How can I incur some income tax?

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dub_nerd

Registered User
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This is not a "problem" as such (or at least it's one plenty of people would like to have, so I count my blessings).

I've given up work for a while, in order to study for a couple of years. I earn no income from employment, but I've a fair bit of money saved and am earning interest. I pay health insurance, and paid premiums in December for which their was tax relief at source. Last year I did pay PAYE, so I presume the TRS can be offset against that. But this year I will have no income tax, so can't use any tax relief or credits.

Is there anything I could do that incurs income tax but that isn't employment? For instance am I right in thinking that dividends from shares are taxed as income, whereas profits from shares are CGT? I've no experience of share trading, but would be willing to learn. Only interested in enough income to use up tax relief such as medical insurance, and maybe some charitable giving. I'd be happy to divert some money currently on deposit, since DIRT is comparatively expensive when deposit interest is your only income.
 
Well first things first - you're failing to understand how Tax Relief at Source works! Relief at source means the amount you pay is NET. So if your VHI premium is €800, this is the net amount after 20% TRS. The actual premium is €1k.

TRS applies regardless of the income tax status of the individual.

Where your point is valid is that you aren't using up your €1650 of personal tax credit every year. So if you plan to use dividends to use up this you might move some of your savings from deposits bearing DIRT at 33%, to equities paying high dividends - you would suffer 20% dividend withholding tax up fron, but this would be repayable on filing your tax return after year end.

In doing that you'd need to ensure that the return from the equities (dividends + share price movement), and be willing to incure the additional risk of equities relative to deposits.
 
wouldn't worry to much about it Dub Nerd, there is bound to be a tax on breathing or existing sooner rather than later
 
Perhaps you should consider paying voluntary contributions towards your State pension while you are out of work if you are not already doing so
 
mandelbrot -- thanks for the info, but now I am very confused. I assumed I would have to tell VHI that I'm not earning so I am not entitled to the TRS. Or that I would have to declare the insurance premiums to Revenue on a form 11, and that they would recover the TRS from me. You're saying that I get the TRS and just shut up about it, because I'm entitled to relief on tax that I don't pay?

Black Sheep -- this is another issue I am unsure of. I will be paying PRSI on deposit income since Revenue will count me as self-employed. I am not sure whether that sort of PRSI counts as Class S contributions toward State pension.
 
Just bumping this thread to see if anyone can answer the question about TRS on medical insurance payments. If you do not pay income tax, are you entitled to the TRS, and if not, how would either the insurer or Revenue know?

Just on a related note, I see that the online Form 11 for 2012 still has a section for Medical Insurance paid by your employer, but none (as far as I can see) for insurance paid by you (other than if you made a contribution on top of your employer's). So there doesn't seem to be an obligation to report what you paid. (Just as a a matter of interest -- why does employer's payment appear either ... I thought BIK was charged at source now too).
 
I've already answered it for you! The relief is granted at source as per this, if you want to broaden your understanding: [broken link removed]

You'll see it makes no mention of any interrelationship between the income tax position of the person paying the premium, or those insured under the policy. Think about family policies - part of the cover is for children who have no income tax liability, but the relief makes no distinction.
 
The reason the amount paid by an employer has to be disclosed on a Form 11 / 12, is because the individual hasn't actually received their TRS in that situation. They get it by claiming it on the amount they've been subjected to BIK on, which is the Gross premium.
 
mandelbrot said:
I've already answered it for you! The relief is granted at source as per this, if you want to broaden your understanding: [broken link removed]

You'll see it makes no mention of any interrelationship between the income tax position of the person paying the premium, or those insured under the policy. Think about family policies - part of the cover is for children who have no income tax liability, but the relief makes no distinction.
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The point about children is irrelevant -- the relief is for the person paying, not necessarily the insured person, who may be a relative or dependent.

I'll take your word that you know what you are talking about, but is it not a bit bizarre to call it "tax relief" when the payee may not be paying any tax to be "relieved of". Why don't they just call it a 20% discount paid for by the State?
 
As mandelbrot says you are entitled to it, the same situation arises with mortgage interest relief, it is given at source so whether you pay tax or not does not matter, yes it's odd but at least it is to our benefit for a change.
 
dub_nerd said:
I'll take your word that you know what you are talking about, but is it not a bit bizarre to call it "tax relief" when the payee may not be paying any tax to be "relieved of". Why don't they just call it a 20% discount paid for by the State?
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The same can also be said of TRS on mortgage interest; it's a state subsidy by another name.

You don't see revenue going after the thousands of unemployed people who are now paying no tax but receiving TRS on their mortgages.
 
Yes, true, but again, whether Revenue goes after people doesn't necessarily bear on whether one is liable. For instance, a couple of years allow while the Health Levy was in force, people who returned Form 11s found themselves paying the levy on deposit interest, even though they were no more or less liable than everyone else -- those not paying it were just fortunate not to be required to make a return. By the same token it'd be good to be sure that the situation with the TRS is the law, as opposed to just current Revenue practice which might change as the mood takes them.
 
dub_nerd said:
Yes, true, but again, whether Revenue goes after people doesn't necessarily bear on whether one is liable. For instance, a couple of years allow while the Health Levy was in force, people who returned Form 11s found themselves paying the levy on deposit interest, even though they were no more or less liable than everyone else -- those not paying it were just fortunate not to be required to make a return. By the same token it'd be good to be sure that the situation with the TRS is the law, as opposed to just current Revenue practice which might change as the mood takes them.
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It IS law!!! Read the manual I linked, and read the Section of the Act. I'm not going to get into a big thing about it - do the reading yourself and if you think you can see how a taxpayer without a liability can become liable, I'm all ears.
 
