Builders ready to reap €1bn tax windfall
Falling property values are set to cost the Revenue Commissioners a further €1bn.
A little-known Revenue provision has revealed that property developers are entitled to "refunds on their tax payments" on the basis that the value of land or property stocks has reduced.
This could mean a windfall for developers, who have seen the value of their land-banks plunge in the past year.
Every November developers pay preliminary tax on anticipated profits over the next tax year.
On most occasions the payment closely matches profits that are actually made, but if profits are lower than anticipated then, like all other tax-payers who have overpaid, they are entitled to a rebate.
Finance Minister Brian Lenihan has confirmed that developers are entitled "to claim a refund of tax paid as a result of losses arising from a reduction in the value of lands or property''. Huge tax refunds may also arise in the case of developers "who go out of business [and] are claiming terminal tax relief''.
Labour Party TD Johanna Tuffy described the tax rebate as the developers' latest "each -way bet''.
"The taxpayer is bailing out developers who overvalued their property portfolios. It is yet another example of how, like banks, developers never seem to suffer the consequences of their acts.''
Mr Lenihan said that developers seeking this reduction will "need to be engaged in the trade of land dealing and development ... so that any land or property is part of a stock in trade''.
The provision, however, only applies to those whose main trade is the development of property, and institutions such as banks or pension funds who have invested in properties cannot "use the write-down of the value property investments'' for tax purposes.
Despite this limitation, as Irish banks prepare to write off an estimated €10bn of bad debts in Irish property, the windfall, allied to the overall collapse in the value of property and land, could have a cataclysmic effect on tax receipts.
The Revenue has already written down its estimation of the tax-take for the final quarter of the year by €3bn.
However, as increasing numbers of developers are being advised to write down the value of their land banks and property assets by their auditors and financial advisors, it is believed the amount of tax that cash-strapped developers will seek in rebates could be as high as €1bn.
This could also have the unforseen result of decreasing the amount of preliminary tax being paid on anticipated profits in 2009 to even lower levels.
Up to now the provision has not been well known for the simple reason that the soaring rate of land over the last decade meant it was almost impossible to lose money on property.
- JOHN DRENNAN
