with the PRSI side.
The thrust of this is to make it more user friendly from the point of view of compliance and it is in the process of being resolved. We will come back to this on Report Stage. The simplest option and the one I propose, is to increase the PAYE registration threshold to £30 per week from £6 per week, which is ludicrous in a case where a person has only one domestic employee in his or her employment. To answer Deputy Ahern's question, this includes the gardener.
The effect of this would mean that such an employer would not need to register as an employer for PAYE purposes or to operate the PAYE system in respect of that employee. The employee, however, will still remain chargeable to income tax in respect of his or her earnings from the employer and will have to pay any tax due direct to his or her inspector of taxes.
Why is there a £30 limit? The limit has been chosen as it coincides with the threshold for the lowest rate of PRSI, class J, under which there is only an employer contribution of 0.5 per cent in respect of occupational industries benefit. This contribution will continue to be payable direct to the Department of Social Welfare. We will address how it will be done in the context of the form. Do Deputies want the figure of £30 increased to £50, which was suggested? We can look at the implications of increasing the figure from £30 to £50 or £100 on Report Stage.
Who sends a cheque each year for 0.5 per cent PRSI for the cleaning lady? It does not happen.
Let me confess ——
The Minister must send a cheque because he is the Minister for Finance and he is afraid The Star would find out that he was not doing so. However, everyone else does not operate on that basis.
The majority of people with whom I have spoken would like to be in a position to discharge their duties and to be compliant.
I welcome the Minister's idea but he will run into difficulties with social welfare if it goes much higher. The adult dependant's allowance is about £38 or £40.
I will not take up the committee's time at this stage, but I have listened to Deputies. If I can further clarify this matter on Report Stage, I will do so. The amendment I moved is an advance.
It is an advance which increases the exemption limit whereby an employer does not have to register as such for PAYE purposes.
Although it is not implicit here, we are streamlining forms.
There will be no benefit if the form an employer has to fill out must include the name and the RSI number of the receiver. It will not work.
It must include that.
The employee will not want that to happen. Deputy Penrose and I know how people work in this regard.
Amendment agreed to.
Amendments Nos. 12 and 20 are related and may be discussed together. Is that agreed? Agreed.
I move amendment No. 12:
In page 14, before section 6, to insert the following new section:
6. If a claimant proves that for the year of assessment he/she is employing an individual to care for his/her dependant children, the income tax to be charged on the claimant for that year of assessment shall be reduced by an amount equal to the appropriate percentage of the payments proved to be so made.".
This is an area in which it is possible to put one's foot wrong so badly that one could end up to one's ears in terms of being politically incorrect. Many people participating in the workplace must make arrangements for child care which costs money. Child care arrangements are part of the black economy because the majority of child carers who look after children in the home, and neighbours who take children, do not declare the money they receive. Therefore, it is an expense which arises from their employment but which. by the same token, exists offshore, so to speak, as far as their tax situation is concerned.
I am not convinced I have struck the right balance in this amendment but I am convinced — I must be careful in terms of the words I use — that in the majority of cases, this is a relevant consideration for women who want to work. Although it is not necessarily the case, statistically it is likely that women are the most adversely affected by this.
If women, especially married women, go to work under our present tax regime they find the tax consequences are bad enough but when they must deduct from their salary the cost of getting to work and the cost of making alternative domestic arrangements so that their children are looked after, they see little benefit for working 40 or 36 hours per week. Under my amendment there would be a degree of recognition in our tax system of the cost of getting to work.
Somebody like myself who is a schedule D employee, except in respect of my political earnings, is entitled to a deduction in respect of something which is wholly and exclusively for employment purposes. A schedule E employee must prove it is wholly, exclusively and necessarily for that purpose. For mothers with children — I know theoretically this applies to fathers but statistically it is more often the mother's decision — the cost of child care and child minding is definitely a cost of employment. I want to introduce into the tax system some recognition of that basic common sense fact.