mandelbrot said:
It IS law!!! Read the manual I linked, and read the Section of the Act. I'm not going to get into a big thing about it - do the reading yourself and if you think you can see how a taxpayer without a liability can become liable, I'm all ears.
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I read the thing you linked and it doesn't say, one way or another. Unfortunately I don't know how to access the Act. (Is the consolidated tax code available online in general? -- I have a feeling I'm going to need it for other things, although the quotes I've seen from it before are fairly impenetrable). I did find an old thread about MIR which was also operated via TRS, with a link to a note on the Revenue site which says "You do not have to be earning a taxable income to qualify for mortgage interest relief". I'm happier, having seen this precedent.
 
dub_nerd, Mandelbrot is quite correct, but forget that for a moment and think about what you're suggesting:

Say your gross premium is €1,000, tax relief on that is 20%, ie €200 and you pay €800 to the insurer. You're concerned that Revenue will say "hold on that guy hasn't paid any income tax let's get that €200 back".

So, to prevent that you want to generate enough income to pay tax against which you can offset the tax credit. Say, then (for argument's sake) you earn €1,000 taxable income and pay 20% tax on that, or €200, to Revenue. Either way you're still paying €200 to Revenue!!

But luckily, Mandelbrot is correct and the net premium is what you pay regardless of your tax status.

You should be more concerned about losing your personal tax credit, which can be used to reduce tax on income of €8,250 to nil, compared with DIRT at €2,700 on the same amount of income.
 
Thanks smeharg, I accept Mandelbrot is right. (I know he/she probably thinks I'm being a pain not just taking their word for it, but it is my tax, and my responsibility if I get it wrong).

Your point about paying the 200 quid regardless is only correct if the 1,000 of taxable earnings was money that I only earned in order to soak up the tax relief. But, in fact, it's money that I'm earning anyway and paying 33% DIRT on, so the 20% would be a much cheaper rate. And yes, your point about the personal tax credit is spot on. Thanks for the info.
 
dub_nerd said:
Thanks smeharg, I accept Mandelbrot is right. (I know he/she probably thinks I'm being a pain not just taking their word for it, but it is my tax, and my responsibility if I get it wrong).
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dub_nerd said:
Your point about paying the 200 quid regardless is only correct if the 1,000 of taxable earnings was money that I only earned in order to soak up the tax relief. But, in fact, it's money that I'm earning anyway and paying 33% DIRT on, so the 20% would be a much cheaper rate. And yes, your point about the personal tax credit is spot on. Thanks for the info.
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Just to draw a line under this for you Dub_Nerd (and I think you've proven the aptness of your username here!):

S.470(2) states (I'm parsing it to just the relevant bits):

"Subject to subsection (3), where for a year of assessment -
(a) an individual... has made a payment to an authorised insurer under a relevant contract, then, the income tax to be charged on the individual for the year of assessment... shall be reduced by an amount which is the lesser of -
(i) an amount equal to the appropriate percentage (20%) of the relievable amount in relation to the payment, and
(ii) the amount which reduces that income tax to nil."

S.470(3) states "Where, on or after 6 April 2001, an individual makes a payment to an authorised insurer in respect of a premium due on or after that date under a relevant contract for which relief is due under subsection (2), the individual shall be entitled to deduct and retain out of it an amount equal to the appropriate percentage, for the year of assessment in which the payment is due, of the relievable amount in relation to the payment."

So, what does all that mean in very simple English?

Prior to the insertion of Subsection 3, a person could only obtain relief to the extent that they had an income tax liability to use it against. Since 6/04/2001, the person paying for the insurance is entitled to deduct and retain the standard rate of tax from the gross premium.

I hope that clears it up for you - if it doesn't I give up!
 
mandelbrot said:
Just to draw a line under this for you Dub_Nerd (and I think you've proven the aptness of your username here!):

S.470(2) states (I'm parsing it to just the relevant bits):

"Subject to subsection (3), where for a year of assessment -
(a) an individual... has made a payment to an authorised insurer under a relevant contract, then, the income tax to be charged on the individual for the year of assessment... shall be reduced by an amount which is the lesser of -
(i) an amount equal to the appropriate percentage (20%) of the relievable amount in relation to the payment, and
(ii) the amount which reduces that income tax to nil."

S.470(3) states "Where, on or after 6 April 2001, an individual makes a payment to an authorised insurer in respect of a premium due on or after that date under a relevant contract for which relief is due under subsection (2), the individual shall be entitled to deduct and retain out of it an amount equal to the appropriate percentage, for the year of assessment in which the payment is due, of the relievable amount in relation to the payment."

So, what does all that mean in very simple English?

Prior to the insertion of Subsection 3, a person could only obtain relief to the extent that they had an income tax liability to use it against. Since 6/04/2001, the person paying for the insurance is entitled to deduct and retain the standard rate of tax from the gross premium.

I hope that clears it up for you - if it doesn't I give up!
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Believe it or not, I'm well able to understand the text -- but you'll appreciate it's the first time I've seen it. Is there a link to where it can be found online?

EDIT: I'm able to find the modification in the Finance Act of 2001, but there must surely be a consolidated version of the tax code?
 
dub_nerd said:
Believe it or not, I'm well able to understand the text -- but you'll appreciate it's the first time I've seen it. Is there a link to where it can be found online?

EDIT: I'm able to find the modification in the Finance Act of 2001, but there must surely be a consolidated version of the tax code?
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I think you can access the consolidated Act including amendments up to the 2011 FA here (you need to be a member to access 2012, or Alan Moore's commentary): http://www.taxworld.ie/legislation/TCA1997/past

Revenue also have detailed Notes for Guidance which effectively paraphrase the whole consolidated Acts here: http://www.revenue.ie/en/practitioner/law/notes-for-guidance/tca/index.html
 
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