Written answers

Wednesday, 17 September 2014

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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207. To ask the Minister for Finance if the rent a room scheme should be altered in order that only income above the €10,100 amount should be taxed and not the whole amount if the income exceeds the €10,100 amount. [33293/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Section 216A of the Taxes Consolidation Act 1997 provides for the rent-a-room scheme. This scheme was introduced in Finance Act 2001 as an incentive to encourage individuals to let rooms in their principal private residence in order to bring about an increase in the availability of rental accommodation, particularly for the student sector.

The scheme provides an exemption from Income Tax, PRSI and USC on rent received where a person rents out a room or rooms in his or her principal private residence and the rent received does not exceed €10,000 per year. This was increased from €7,620 in Budget 2008. 

In order to qualify for the exemption, it is necessary for the residential premises to be situated in the State and occupied by the individual as his or her sole or main residence during the tax year.

The relief only applies to individuals. It does not apply to companies or partnerships. In addition, an individual cannot avail of the relief in respect of payments for accommodation in the family home by a child of the individual. There is no restriction where rent is paid by other family members, for example, nieces or nephews.

The latest figures available relate to the tax year 2012 when the cost of the relief was estimated at €5.9 million and was availed of by 4,073 claimants. This equates to rental income of €22.9 million. The corresponding 2011 cost was €5.6m and was availed of by 3,920 claimants.  

An exemption from tax of €10,000 equates to rent received of approximately €833 per month. Figures provided by the Revenue Commissioners indicate that the majority of claims relate to rent received of less than €4,000 per annum or €333 per month:

Rent ReceivableNumber
€9,001 - €10,000512
€8,001 - €9,000360
€7,001 - €8,000441
€6,001 - €7,000332
€5,001 - €6,000655
€4,001 - €5,000569
€4,000 & lower1,204
Therefore, to raise the limit could be unwarranted. However, as with all tax reliefs, the rent-a-room scheme will be considered as part of the forthcoming Budget and Finance Bill.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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209. To ask the Minister for Finance in relation to Section 18 of the Finance Act 2013 which amends Section 87B of the Taxes Consolidation Act 1997, in the case of sole traders who receive a write-down on development loans or go bankrupt, if it is intentional that the full amount of the write-off now becomes taxable at 55% in the year of the write-off; and if he will make a statement on the matter. [33302/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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One of the main purposes of section 18 of the Finance Act 2013 is to correct an anomaly which, up until that time, allowed land dealers and developers to potentially obtain a tax deduction in circumstances where they suffered no real economic loss. The provision applies only in very specific circumstances by effectively clawing back a tax deduction, which the taxpayer obtained, arising from the decline in land and property values where the loans taken out to acquire this land and property have been written down by the lending institution and are no longer required to be repaid.  This debt write down may have arisen through negotiation with the taxpayer, as a result of bankruptcy or personal insolvency or by virtue of the terms of the loan agreement itself. In these circumstances, it is the lending institution, not the borrower, who has actually suffered the loss.

 The provision only applies to those engaged in the trade of dealing in or developing land. It has no relevance to loans used to purchase a person's principal private residence or to landlords, in respect of rental properties, because no tax deduction was available to these people in the first place. It only applies to loans used to acquire land held as trading stock.  Where a land dealer acquires land with borrowed money and the land subsequently falls in value, the land dealer is entitled to a deduction equal to the fall in value, in computing the profits of the landing dealing trade. This deduction can reduce the taxable profits of the trade.  Where it results in a tax loss, that loss can be carried forward against future profits of the same trade or set off  for tax purposes against other income in the year the loss arises. However, where the land has been purchased with borrowed money and the loan is subsequently written off, the trader has not suffered any economic loss. Section 18 deals with this by treating the dealer as having received an income equal to the write down.  The effect of this is to cancel out the deduction already claimed. This is not an additional charge but a clawback of a relief which is no longer justified.  Where the fall in the value of the land has resulted in a trading loss which has been carried forward by the taxpayer, the loss will cancel the charge imposed by section 18 and no further tax should arise. However, if the deduction has been used to reduce tax on other income of the taxpayer in previous years, then tax will arise. This represents a clawback of a relief granted in respect of a tax loss where there is no economic loss. The rate of tax which will apply will depend on the person's level of income in that year.

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