As I said, much of this is done on an untaxed basis. Whether giving an allowance would ultimately increase the cost of child care because the person providing the service would either refuse point blank to do the work or charge much more for it if the income were known to the Revenue Commissioners is a point for debate. It is a reasonable point that many people from all classes of society, including those who are put to the pins of their collars trying to keep their households together, are adversely affected by this. This is not a proposal for rich ladies to get the taxman to bear the cost of their social lifestyles but a proposal for struggling women who want to enter the workplace to do so on a par with other workers. It would allow them credit for the fact that they have a higher entrance cost to the employment market than people who do not, historically, conventionally or as a matter of fact, have commitments in respect of children.
The principle of my amendment is the same as that moved by Deputy McDowell. This has been discussed on the Committee Stages of the previous two Finance Bills. While I know the Minister has some sympathy with the notion, he finds there is a cost difficulty.
The fundamental idea is to allow a person to offset against their income tax the cost of employing someone to care for their children or parents. When I put forward this idea in Government, one argument against it was that an insufficient number of people would leave the black economy to register as employees and that, therefore, it would not work. I disagree with that notion, people would register over time because employers would prefer to employ those willing to become a registered employee, assuming the same rates of pay. Over a period of years, the net cost to the Exchequer would be marginal because it would have its own payback effects in that regard.
I accept that the vast majority of those outside the tax net doing this work would probably not register initially. However, I have seen other schemes for which it was said no one would register, but when competition set in everyone ended up registering and becoming part of the official process. This route will not cost the Exchequer greatly in the long-term. If we feel it is a worthwhile social need, it should be recognised.
I will first address Deputy McDowell's amendment because Deputy McCreevy's includes parents. As regards the latter, the Med 1 form can be used, as can the covenant for parents in that situation. I have some statistics on child care which are of relevance. It is the first time I have seen them put in such stark form and they are consequently of interest. If it is assumed the proposed relief would be allowed in respect of children up to the age to which they qualify for child benefit and claims, based on an average expenditure of £3,000 per child per annum, were made primarily by married couples, with both spouses earning but including working single and widowed parents, the estimated cost to the Exchequer at marginal rates of tax would be £180 million per year. The corresponding cost at the standard rate would be £132 million. Perhaps some of my Revenue statisticians would calculate the cost applied to children up to ten years of age, as distinct from up to 18, to see if it significantly alters the figure. These gross costs would be offset to some degree by tax receipts and social welfare savings. However, as the Deputies opposite would be the first to recognise, it is not possible to provide an estimate in this regard. Such a tax allowance would have a significant cost to the Exchequer. I am told that up to the age of five, it would cost £60 million and up to the age of 18 it would be £180 million. The cost at the age of ten would behalf way between those two figures which would be £90 million to £100 million. That is the gross cost. We do not know what the corresponding savings would be.
Every politician is being urged by his colleagues to promise something along these lines to voters in the context of the next election. It is interesting to see the nuts and bolts of what it would cost.
It would be helpful and to our mutual benefit if our learned colleagues in Revenue and Finance could give us the methodology upon which the calculation was made.
I agree they are undoubtedly significant figures. Tying the allowance to the standard rate of tax would be one way of reducing the cost. One could also allow for half or one third of the cost. I concede I did not err on the side of caution in tabling my amendment as phrased. It seems to me that, for £20 million to £30 million per annum, a significant concession on a fractional basis of costs could be made. If a percentage of relief were given up to certain amounts, the compensating factors of welfare and taxation, which I agree would be weak, could rise a little to offset the cost. Therefore, for a gross tax concession of £30 million on child care for children up to a certain age and at a certain fraction of relief, the Minister might easily find himself in the position of receiving a significant gain in tax and welfare.
Acting Chairman
Is the amendment being pressed?
I am not utterly committed to the wording when I hear the gross cost, although I suspect the Revenue officials might be trying to frighten me a little. I am interested in hearing more about the methodology and the implications of what it is about. The figure of £3,000 is worrying because I do not know anyone who would pay £9,000 to have three children minded. I do not think that happens so this is a particularly black view of matters. Placing emphasis on expenditure per child is not going in the right direction. It should be per household and relief should be given on a fraction of the total expenditure in that area. That would create a more benign scenario than the one the Revenue officials outline.
Acting Chairman
Is amendment No. 12 being pressed or withdrawn?
Has the Minister any more information as to why £3,000 per child was chosen as a figure. It is frightening.
It is £60 per week.
