Noel Grealish (Galway West, Independent)
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To ask the Minister for Finance if he will consider whatever legislative or Ministerial Order changes are required to allow individual private landlords to be considered as operating a business, rather than being treated as recipients of unearned income; and if he will make a statement on the matter. [4172/13]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that under existing legislation income tax is charged under Schedule D of the Taxes Consolidation Act 1997 in respect of a number of sources of income, which are classified into five separate Cases. Under this provision, rent received by landlords (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. To make the change suggested by the Deputy, that is to treat the generation of rental income as a trading business, would require a legislative change to effectively reclassify rental income as trading income for tax purposes. A major consequence of such a move would be the removal of the current ring-fence on rental losses which restricts the set-off of such losses solely to rental profits of future years. Allowing such losses to be set side-ways against other income of landlords would reduce overall tax receipts.

Noel Grealish (Galway West, Independent)
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To ask the Minister for Finance if he will consider removing the interest restriction applying to private landlords who have taken out loans for the provision or upgrading of private rental property, in view of the fact that it can give rise to a taxable gain on a loss; his views that the restriction is unfair, especially as it only applies to private landlords and not to those operating formal businesses; if its continued application since its introduction in the April 2009 supplementary budget can be justified on grounds of tax inequality, notwithstanding that the estimated cost of removing the restriction is €95 million per year; and if he will make a statement on the matter. [4173/13]

Michael Noonan (Limerick City, Fine Gael)
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This question relates to the restriction on the deductibility of interest in computing taxable rental income from residential property: in the case of interest accruing on or after 7 April 2009 (insofar as it would otherwise be allowable) the deduction available to the landlord is limited to 75% of such interest. For the purpose of this reply, I am treating the reference to “formal businesses” as being a reference to trading businesses. In this regard, I am advised by the Revenue Commissioners that there is no inherent right to interest deductibility in the case of investment property and this is reflected in the structure of the tax code. Unlike in the case of a trading business, where the law provides that taxable income is closely aligned to the accounting profit (subject to certain explicit prohibitions), for landlords, whether individuals or companies, the taxable amount is the gross rent as reduced by a very limited number of specified deductions set out in section 97 (2) TCA 1997. While those specified deductions have generally included interest on borrowed money to purchase, improve or repair the rented premises, that entitlement has been removed or restricted on a number of occasions. An example was the interest restriction imposed between 1998 and 2002 in respect of certain rented residential property borrowings (following the Bacon reports).