Noel Grealish (Galway West, Independent)
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105. To ask the Minister for Finance his views on whether buying houses or apartments for rent is a business; if he will ensure that all the normal and legitimate expenses of a business are therefore available for landlords, including restoration of 100% of mortgage interest payments and the immediate application of local property tax as an expense; if he can require the Revenue Commissioners to include particular types of business expense on the Revenue schedule of allowable expenses; and if he will make a statement on the matter. [55208/13]

Michael Noonan (Limerick City, Fine Gael)
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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.

Kevin Humphreys (Dublin South East, Labour)
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106. To ask the Minister for Finance if a business can deduct the costs of petty theft of stock from a store against a tax bill; the rules for same; and if he will make a statement on the matter. [55234/13]

Michael Noonan (Limerick City, Fine Gael)
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I am informed by Revenue that the starting point for determining the taxable profits of a business is the accounting profits of that business, calculated in accordance with Generally Accepted Accounting Practice (GAAP ). Under GAAP, stock must be valued at the lower of cost or net realisable value. Accordingly, stock which has been stolen will have a Nil valuation and as the cost of acquiring such stock will be allowed as a deduction a business will obtain full relief for any stock that is stolen. A Revenue official, in some instances, may need to be satisfied that a low gross profit rate is correctly attributable to the theft of stock and in this regard it may be necessary to examine stock sheets, books and records and the steps taken to recover the alleged theft of such stock.

There are no VAT implications for a business relating to stock thefts and, where a business has incurred VAT on the acquisition of stock, the business is entitled to claim a credit for the VAT element of such purchases notwithstanding that the stock may subsequently be stolen.