The Revenue Commissioners Vs T. Collins 2016/581

The Court of Appeal has reversed the High Court’s ruling and found in favour of Revenue’s position that the second home charge, known as the NPPR (non principal private residence) charge, is not an allowable deduction against rental income for income tax purposes.

Background

The NPPR charge was an annual charge of €200 collected by local authorities typically from owners of rental properties or holiday homes and applied for the years 2009–2013. Traditionally, it had been disallowed by Revenue as a deduction.

The taxpayer is the owner of six rental properties and was liable to the NPPR charge on each property. He paid the NPPR charge of €200 per property in 2009 and then sought to deduct the amount paid (€1,200) against rental income taxable under section 97 Taxes Consolidation Act 1997 (TCA 1997). Revenue disallowed the deduction in their tax assessments.

The taxpayer claimed that as per section 97 TCA 1997 the NPPRS charge is an allowable deduction as “any rate levied by a local authority”. As there is no definition of “rate” or “levy” in the TCA 1997 the ordinary meaning of the words should be taken.

The appeal was originally heard by the Appeal Commissioners in May 2013. The Appeal Commissioners found in favour of the taxpayer and concluded that the ordinary meaning of the phrase “any rate levied by a local authority” in section 97 TCA 1997 includes the NPPR charge.

The original appeal was brought to the High Court by way of case stated from the Appeal Commissioners. The High Court (2016 IEHC 748) had determined, contrary to Revenue’s position that the NPPR charge could be taken as a deduction against rental income for income tax purposes. The High Court found that the NPPR was not a central government charge but a local authority charge despite the fact that the framework for the tax had been designed by central government. Section 97 TCA 1997 allows deductions for “any rate levied by a local authority”. The High Court concluded that in the absence of a definition of the term “rate” in the Taxes Acts, the ordinary meaning of this should be examined and was satisfied that the NPPR charge fell within this definition.

Decision

The Court of Appeal focused on answering the single question of whether the NPPR charge is a rate levied by a local authority. The judgement delivered by the Court of Appeal on 19 October 2017 found that the NPPR charge does not fall within the term “rate” or “levy” used in section 97 TCA 1997. According to the Court of Appeal judgement “the NPPR charge was not one which was “levied” by a local authority. Since this latter requirement is a pre-condition for satisfying the deductibility of s.97 (2) (b) of the 1997 Act, it is plain that the taxpayer’s claim for deduction on this ground much accordingly fail”.

The full judgement of the Court of Appeal is available to read on www.bailli.org.

Revenue have yet to issue any response to this Court of Appeal judgement. The treatment for landlords who claimed a deduction for the NPPR charge on the basis of the High Court judgement is not clear. The judgement also ignites the similar debate for Local Property Tax, which is currently not deemed an allowable deduction against rental income.