An attempt to close off a loophole in the act set up for the Seasides Resort Scheme may have failed because it was too generous, a Revenue Commissioners document indicates.

The resort scheme was set up in 1995 and the following year's Finance Act introduced a measure which "closed off a loophole in the original legislation," according to a 1999 letter from Ms Muriel Hinch, of the Revenue, to a senior official in the Dept of Finance, Mr Liam Murphy.

The April 1996 change meant that capital allowances arising from the development of holiday homes and apartments in qualifying resorts, could be claimed against rental income only and not against income from any source. The qualifying rental income was not restricted to income from properties on the qualifying resorts.

The change was introduced with "very generous transitional arrangements" which had the effect of making the older arrangement apply to any property where "an affidavit could be provided from the relevant local authority verifying that the developer in question had, before 5th April 1996, entered into detailed discussions with the local authority in relation to the development and had provided a detailed plan of the development."

Ms Hinch attached an appendix setting out the number of developments which had been allowed use the pre-April 1996 allowances, by virtue of the production of a local authority affadavit.

The appendix showed there were 29 such cases in 1997, 36 in 1998, and 7 in the first two months of 1999.

Ms Hinch suggested that a reason why the rate of such cases was not dropping could be that "there is a steady supply of sites which were the subject of discussions with the planning authorities prior to April 1996". However, she added that it had been suggested to one inspector of taxes in a qualifying resort "that contracts have been backdated in a number of instances in order to avail of the transitional arrangements."

A spokesman for the Revenue said that further inquiries failed to find any evidence that this was the case.