Revenue Commissioners
Non-Resident Landlords - Tax Deductions
Dealing fairly with people involves accepting that rules and regulations should not be applied so inflexibly or rigidly as to create inequity. The Revenue Commissioners recognised this in its final response in the case of a tenant who was unaware that she should have been withholding tax from rent paid to a non-resident landlord.
Since 1969 it has been a requirement of Irish tax law that a person paying rent to a non-resident landlord should deduct income tax at the standard rate from the gross rental income and pass on the deduction to the Revenue Commissioners. This form of withholding tax applies both in the case of residential and commercial property rental. My complainant, probably like the vast majority of people, was quite unaware of this provision. In early 1998 she became aware of her possible entitlement to income tax relief on rent paid and she applied to the Inspector of Taxes for this relief. The Inspector notified her that she was due a tax refund in respect of rent paid totalling �265 for the years 1996/7 and 1997/8. However, the Inspector also informed her that, as her landlord resided outside the state, she (the tenant) should have been withholding income tax from the rent being paid. Where such tax is not withheld, the tenant is liable for payment of the tax instead. Accordingly, the Inspector told my complainant that she owed an amount of �801 for the years 1996/7 and 1997/8 which, after deduction of the tax relief otherwise due to her, meant that she owed a net amount of �536.
The woman subsequently complained to my Office on the grounds that the Inspector’s decision was inequitable and also on the grounds that the Inspector had failed to explain fully the basis for the decision. On the former point, she felt it unreasonable that she should be penalised for her ignorance of a fine point of tax law; and on the latter point, she claimed the information leaflet on the matter - which she did not see until after the event - did not make clear that the tenant becomes liable where he or she fails to withhold tax from the rent payments. My complainant’s sense of grievance was added to by the fact that her sister, with whom she co-rented the house, and who applied at the same time and giving the same information, was given the full tax relief on rent paid. In responding to the complaint, the Revenue Commissioners decided to waive the outstanding amount of �536 on the grounds that my complainant clearly was not aware of the requirement to deduct tax from the rent payments and also because payment of the tax would be a financial burden on her. All of this was contingent on my complainant complying with the tax requirement in the future - in fact, she found alternative accommodation before the case was resolved.
Whereas I was pleased with the ultimate outcome in this case, it does raise the general issue of whether it is reasonable to expect ordinary residential tenants to act as tax collectors in the case of non-resident landlords. I appreciate that the provision may have validity in the case of lettings to commercial or business organisations. But is it reasonable to expect a residential tenant, who may be elderly or have little experience of tax affairs, to be either aware of, or have the capacity to manage, this type of requirement? Indeed, tenants may not even be aware that the landlord’s “usual place of abode is outside the State” (which is the technical term used in the law). These are questions which might be considered in any review of the current legislation.