Paschal Donohoe (Dublin Central, Fine Gael)
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To ask the Minister for Finance if he will outline the changes that have been made to the tax treatment of rental income; if a distinction can be made between rental income and rental profit for calculation of tax liabilities; and if he will make a statement on the matter. [16429/13]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that there have been several changes over the years to the tax treatment of rental income. However, for the purpose of this reply, I am assuming that the Deputy’s interest relates to the most recent changes that were introduced in Finance Acts 2009 and 2013.

Finance Act 2009 introduced a cap of 75% on the amount of interest on loans used to purchase, improve or repair rented residential property, that can be deducted in computing rental profit for tax purposes. The restriction applies to interest accruing on or after 7 April 2009. It does not apply to loans in respect of rented commercial property.

The recent amendment in Finance Act 2013 provides that, while income chargeable to tax under Case III of Schedule D (which includes income arising outside the State such as trading profits, pensions, rents and dividends) is deemed to issue from a single source, the single source provision cannot be taken to mean that foreign rental losses are to be included in the computation of such income. This change was designed to ensure that the recipient of rent from property lettings outside the State cannot rely on the single source provision to offset foreign rental losses against foreign non-rental income. The offset of losses in these circumstances would disadvantage a recipient of rent from Irish property, as Irish rental losses may be offset against Irish rental profits only. In that regard, I am also advised by the Commissioners that the Revenue’s published practice in relation to the treatment of foreign rental losses, which allows such losses to be set against foreign rental profits, remains unchanged.

I am further advised that rental profit for tax purposes is the gross rental income less allowable expenses incurred in earning that rent. In computing the amount of rental profit, only those deductions that are specified in section 97(2) of the Taxes Consolidation Act 1997 are allowable as deductions against the gross rental income. The main deductible expenses 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.