I am assuming that the Deputy's question on whether the purchase of property for rent is a business relates to the renting of the property, rather than to its purchase. I am advised by the Revenue Commissioners that under existing legislation income tax is charged under Schedule D of the Taxes Consolidation Act (TCA) 1997 in respect of a number of sources of income, which are classified into five separate Cases. Under this provision, rent received by landlords (both individuals and companies) from property in the State is chargeable to tax under Case V, while income from trading activity in the State is chargeable under Case I.
In the case of trading activity, the law provides that taxable income is closely aligned to the accounting profit (subject to certain explicit prohibitions). In the case of rental activity, however, taxable income is the gross rent as reduced by a limited number of specified deductions as set out in section 97 (2) TCA 1997.
These are:
- any rent payable by the landlord in the case of a sub-lease;
- the cost to the landlord of any goods provided or services rendered to a tenant;
- the cost of maintenance, repairs, insurance and management of the property;
- the interest paid on borrowed money used to purchase, improve or repair the property (which, in the case of residential property, is restricted to 75% of the interest and is subject to compliance with PRTB registration requirements for all tenancies that existed in relation to the property in the relevant year); and
- payment of local authority rates.
In addition, wear and tear capital allowances are available in respect of the capital expenditure incurred on fixtures and fittings provided by a landlord for the purposes of furnishing rented residential accommodation. These allowances are granted at the rate of 12.5% per annum of the actual cost of the fixtures and fittings over a period of 8 years.
In relation to the provision of a deduction for local property tax, it is the intention of the Government to introduce such a provision on a phased basis but the manner in which this will happen has not been decided. Any such change would have to be provided for by primary legislation.
As the provisions relating to deductible expenses for rent purposes are specifically provided for in legislation, Revenue cannot allow deductions other than in accordance with the legislation and I cannot require them to do otherwise. Any change to the range of deductible expenses would have to be dealt with by way of changes to the primary law. In that regard, however, apart from the intention to allow for a deduction for local property tax mentioned above, I have no plans to otherwise broaden the range of expenses deductible in relation to rental income or to remove the existing restriction on interest deductibility.