For each child? Does that mean that, if you have three children, it costs you £180 per week to mind them?
That is the cost in external terms in a cr�che.
I was not suggesting that sort of situation.
This will be an area of some concern and, if only for the educational purpose and nothing else, I will make further inquiries, gain additional information and return to the matter on Report Stage to give the Deputy a set of statistics on it.
Amendment, by leave, withdrawn.
SECTION 6.
Acting Chairman
Amendment No. 13 is a drafting amendment. Amendments Nos. 15 and 16 are related and may be taken together by agreement.
I move amendment No. 13:
In page 15, paragraph (a)(i), line 8 to delete "section," and substitute "section;".
Amendment agreed to.
Acting Chairman
Amendment Nos. 14 and 32 are related and may be taken together by agreement.
I move amendment No. 14:
In page 15, paragraph (a)(ii), line 22, after "conferred" to insert "it is a post graduate degree, a necessary primary qualification required for entry to a professional course, or otherwise".
In the 1996 budget the Minister agreed to the concession regarding the tax allowance for fees to third level colleges. I welcomed this. It was a major breakthrough which came as a shock to some officials in the Department of Finance. I have been lobbying for the expansion of this relief. The Minister has made some changes in this direction. This amendment proposes to extend relief to part-time students studying for professional qualifications and post graduate degrees. The Minister has moved a considerable degree in this direction but anomalies remain. People who go to the trouble and expense of further education and who are working should be allowed to offset the expense against their tax bill. If people are given a tax break to further their qualifications so that they will earn increased salaries they will return higher income tax to the Exchequer. The short-term loss would be offset be the overall gains. There should be no difficulty introducing this measure.
I listened carefully to the argument put forward by the Deputy and Deputy Martin and was convinced of the argument as I heard it. That argument was that, if for whatever reason, a person left school with a leaving certificate and went to work and subsequently found that, by force of circumstances, they were unable to avail of third level education or they came to a mature decision that they needed such a qualification, those people should receive tax relief on their fees. I remain convinced of that argument and introduced the amendment on Report Stage to so do. However, this includes a range of professional qualifications which would not conventionally have been described as third level degrees.
This amendment seeks the extension of that provision to post graduate qualifications. There are approximately 9,000 post graduate students in the State, of whom 6,300 are currently paying fees. The cost of extending tax relief at the standard rate to these people would be £3.5 million, based on an average annual post graduate fee of £2,000. The granting of tax relief would also open demands for the abolition of post graduate fees. This would cost an additional £12 million.
Why would it open that demand?
As night follows day, as group water schemes follow the abolition of domestic water charges and the other logic of the domestic real politik, if one abolished post graduate fees for one category——
We would not be abolishing fees, we would be allowing tax relief.
It would amount to the same thing.
That does not follow. If one gives tax reliefs one would not go down the road of providing free grant aided courses. The two are separate. I am in favour of tax breaks; I am not in favour of giving free grant aid. There is no correlation.
I have sympathy for Deputy McCreevy's point. However, I sound another note of caution in relation to university qualifications. Entry into the Kings Inns is highly competitive whether one has a law or non-law degree. If one does not have a first class honours degree or a brilliant 2.1, one has to have an MA or LLM. This means that the three year under graduate course is being extended, in reality, to five years. It also means that there is an economic barrier emerging for funding post graduate education. This is the new filtration mechanism. Every time we move the goalposts, demand and supply follow.
That is a good advertisement for the Kings Inns.
No it is not. It is a good argument for doubling the class size.
Amendment put and declared lost.
I move amendment No. 15:
In page 15, paragraph (a)(ii), line 27, to delete "paragraph (a);" and substitute "paragraph (a).".
Amendment agreed to.
I move amendment No. 16:
In page 15, paragraph (b), line 31, to delete "section (2)" and substitute "subsection (2)".
Amendment agreed to.
Section 6, as amended, agreed to.
SECTION 7.
Acting Chairman
Amendments Nos. 17 and 18 are related and may be taken together by agreement.
I move amendment No. 17:
In page 16, line 15, to delete "and".
Mr. McDowell
What is the significance of amendment No. 18?
