John Browne (Wexford, Fianna Fail)
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198. To ask the Minister for Finance if section 97(2) of the Taxes Consolidation Act, 1997, where it refers to services rendered to a tenant, should apply in the case of local property tax and any other local charges which may be introduced in the future, as such services are for the benefit of tenants and not landlords; the difference between local property tax and payment of local authority rates in the same section of the Act, particularly as local authorities now have the power to vary the local property tax rate; and if he will make a statement on the matter. [36893/14]

Brian Walsh (Galway West, Independent)
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201. To ask the Minister for Finance his plans to implement a recommendation of the Thornhill report that the local property tax should be a deductible expense in calculating a landlord’s taxable rental income; and if he will make a statement on the matter. [36952/14]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 198 and 201 together.

I am advised by the Revenue Commissioners that section 97(2) of the Taxes Consolidation Act 1997 specifies the expenses that a landlord is entitled to deduct from gross rent in computing rental profits for tax purposes. Paragraph (c) of subsection (2), which refers to services rendered, reads as follows:

"(c) the cost to the person chargeable of any services rendered or goods provided by such person, otherwise than as maintenance or repairs, being services or goods which-

(i) in the case of a rent under a lease, such person is legally bound under the lease to render or provide but in respect of which such person receives no separate consideration, and

(ii) in any other case, relate to and constitute an expense of the transaction or transactions under which the rents or receipts were received, not being an expense of a capital nature;".

As the payment of Local Property Tax (LPT) under the Finance (Local Property Tax) Act 2012 (as amended) by the "person chargeable", i.e. the landlord, is not a service rendered by that person, a deduction for LPT is not allowable under section 97(2)(c). In the context of property rental, examples of such services would include garden maintenance, laundry or house cleaning. While it is not possible to be definitive as regards local charges which might apply in the future, it is difficult to envisage that their treatment under section 97(2)(c) would be any different to the treatment which applies to LPT under that provision.

I am also advised that LPT is an annual self-assessed tax on residential properties in the State and is administered by the Revenue Commissioners in accordance with the Finance (Local Property Tax) Act 2012 (as amended) and that the reference to local authority rates in section 97(2) is, following the removal of rates on domestic property in the late 1970's, a reference only to rates on commercial property payable to local authorities in accordance with the relevant local government legislation. Notwithstanding that local authorities can, with effect from 2015, vary the rate of LPT in accordance with section 20 of the LPT legislation, LPT is not a rate levied by a local authority and is, therefore, not deductible from gross rents under section 97(2).

As regards the recommendation of the Thornhill Report that the local property tax should be a deductible expense in calculating a landlord's taxable rental income, the Government has agreed in principle to accept this recommendation. The Thornhill 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 Thornhill 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 on what percentage of LPT to allow as a deduction from gross rents for tax purposes.

As the Deputy will appreciate, it would not be appropriate for me to comment on matters that may or may not feature in the Budget.