Keep the tax man (legally) at bay
Here, in detail, are some of the areas which could affect you.
You can reclaim money spent on most medical expenses, many of which qualify for tax relief.
You can claim on medical expenses incurred by yourself, your spouse, dependent children or dependent relatives, if you have not already been reimbursed, or are entitled to be reimbursed, by a health board or a medical insurer, such as the VHI or BUPA Ireland.
If you claim relief for one person, the first €125 of expenses incurred in the year of claim is disallowed. If you claim for more than one person, ie a family, the first €250 is disallowed. The balance is repaid at your highest rate of tax.
To simplify the granting of the relief the excess of €125/250 was abolished in the Finance Act 2007. Therefore the total amount of expenses incurred since January 1, 2007 qualifies for relief.
Some areas where you can claim tax relief include: the cost of visits to doctors or consultants, hospital treatment, orthopaedic treatment, maintenance in an approved nursing home, transport by ambulance, the cost of prescribed drugs and medicines, hearing aids, physiotherapy and some dental treatment.
Coeliacs who require gluten-free food can also claim back the expense of that food. You cannot, however, claim for routine dental or maternity treatment, or for routine ophthalmic expenses. Teeth extractions, fillings and denture repair are not covered, and nor are sight tests, spectacles or contact lenses.
You can get some of the costs of a sight test and glasses back if you pay PRSI. Your optician will give you the relevant form for this.
A Revenue spokesman said: “Many people overlook the tax relief available to them on health expenses, not realising that they may be entitled to quite a considerable refund.
“By simply keeping track of your health expenses and making a straightforward claim to Revenue at the end of each year, you can save a lot of money.”
The forms you need are Med 1 and Med 2, available from your local tax office or easily downloaded from the Revenue’s website.
You will need to retain receipts, so get into the habit of asking for receipts every time you or your family attend the doctor or purchase medicines.
You do not need to include these receipts with your tax claim, but they should be retained for six years as they may be required by the Revenue Commissioners for a verification check. It is possible to choose whether to claim the relief in the year that medical expenses were incurred or in the year in which they were paid, if they are different.
Your refund is calculated at your marginal rate of tax, either 20% or 41%. Relief is available irrespective of the relationship between the taxpayer and the subject of the medical expenditure.
Tax relief for medical insurance premiums paid to authorised insurers is granted at source, but employees whose medical insurance premiums are paid on their behalf by their employer, as a benefit-in-kind, will not have been allowed relief at source. To claim the relief due you need to notify your local Revenue office with the relevant details or on your annual tax return.
A person paying for private rented accommodation can claim for rent tax credits. The relief due varies on a person’s circumstances and rent payable for premises outside the State is also allowable.
Rent relief can also be claimed where a child is required to pay rent to their parents. The amounts paid must be rent as the term would normally be understood and not merely a contribution towards the upkeep of the household. However, since January 1, 2007, where the Rent Tax Credit is claimed by a child paying rent to their parents, the parents will not be allowed to claim the Rent-a-room exemption, which is allowed to landlords who rent a room out of their principal private residence and whose gross rental income from this does not exceed €7,620.
This means that the parent will need to declare their rental income on their annual tax return and pay any income tax arising.
Where rent is paid to a landlord not resident in the State, certain obligations may arise for the tenant. If the landlord has an agent in the State to whom the rent is paid, then no obligations arise. If, however, rent is paid directly to the landlord (this includes payment directly into a bank account held by the landlord), then the following actions must be taken. The tenant must deduct 20% of the rent due from the amount paid to the landlord. This 20% must then be remitted to Revenue. The local Revenue office should be contacted to make the appropriate arrangements for the collection of this charge. The remaining 80% of the rent due should be paid to the landlord. At the end of the year the tenant should furnish the landlord with a completed form R185. This form gives details of the amount of the rent paid to Revenue. The landlord can claim this amount as a credit on the annual tax return.
Mortgage interest relief on secured loans is provided at source by your lender. If you are taking out a new mortgage you should complete a TRS1 form. The most efficient way to complete this form is online at www.revenue.ie/trs1. Alternatively the TRS1 may be supplied by your lender or you may request a form from the Revenue TRS Help Line: 1890 463626.
Your lender will then be notified by the Revenue of the correct ceiling and percentage qualifying for your loan, and will then calculate relief due to you based on your interest payments and information supplied to Revenue.
For example, if your relief is €1,600 per year — €133.33 per month (the maximum relief available to a single first-time buyer), your monthly mortgage repayment will be reduced by this amount.
If the interest element of your mortgage repayment is €500, your mortgage lender will reduce your monthly mortgage payment by €100.
This reduction is the same as giving tax relief at the standard rate of tax at 20%.
