Council faces up to €3m VAT loss on homes

A VAT regime introduced this month will mean a Dublin local authority will face a bill of up to €3 million when it sells 140 affordable homes, councillors will be told this evening.

Dún Laoghaire-Rathdown County Council has already lost money on the homes, which it purchased from developers at the height of the boom.

Despite cutting the price of the homes, it could not find buyers for them under the affordable housing scheme, and decided to sell them on the open market earlier this year. Spread over eight schemes, the majority of the affordable units are in The Belfry and Belarmine Plaza on the Enniskerry Road in Stepaside, and the Gallops in Sandyford.

Under new regulations, the council will be required to charge 13.5 per cent VAT on the homes. Because of the housing market depression, the council will not be passing on the VAT to purchasers, but neither will it be able to claim it back through the Revenue.

VAT credits can only be reclaimed on purchases after July 1st this year. The council bought all the 140 homes before that.

In a report circulated to councillors and to be discussed at tonight’s council meeting, acting head of finance Helena Cunningham said the sale of the homes would result in a “VAT exposure” of between €2.3 million and €2.9 million, depending on the final sale price of the units.

She said the issue had been raised with the Department of Finance. “Further representation will be made by the council, but there is no indication that any transitional arrangements will be agreed to,” she said.

The changes in the VAT regime were introduced after private car-park operators complained they had to charge VAT on parking, while local authorities operating off-street parking were exempt.

Last year, the European Court of Justice ruled Ireland had not implemented an EU directive on VAT requiring that if a public body carries on activities also being carried on by a private competitor, the public body must charge VAT.

Following the ruling, the new regulations were introduced under the Finance Act 2010.

Local authority activities that now incur VAT include household waste collection, recycling, off-street parking, grave openings and car removal, Ms Cunningham said.