Rental Income - early payment

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markm030

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Hi, I have a property rented since July 2012. My tenants rent is due on the first of each month for that month however they have been quite good with payment that they have always paid in advance (generally they pay half of it around 15th of the previous month with the other half usually a day or two before the end of the previous month.
My question is does the rent they gave me in December 2012 (Januarys rent payment) need to be reflected in 2012 tax return or 2013?

Also as it was my first year for rental income I don't need to pay anything until Oct 2013. if I pay full tax due for 2012 by Oct 2013 what to i have to pay for 2013 at the same time? I think it is either 100% of 2012 or an 90% of an estimate for 2013. Can someone verify this?
 
Your rental profit or loss is calculated by reference to the rents you are entitled to in any tax year (as opposed to the period to which the income relates).
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Hi mandlebrot

That is very interesting but is it correct?

I presume that if I am entitled to rent but never get it because the tenants leaves, I pay on the rent actually received.


Mark seems to be getting his rent in advance of when he is entitled to it. So he should be including the Dec 2012 payment in the 2013 return

I had mistakenly assumed that it was the same basis as rent paid. Am I right in saying that one can only claim rent as a deduction when it is paid, whether it was due or not?

If my company rents a property from me and is cash rich, can it pay the rent for 2013 in 2012 even though it is not due? The company would get a tax deduction in 2012, but I would not be taxable on it until 2013, as I am not entitled to it until 2013?
 
Brendan Burgess said:
Hi mandlebrot

That is very interesting but is it correct?

I presume that if I am entitled to rent but never get it because the tenants leaves, I pay on the rent actually received.
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AFAIK there's a specific provision allowing a landlord to claim relief on rent not received in that situation Brendan, but it is just that, a relief, so the rental income is still the amount they were entitled to receive (with the relief reducing this figure in arriving at net rental income). I'll root it out and append it...
 
I may be incorrect, but any business that issues an invoice is liable for the tax from the date of the invoice and not from the date the payment is received. Although landlord's do not usually issue invoices, the principle would be the same - when ever the payment is due, not when payment is made.
 
That's certainly the case for VAT, but as with so many things in tax, for income tax it gets a bit more complicated.
 
mandelbrot said:
AFAIK there's a specific provision allowing a landlord to claim relief on rent not received in that situation Brendan, but it is just that, a relief, so the rental income is still the amount they were entitled to receive (with the relief reducing this figure in arriving at net rental income). I'll root it out and append it...
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... and here it is; Section 101 TCA 1997 (quote is from the Notes for Guidance rather than the actual legislation):

"Where a person chargeable to tax by virtue of this Chapter proves that any amount in respect of which he/she is so chargeable is irrecoverable, or that the payment had been waived without consideration and the waiver was reasonably made in order to avoid hardship, the person chargeable is treated as if he/she was not entitled to receive the amount, and all necessary adjustments will be made to assessments, by way of repayment (notwithstanding the general time limit for making a claim for a repayment of tax contained in section 865) or otherwise. However, if the amount is subsequently realised, the person’s liability to tax for all relevant years of assessment is readjusted by additional assessment or otherwise."
 
As to your other question Brendan
Brendan Burgess said:
Am I right in saying that one can only claim rent as a deduction when it is paid, whether it was due or not?
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I don't think so, I would have expected it's on the accruals basis, the same as any other expense, so if you've a full year's rent prepaid then you carry forward it to be expensed the following period and the tax treatment follows the normal accounting treatment.

Brendan Burgess said:
If my company rents a property from me and is cash rich, can it pay the rent for 2013 in 2012 even though it is not due? The company would get a tax deduction in 2012, but I would not be taxable on it until 2013, as I am not entitled to it until 2013?
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I'd say the company will get its deduction in 2013, based on what I said above.

I wouldn't be surprised if Revenue would refuse to accept the bona fides of such a transaction between connected parties.
 
Brendan Burgess said:
If my company rents a property from me and is cash rich, can it pay the rent for 2013 in 2012 even though it is not due? The company would get a tax deduction in 2012, but I would not be taxable on it until 2013, as I am not entitled to it until 2013?
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Normal accounting rules apply for Corporaton Tax, so the rent would be prepaid.

As a related party transaction Revenue may examine the prepayment of rent and treat it as a distribution or annual payment.
 
markm030 said:
Above seems to say the rent was due in December for the following quarter. In my case the rent is due January 1st however it was paid early. The difference in accounting for january 2013 in my tax for 2012 is almost €500.
Should i go to revenue to clarify?
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But once they paid you the cash in December you became entitled to it (since you were in possession of it)...
 
Treat it as a loan from tenants in Dec, which was repaid in jan and then rent was paid in Jan ?

probably not 100% correct :-( but..
 
jpd said:
Treat it as a loan from tenants in Dec, which was repaid in jan and then rent was paid in Jan ?

probably not 100% correct :-( but..
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That's just silly - either do it right, or do it wrong and plead ignorance if it ever comes to light. Trying to concoct a flimsy lie will only insult the intelligence of anyone looking at it.
 
mandelbrot said:
But once they paid you the cash in December you became entitled to it (since you were in possession of it)...
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Is that strictly true that when you are in possession of it you are entitled to it? It seems a bit of a grey area. To be honest if i knew that was the case I would have asked them to hold off paying me until post January 1st!!
 
markm030 said:
Is that strictly true that when you are in possession of it you are entitled to it? It seems a bit of a grey area. To be honest if i knew that was the case I would have asked them to hold off paying me until post January 1st!!
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It may well be a bit grey, but the bottom line is if they have paid it then they've paid it - assuming a normal period of notice they wouldn't be able to compel you to give much/any of it back.

You don't seem to be happy with the answer you've gotten here - why don't you go and phone your tax office and let us know what they say.
 
mandelbrot said:
It may well be a bit grey, but the bottom line is if they have paid it then they've paid it - assuming a normal period of notice they wouldn't be able to compel you to give much/any of it back.

You don't seem to be happy with the answer you've gotten here - why don't you go and phone your tax office and let us know what they say.
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Thanks for this, it is really helpful, I think I will just go and err on the side of caution and include in tax return this October. Will have to pay it at some point anyway
 
Ya and you will only have 11 months rent this year so make sure not to lodge anything in december 13.
 
mandelbrot said:
It may well be a bit grey, but the bottom line is if they have paid it then they've paid it - assuming a normal period of notice they wouldn't be able to compel you to give much/any of it back.

You don't seem to be happy with the answer you've gotten here - why don't you go and phone your tax office and let us know what they say.
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I contacted my local tax office by email and eventually got a reply. Their response is as follows
"The rent can be treated as income for the period in which it was due; the rent you received for January 2013 should be included on your 2013 Income Tax Form 11"

Therefore I think this is confirmation that it is a 2013 tax return payment and not part of my 2012 tax return
 
Glad that this has been clarified.

I would just like to observe that if you had paid the tax in 2012, you might find that in 2013 you would only pay tax on 11 months rental income.

Try explaining that to a possible revenue auditor in 4 or 5 years down the road. They would be very sceptical.
 
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