A tax loophole in relief on student accommodation could have resulted in a massive loss of tax to the Revenue if it had been kept open, according to the Department of Finance. The avoidance schemes were closed off by the Minister for Finance, Mr McCreevy, yesterday.
His action was prompted by one particular scheme, where investors were granted interest-free loans to purchase student accommodation properties qualifying for tax relief.
They then ensured the rent from the property accrued to bodies that enjoyed or obtained charitable status for tax purposes and would be exempt from tax in respect of rental income.
Several special-purpose companies were set up and a complex series of financial transactions made to avoid paying tax due on the rental income, according to the Department.
The Minister said these avoidance schemes would be closed off to individual investors who have not entered into final binding contracts before yesterday.
The change will be included in the Finance Bill 2003, which will also legislate against similar abuses of other tax incentive property schemes such as the urban, town and rural renewal schemes.
Mr Brendan Howlin, Labour Party finance spokesman, has called on the Minister to make a detailed statement on the extent of the losses to the Exchequer arising from the tax loophole and when the irregularities first came to the attention of the Minister and the Revenue Commissioners.
Mr Howlin said the potential loss clearly goes well beyond the area of student accommodation.
"People who pay their taxes week in and week out, and who do not have access to these type of schemes, have a right to know just what has been going on," Mr Howlin said.
A spokesman said the Department of Finance could not comment on specific cases.
He said the crackdown on these abuses would have no effect on legitimate student accommodation schemes.
The tax relief, introduced under section 50 of the Finance Act 1999, was designed to ease the accommodation crisis for students by encouraging the provision of housing for third-level students at or within an eight kilometre radius of campus facilities.
Under the relief, investors in rented residential student accommodation are allowed to write off all of the construction, conversion or refurbishment cost against the rental income from the student apartment and against all other rental income from other lettings in the Republic.
The investor must own the apartment for 10 years to avoid a clawback on the tax relief and the properties must be certified by a third-level institution in accordance with Government guidelines.
A recent survey indicated that more than 3,300 bed spaces had been provided as a result of the tax incentive, with a further 14,500 bed spaces planned.
