Tomorrow, October 31, marks the deadline for filing income tax returns for 2013, but as with previous years, Revenue grant an extension to filing tax returns in the case of individuals who both pay the appropriate tax and file their return online using Revenue’s ROS system.
This year’s extended deadline is November 13. Interestingly the extended deadline doesn’t apply to partnership returns. Last year it was suggested that the filing deadlines could be moving to mush earlier in the year with dates of June and September suggested.
The rationale behind the suggestion was that the Government would have better information on which to base their budgetary decisions if the filing deadline for income tax returns was in advance of budget day.
Such a change would undoubtedly add to the administrative costs of business and would cause particular hardship in the case of farmers given that harvest income, cattle sales and single farm payments are all skewed into the latter half of the year. Ultimately the decision to bring forward the filing deadline was suspended following significant opposition at both business and accountants. Both the October 31 and the November 13 deadlines are also important as they mark the deadline for making pension contributions to offset 2013 income.
In terms of availing of the opportunity to offset pension contributions made in 2014 against 2013 income, the latter date is applicable in the case of those who satisfied the relevant relevant criteria of paying and filing online. Over recent years, pensions received a lot of bad press, however the tax benefits of making pension contributions have in the most part been retained.
Tax relief is granted at a tax-payers marginal rate of tax, for those earning at the higher rates of tax meaning that the savings from making pension contributions can be up to 41%. Given how valuable this tax relief can be, there are a whole host of rules which limit and restrict the amount of tax savings that can be availed of.
For example, contributions can only be made against earned income, and in the case of employees contributions can only be made with the relevant employer’s scheme if one is in existence.
For farmers with both farm income and an off-farm job, it is possible to choose to make extra contributions to their employers scheme or alternatively to make contributions into their own fund.
The amount of income that can be sheltered by pension contributions is restricted in a variety of ways, firstly only self-employed or earned income can be sheltered by contributions – secondly only a certain percentage of a person’s income can actually be sheltered by pension contributions, thirdly an overall cap of €115,000 applies.
By way of example, a 50-year-old earning €150,000 can only make a maximum pension contribution of €34,500 (being 30% of €115,000). Fourthly, the maximum pension funds that can be accumulated per person after 1 January 2014 is €2m. The percentage of income that can be sheltered by contributions is as follows:
In addition to any tax relief given on the pension contributions, under Irish legislation pension funds benefit from tax free growth. One of the other main benefits is that on retirement it is usually possible for an individual to access 25% of their pension fund tax free, however further restrictions apply here with a maximum tax free retirement lump sum of €200,000.
There are also restrictions on accessing your pension fund – normally an individual cannot access their pension pot prior to their retirement age – although there are exceptions here again.
Furthermore, if an individual’s residual fund after accessing 25% tax free on retirement, is below €63,500, then the individual could be restricted from access their pension pot at their choosing and instead may be forced to access their fund over a long number of years through annuity payments.
All in all, pensions still represent one of the most significant tax planning opportunities when it comes to income tax, the deadline for making contributions to shelter 2013 income is almost upon us. The above information should not be construed as investment advice, independent professional advice should be obtained.
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