Tax Return: What Should You Look Out For?
- Financial Advice
Author: Steven Lynch
Over the last number of years Revenue has curtailed many of the options available to reduce income tax but there are still many reliefs available which can help you to significantly reduce the income tax burden. There are generally two types of tax relief (1) entitled tax relief and (2) investment or incentive type reliefs with the latter usually requiring risk and investment of own funds.
Firstly let’s look at some of the reliefs available which people may be entitled to but which are often forgotten on income tax returns. It is worth noting that millions of Euro remain unclaimed by tax payers each year and that if you feel that you have a number of years of unclaimed tax credits, you are entitled to go back and claim for 4 years.
Tax Relief at the standard rate of 20% may be claimed on medical expenses not reimbursed by insurance providers. The types of medical expenses that can be claimed are:
- Qualifying medical expenses i.e. prescribed on the advice of a qualifying practitioner.
- Drugs or medicines prescribed by a registered doctor
- Qualifying dental expenditure, which must be accompanied by a Form Med 2
Relief at marginal rate of tax (41% for anyone paying higher rate of tax) is available on payments made to a Nursing Home for the full time care of an individual.
A deduction against your Income Tax Liability at the 20% rate. The deduction may be claimed on the 2012 academic year tuition fees paid, including student contribution. The maximum relief available is €7,000 in respect of each course and certain postgraduate courses. Relief may also be claimed for certain training courses in the areas of information technology and foreign languages, with relief applying to fees paid from €315 to a maximum of €1,270 per student.
Home Carer’s Tax Credit
If you are jointly assessed and you or your spouse/ civil partner is a home carer you may be entitled to claim a Home Carer Tax Credit in the amount of €810. The credit may be claimed if care is provided for:
- A child whom you are entitled to claim Child Benefit;
- A person who is permanently incapacitated by reason of mental or physical infirmity and such person normally resides with you for the year or;
- A person aged 65 or over.
Employing a Carer
Tax relief can be claimed if you employ an individual to care for an incapacitated person. This relief cannot be claimed in conjunction with the Dependent Relative Tax Credit or the Incapacitated Child Tax Credit. The relief to be claimed is the cost of employing the carer, subject to a maximum of €50,000, less any amounts recovered from a health or local tax authority.
Tax Relief may only be claimed on payments made under a legally enforceable arrangement for the benefit of the spouse or civil partner. Relief is not granted on payments for children.
Deeds of Covenant
If you have a covenant in place in favour of a permanently incapacitated minor, other than your own child, where the recipient is under 18 years and unmarried, unrestricted relief may be granted against your Income Tax Liability. Relief is also available for covenants in favour of permanently incapacitated adults with restricted relief available on covenants in favour of adults aged 65 and over.
If you are renting accommodation privately you may be eligible for tax relief on part of your rent. You can only claim this relief if you were already renting at 7 December 2010. If you were not renting on that date and you subsequently entered into a rental agreement, you will not be able to claim tax relief on your rent. However, if you were renting at 7 December 2010 you will continue to qualify for this relief even if you enter a different rental agreement after that date. The relief is being phased out and 2017 will be its last year.
Only the rent for private rented accommodation that you use as your sole or main residence will qualify for tax relief. The maximum relief available is €400 for a couple if under 55 years of age or €800 if over 55 years of age.
Investment or Incentive type reliefs
The main forms of relief are : Personal pensions and PRSA’s, Employment and Investment Incentives (EII formerly Business Expansion Schemes) and Film Relief.
Tax relief benefits of a Personal pension or PRSA
- Relief for the contributions you make Tax relief is available for contributions to approved personal pension schemes for annual earnings of under €115,000. The tax relief becomes more generous as you get older, helping to increase the overall value of your investment.
- Tax free growth on your investment The contributions you make to your pension fund is exempt from Irish Tax, meaning you will be able to reinvest non-taxed returns into your fund to generate higher future returns.
- Tax free lump sum upon retirement According to current Personal Pension & PRSA rules, upon your retirement you are allowed to withdraw up to 25% of your accumlated fund, tax free (within a limit of €200,000). You can use the remainder to purchase annuity or keep invested in your PRSA or ARF.
Tax relief on pension contributions~
The tax relief you are entitled to with a Personal Pension / PRSA is age related. The older you get the more tax relief you gain. The below table will help you work out your tax relief entitlements.
Age Amount which qualifies for tax relief
Under 30 years 15% of net relevant earnings
30 to 39 years 20%
40 to 49 years 25%
50 to 54 years 30%
55 to 59 years 35%
60 and over 40%
If you are employed and are part of an occupational pension scheme (GMS Superannuation Scheme is included), it is important that you contact your financial advisor/accountant to determine how much you may invest into each pension scheme as investment into occupational pension scheme take priority over personal pension plans.
Employment and Investment Incentive (EII)
The Employment Investment Incentive (EII) is a tax relief incentive scheme that provides tax relief for investment in certain corporate trades. The scheme allows an individual investor to obtain income tax relief on investments up to a maximum of €150,000. Relief is initially available to an individual at 30%. A further 11% tax relief will be available where it has been proven that employment levels have increased at the company at the end of the holding period (3 years) or where evidence is provided that the company used the capital raised for expenditure on research and development. (This additional 11% will not be subject to the high earners restriction). An investor who cannot obtain relief on all his/her investment in a year of assessment, either because his/her investment exceeds the maximum of €150,000 or his/her income in that year is insufficient to absorb all of it, can carry forward the unrelieved amount to following years.
This scheme is available to the majority of small and medium sized trading companies but as with all investments careful consideration should be given to where your investment is directed.
Section 481 Film Investment Relief
Section 481 of the Taxes Consolidation Act 1997 (“Section 481”) is designed to promote investment in film production companies and provides relief for qualifying individuals and companies for relevant investment in qualifying film production companies.
Under S481 an individual taxpayer may subscribe for up to €50,000 shares in a qualifying film company in respect of the tax year in which the investment is made. 100% of the amount subscribed is available as a deduction from the investor’s total income thereby eliminating the tax liability on this amount.
Before making an investment into any of the above schemes it is important that you speak to your financial advisor to ensure that the investment is right for you.
Steven Lynch can be contacted on (01) 2806414 or at firstname.lastname@example.org
First Printed: Winter 2013