It harmonises the role of the county enterprise boards. If money is given by the boards for seed capital the boards would be able to certify that it met with the provisions. If a company wants to avail of the seed capital provision, it must obtain certification from a number of bodies such as Forbairt, SFADCo, Údarás na Gaeltachta, etc. The effect of the amendment will be that the county enterprise boards will be included in this regard.
Acting Chairman
I welcome that development because I experienced difficulties in this area at constituency level. I discovered that county enterprise boards with members who are also representatives of Forbairt would agree that a person developing a business should qualify for seed capital relief. At national level, however, Forbairt would disagree with such decisions. Do I take it that the this has no retrospective effect?
No, but that will not prevent a person resubmitting their application to a county enterprise board when the Bill is enacted.
As I understand it, the main change is that a company will still qualify for a BES despite the fact that it might also qualify to enter the developing market. That is the main thrust of section 7 and it is a good development. Until now, a company floating on the Stock Exchange was not regarded as a qualifying company.
That is correct. We have tried to give as much encouragement to the DCM proposal as is prudently reasonable. However, the Stock Exchange, which received substantial reliefs, was seeking guaranteed heaven. We believe we have gone far enough in this regard and integrated BES companies with DCM eligibility.
The Minister is aware that the Stock Exchange has decreased in size. I welcome any action that would expand the volume of business in respect of company/clientele trading. If the current trend continues, the Stock Exchange would be a mere adjunct and would retain almost no importance. I sympathise with the views put forward by members of the Stock Exchange in respect of its development. I am aware that a variety of proposals were put forward to the Department of Finance but I appreciate its reluctance to go the whole hog in certain areas. The Stock Exchange is vibrant but it is relatively small. Will the Minister revisit some of the proposals put forward in the coming year to see if the provisions of the legislation have taken effect? If action is not taken in the near future, the importance of the Stock Exchange will be further diminished.
I empathise with the Deputy. We have had discussions with Mr. Healy from the Stock Exchange. We believe that the success of the DCM and the various provisions built into this section of the Bill will, in part, be dependent on the modesty with which advisers, including the Stock Exchange and stock brokers, charge costs and fees to companies involved in the DCM. Access fee costs for smaller companies are very high.
Amendment agreed to.
I move amendment No. 18:
In page 16, paragraph (b), line 23, to delete investment.'." and substitute the following:
"investment.',
(c) in section 16, by the substitution, as respects a relevant investment made on or after the passing of this Act, of the following subparagraph for subparagraph (iic) of paragraph (a) of subsection (2):
'(iic) the rendering of such services as are referred to in subparagraph (ii) in respect of which an industrial development agency or a County Enterprise Board (being a board referred to in the Schedule to the Industrial Development Act, 1995) has provided financial support of not less than £2,000 towards the undertaking of a feasibility study by a person approved of by the agency or the County Enterprise Board into the potential commercial viability of the services to be rendered.'.
and
(d) in section 16A (inserted by the Finance Act, 1995), as respects a relevant investment made on or after the passing of this Act, by the addition of the following after subsection (6):
'(7)(a) For the purposes of this Chapter, a certificate under subsection (2) may, instead of being given by an authority, be given by a County Enterprise Board (being a board referred to in the Schedule to the Industrial Development Act, 1995) to a company carrying on or intending to carry on one or more such qualifying trading operations as are mentioned in——
(i) subparagraph (i) (as amended by the Finance Act, 1993),
(ii) subparagraph (ii) (inserted by the Finance Act, 1990), and
(iii) subparagraph (iic) (inserted by the Finance Act, 1997),
of paragraph (a) of subsection (2) of section 16 and the provisions of subsections (2) and (6) of this section shall, subject to the modification specified in paragraph (b) and any other necessary modification, apply accordingly.
(b) The modification referred to in paragraph (a) is that, for the purposes of this subsection, the guidelines of the kind mentioned in subsection (2)(b) shall be agreed between the Minister for Finance and the Minister for Arts, Culture and the Gaeltacht or the Minister for Enterprise and Employment, as may be appropriate in the circumstances.'.".
Amendment agreed to.
Section 7, as amended, agreed to.
NEW SECTION.