If at any point you have a mortgage and are in receipt of Tax Relief at Source you should advise your local Revenue Office immediately as you may no longer be entitled to Rent Relief and your Tax Credit Certificate might need to be adjusted.
Unsecured home loans:
Relief for interest payments made on unsecured home loans used for qualifying purposes such as repair or improvement of your sole or main residence can be claimed by review at the end of the tax year.
A person who is a member of a trade union at any time during the year of assessment is entitled to tax relief in respect of their union subscription. The tax relief is €300 a year and is granted as a tax credit at the standard rate. As the standard rate is 20% the value of the tax relief is €60.
The tax relief for 2004 and 2005 was €200 (value €40) each year.
Your certificate of tax credits should include tax relief on union subscriptions, provided you have claimed it.
The tax credit is a fixed figure irrespective of the amount of the union subscription actually paid. Thus, there is no need to supply details of the amount of the union subscription to the Tax Office or seek any written confirmation of membership from the union. The Tax Office will generally, in the absence of any evidence to the contrary, accept individuals’ word that they are trade union members and entitled to the tax relief. The Tax Office can check with the union in case of any doubt.
If you or your spouse are 65 or over in the tax year you can claim the age tax credit.
Deposit Interest Retention Tax (DIRT) is deducted at the standard rate of tax from interest paid on most deposits held by financial institutions such as banks, building societies, the Post Office savings bank and credit unions.
DIRT is deducted from a customer’s deposit interest regardless of whether the customer is actually liable to tax.
At the end of the year some account holders, provided they meet certain conditions are entitled to claim a refund from Revenue of any DIRT deducted during the year.
The Finance Act 2007 introduced new arrangements that allow you to have the interest paid without the deduction of DIRT where you satisfy certain conditions
In order to claim the exemption from DIRT you must complete leaflet DE1 (a declaration form) stating that you or your spouse meet the following conditions:
— Either you or your spouse are aged 65 or over at the time of making the declaration
— Your income does not exceed €19,000 for an individual or €38,000 for a married couple.
The annual exemption limit may be increased if you have dependent children.
Pensions paid by the Department of Social and Family Affairs are taxable and should be declared in your tax returns. Tax is not deducted at source by the department. If a social welfare pension is your only source of income it is unlikely that there will be any tax due as your tax credits or exemption limit will generally cover this income.
If you have an income in addition to your pension, your tax credits will be reduced by the amount of your social welfare pension for PAYE purposes. If you pay your tax under self-assessment your social welfare pension will be included in your notice of assessment.
Tax refunds for bin and service charges can be claimed by an individual or spouse who pays the service charges in full and on time.
A son or daughter who pays the charges in full and on time and is living with an elderly parent on premises can also claim.
The service charges that qualify are charges paid to Local Authorities for domestic water supply, domestic refuse collection, domestic sewage disposal, group water schemes for domestic water supply and private contractors for domestic refuse collection.
The total tax relief that can be claimed from January 1 this year for both fixed charge payments made (including lift charges and pay by weight) and bin tags purchased in 2006 will be subject to an overall limit of €400.
A special tax allowance at the individual’s highest rate of tax (20%/42% in 2006 or 20%/41% in 2007) is available for people who have been unemployed for one year or more and who take up a qualifying job.
The allowance in the first year of employment is €3,810 plus €1,270 for each child, reducing to two-thirds of that amount in year two and one-third in year three.
Have a look at the areas where you could be entitled to tax relief. Did you pay out more than €125 as a single person or €250 as a family in medical and dental expenses? Do you pay bin charges? Are you a member of a trade union? The list goes on. To find out more information either visit www.revenue.ie or take the time to call into your local Revenue office.
Once you have highlighted the areas where you can save money you must then either pick up the relevant forms from your local tax office or log onto Revenue’s on-line PAYE system on www.revenue.ie.
Put an evening aside and begin your calculations. Our guide will take you through your tax credits, reliefs and rates for the year and you can also get more information from your local tax office.
Let’s give you an example of how it works:
Fiona spent €500 on medical expenses last year, none of which were reimbursed. This included drugs prescribed by a doctor, physiotherapy (only allowable on referral from a medical doctor) and some dental treatment.
The first €125 of her expenses is disallowed as she is claiming for one person.
She can either claim for her medical expenses over the internet using Revenue’s PAYE online service or complete a Form Med 1 form, which can be picked up at her local tax office or downloaded from the Revenue website.
Fiona can calculate for medical expenses like so:
€500 that she spent, less the €125 which she must cover herself. This equals €375. She puts this figure down on her form and lets Revenue do the rest.
This process can be repeated in a variety of areas.
Complete the returns form and either send it to Revenue or submit it online.
Sit back, relax and wait for your cheque to come in the door.
