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Tax Code

Dáil Éireann Debate, Tuesday - 21 January 2014

Tuesday, 21 January 2014

Questions (195)

Terence Flanagan

Question:

195. Deputy Terence Flanagan asked the Minister for Finance if the delay in following through on his commitment to have local property tax as an allowable expense against private rental income is fair and reasonable in view of the unique taxes already imposed on the private rental sector, such as restricting mortgage interest to 75%, continuing to categorise private rental income as unearned, and the follow on from this of effectively being required to pay tax on a loss; and if he will make a statement on the matter. [2398/14]

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Written answers

I am advised by the Revenue Commissioners that at present Local Property Tax (LPT) is not a deductible expense for income tax or corporation tax purposes.

The Thornhill Group, the inter-departmental group, chaired by Dr Don Thornhill, set up to consider the design of a property tax (the "Thornhill Group") recommended that the LPT paid in respect of a rented property should be deductible for income tax or corporation tax purposes, in a similar manner to commercial rates.

The group recognised the considerable pressures on the public finances and the need to bridge the gap between expenditure and revenue, and, for this reason, suggested that consideration be given to phasing in deductibility over a period of years. The group also considered that it was for Government, having regard to the prevailing budgetary situation, to decide on the time span for phasing-in deductibility and what percentage of LPT to allow as a deduction from gross rents for tax purposes.

The Government accepted the recommendation of the Thornhill Group in principle, but has not yet considered the manner or the timing in which this will happen. Any such change would have to be provided for by primary legislation. Allowing LPT as a deductible expense will reduce the tax base. Therefore I must be mindful of the public finances and the many demands on the Exchequer, given the significant budgetary constraints.

I am further 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.

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