Acting Chairman
Amendments Nos. 19, 71 and 81 are related and may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 19:
In page 16, before section 8, to insert the following new section:
"8.—Subject to the provisions of section 89(3) of the Income Tax Act, 1967, where in any year of assessment any person has sustained a loss in the letting of property, section 307 shall, subject to the necessary modifications, apply in any such case as if the losses sustained in the letting of property were losses in any trade other than farming.".
These propositions were put to me by the Irish Property Owners Association which contends that, because of regulations, etc., a number of people are leaving the property business. It believes that some tax concessions could be put in place. The effect of amendment No. 19 would be to amend section 307 of the Income Tax Act, 1967, in respect of losses sustained, etc. I would like to hear the Minister's view.
Everyone has been extensively lobbied by the Irish Property Owners Association. I am of the opinion that, as far as possible, the property owning business should be brought into line with other businesses. It should be made a trade and should not be regarded as a separate entity.
I met with representatives of the IPOA before our deliberations of last year's Finance Act but the time was not right for progress to be made. However, I indicated that I was prepared to make a number of changes. I met with the representatives in the context of their concerns about registration and the regulations governing rental accommodation which were introduced by the Minister of State at the Department of the Environment. Since this time last year, there have been a series of meetings with the Revenue Commissioners and officials from my Department.
With regard to a number of the changes sought by the association, by and large, I accept the thrust of Deputy McDowell's statement in this regard. The representatives made the case they are involved in the property business on a full-time professional basis and they want it to be treated like any other business. Therefore, the standard tax reliefs and framework which apply to other commercial companies should, within reason, apply to them. I addressed some of these concerns in the budget.
I am not sure that amendment No. 19 maintains the interests of those involved in the full-time professional property business, particularly as it suggests that losses should be offset against income in any trade other than farming.
That is in line with Deputy McDowell's statement about treating the property business in the same way as any other trade or profession. The effect of sections 307, 308 and 309 of the Income Tax Act, 1967, is that losses in one trade or profession can be brought forward, offset——
Is the Deputy referring to losses in respect of the income tax code or those concerning other companies?
They could be case 5 losses. The purpose of amendments Nos. 19, 71 and 81 is to bring the property owning business into line with other trades and professions. However, the Minister and his officials might be able to suggest a better way to amend the legislation.
Acting Chairman
Would there be a cost factor involved?
Yes, I will supply a calculation of that cost later. Maybe this is a caricature and, as a consequence, is not a fair representation of the people to whom Members referred. However, I was motivated to respond to the case put forward by the IPOA that its members were becoming involved in a professional or commercial trade on a full-time basis as distinct from someone involved in mainstream business who speculated in property on the side. Such property might have the cushion of burying losses in the main business, which might be a garage, grocery shop, etc.
If one looks at how household formation is developing, there is an increasing need for professional landlords to provide short-term accommodation so that people do not feel obliged to get tied up in property transactions of long duration. There will have to be a professional type of property renter. I am unsure of the Deputy's intent, but if the intent of the amendment would be to offset one form of rent relief loss with another, there is a much wider case at issue. If a dentist or other professional experiences a bad year, is it suggested that a PAYE loss, if such a thing could be conceived of, would offset that?
If I had an accounting business and a farming business, I could offset losses in one against another. Revenue would look at the farming business from the point of view of a rule of standards and practices to prove that the farm was not a hobby. This practice is pursued by the Revenue to keep people on the straight and narrow. If we are to regard the professional landlord as a businessman, losses in his letting earnings should be offset against something else. When I met these people two years ago, I gave them a hard time and spoke as the Minister for Finance might speak. They have pressed their case since and given examples. Some people are getting out of this business, and it will become a business for professional landlords because that is the only type of person who will deal with the rules and regulations in this area. I have come around from a sceptical opinion on this. When the Property Owners' Association first met me they felt they would be better going to the Department of Finance officials, but I have changed my views and am convinced of the legitimacy of their points, although more research should be carried out.
I note what the Deputy said but I am informed that section 23 relief, which was one of the breakthroughs in this area in the early 1980s, only allows relief against rental income from other sources. Also, in the OECD group of countries, the provision and operation of property is regarded as a passive activity and not mixed up with trade in the classical sense because there is far less risk.
Amendment, by leave, withdrawn,
Section 8 agreed to.