In an earlier edition of our tax alerts we mentioned the Revenue Commissioner’s ('Revenue') continued concentration on the tax affairs of landlords. In this article we will examine some of the main issues that we have noticed Revenue are focusing on.

From my experience Revenue seem to be targeting part time landlords who also have other income from either self-employment or being employed. Revenue’s assumption has been that some of these landlords are not being fully compliant in respect of declaring their rental profits. The major points of contention can be broken down as follows:

• Under declaration of rental income
• Interest deductibility
• Short term lets

Under declaration of income

When Revenue started this project they initially looked at the PRTB register and compared this list of landlords with their income tax returns. If the landlords were showing no rental income then they were flagged for an enquiry. Revenue also have mechanisms to go through rental websites, newspapers etc to see who and what properties are being rented. They will also look at local property tax records to see how many houses an individual owns. This means that if you have a rental property and do not declare it in your tax return Revenue will eventually figure it out.

We then have the situation where, while a person is declaring the income, Revenue believe they have under declared this income, i.e. they have not taxed all their rental income. To investigate this they will look at your bank accounts and rent receipt book to see if all the money coming in from the rents is being taxed.

In certain cases a landlord may receive cash and may not declare it. If Revenue believe this is the case they have been known to call to the rental property in question and interview the tenants. The use of this mechanism is relatively new and should be noted by landlords.

Interest deductibility

You may not be aware of the fact that you are only allowed a deduction for your mortgage interest payments where you have the tenants registered with the PRTB. This registration needs to be kept up to date when new tenants enter the property. Revenue do allow the backdating of PRTB registration, however there is an increased cost for this. Not having your property registered with the PRTB will increase the likelihood of an audit.

Short term letting

Some landlords may have holiday home type property in various parts of the country. The majority of times these properties are rented to tenants albeit as short-term lettings. The landlord pays tax on the rents and claims a taxable deduction for the mortgage interest repayments. As long as these are bona fide rental properties we do not see a problem with the above. What makes it bona fide?

• Where does the income from the rent go?
• Is the property advertised?
• Do you personally use the property?

In a small number of cases individuals are not satisfying the bona fide test and as a result Revenue are not allowing a deduction for mortgage interest, nor are they allowing other rental expense deductions.

What Landlords need to do

The above is not intended as scare mongering but to give the reader an education of where the Revenue are coming from. One important point to take from this is that if Revenue come asking questions in relation to rental properties it is up to you to prove your innocence (for want of a better word). If you are unable to prove what you are telling Revenue then Revenue will assume it is incorrect. This is the case for all dealings with Revenue and should be noted by tax payers.

We would advise landlords who may not be fully compliant to contact their tax advisors with a view to tidying up their affairs.

If you have any queries on any of the above don't hesitate to contact us on 021 4641400 or email info@quintas.ie