# 2006 AVC contribution to maximise tax benefit



## jrewing (2 Oct 2007)

I was not paying into a pension scheme in 2006, and want to make an AVC contribution before end of the month to claim the tax benefit for 2006. I just want to make sure I use the right figure before I make the contribution.

In 2006, I paid marginal rate tax on Eur 7400, which is a total of Eur 3107 tax paid (42%). 

As far as I can see, in order to maximise the tax benefit, I should make an AVC of Eur 4292 (7400-3107) in order to recoup all of the higher rate tax paid.

Am I correct ? Do I need to factor PRSI into the calculation, and if so, how ?

Thanks, JR


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## Protocol (2 Oct 2007)

Surely an AVC of 7400 will reduce your taxable pay by 7400 and save you 42% of that.

Watch out for the age-based limits on contributions.


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## jrewing (2 Oct 2007)

I am within the %age limit for my age. However, I am still confused as to how much to pay into the AVC...


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## LDFerguson (2 Oct 2007)

See Protocol's reply - if you make a contribution of €7,400, the tax relief will be €7,400 x 42% = €3,107, thus eliminating the higher-rate tax you paid.


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## jrewing (2 Oct 2007)

Thanks Protocol and LDF


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## CollyD (8 Oct 2007)

This helped me out today at working out how much I had to pay into avc to get 42%, thanks guys, askabout is an invaluable resource especially around this time of yr with end of yr tax returns are due.


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## ClubMan (8 Oct 2007)

LDFerguson said:


> See Protocol's reply - if you make a contribution of €7,400, the tax relief will be €7,400 x 42% = €3,107, thus eliminating the higher-rate tax you paid.


Won't there also be _PRSI_/health levy relief of up to 6%? you may need to claim this separate from tax relief:

Claiming PRSI relief on standalone PRSA contribution


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## CollyD (9 Oct 2007)

ClubMan said:


> Won't there also be _PRSI_/health levy relief of up to 6%? you may need to claim this separate from tax relief:
> 
> Claiming PRSI relief on standalone PRSA contribution


 
So does Jrewing have to contribute more to get the 6% or do they only have to worry about contributing enough of a lump sum to absorb the tax at the high rate of tax they paid for the previous yr and then chase the 6% seperately.  So the formula for working his avc lump sum is the same and you are saying don't forget about claiming the 6% of the 7400 they need to contribute to there pension to get 42% back.  Hope that makes sense.


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## ClubMan (9 Oct 2007)

CollyD said:


> So does Jrewing have to contribute more to get the 6%


No - he should just claim _PRSI_/health levy relief separately as per the thread in the key posts on any off payroll contributions made (if any) and he will get whatever's due in this respect. This relief must be claimed separately though. There is no guarantee that the full 6% will be refunded as it depends on the amount earned, amount contributed, _PRSI_/health levy deductions in the year etc. The issue is covered in the key post thread to which I alluded above.


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## CollyD (9 Oct 2007)

ClubMan said:


> No - he should just claim _PRSI_/health levy relief separately as per the thread in the key posts on any off payroll contributions made (if any) and he will get whatever's due in this respect. This relief must be claimed separately though. There is no guarantee that the full 6% will be refunded as it depends on the amount earned, amount contributed, _PRSI_/health levy deductions in the year etc. The issue is covered in the key post thread to which I alluded above.


Thanks Clubman


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## girlies (9 Oct 2007)

This is not directly related buy maybe you can help. 
I have become self employed during the year, and will be setting up my own pension before end of month, 
While reviewing my P60 for last year, I noticed that the revenue have repaid me tax of 2000 euro over due to a typo error, I understand that I will have to pay this back to them, which is fine but I am wondering if I open my pension can I add money to it for 2006 and offset it against this the overpayment by them??


I will also ask my accountant about this when I meet him next.
Rgds
Irishgurl


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## jrewing (24 Oct 2007)

I sent in my PRSA a few weeks ago and heard nothing back. The provider told me that it is being processed, and as long as they receive it before Oct 31 it is applicable for 2006 tax year.

Do I need to get anything to Revenue before Oct 31 to show that I have paid this amount ? Or is it OK in November, if the documentation from the provider shows that it was received in October ?


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## LDFerguson (24 Oct 2007)

You can send in your tax return detailing the name of the provider, the date of your contribution and the amount.  No need to wait for documentation back from the provider.  As you say, it will confirm that the contribution was made in October.


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## jrewing (24 Oct 2007)

Hmmm....so making an AVC payment like this means I need to make a tax return for 2006?

This has to be done by Oct 31 right ? Can it be done through ROS ?


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## ClubMan (24 Oct 2007)

jrewing said:


> Hmmm....so making an AVC payment like this means I need to make a tax return for 2006?


Not necessarily. If your tax affairs for 2006 are otherwise up to date and you make such a contribution that you want to set against 2006 income then you do so and then write to Revenue with details (evidence of the pension contribution, copy of your 2006 _P60 _and an explanation that you are looking for pension tax relief in respect of 2006 income) and they should sort it. If you have outstanding issues with respect to 2006 income tax then you really need to sort these out regardless. Don't forget to separately claim _PRSI _relief on the contribution after claiming tax relief. See the key posts for more info.


> This has to be done by Oct 31 right ?


No - the claim for backdated tax and _PRSI _relief can be done any time (within the normal 4 year cut-off period). If you are self employed then maybe the rules are different. The pension contribution must be made before October 31st.


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## jrewing (24 Oct 2007)

Thanks a lot Clubman. It's very clear now.


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## Lemurz (24 Oct 2007)

Per [broken link removed] from SBP 21/10/07.

_Those who make lump sum AVC payments before the October 31 tax deadline can get a tax refund against their 2006 income. However, to do this, they would need to get a tax certificate from the pension provider and would have to submit the claim to the Revenue before the deadline._

Based on the threads above this statement appears to be inaccurate?

Am I correct in assuming, tax relief/refund is available once contribution is made prior to 31 Oct, even if 2006 tax return has already been filed with Revenue.  Also, PRSI/Levy relief/refund  is also available from welfare on contribution paid. (subject to age based % limits)


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## ClubMan (25 Oct 2007)

Lemurz said:


> Per [broken link removed] from SBP 21/10/07.
> 
> _Those who make lump sum AVC payments before the October 31 tax deadline can get a tax refund against their 2006 income. However, to do this, they would need to get a tax certificate from the pension provider and would have to submit the claim to the Revenue before the deadline._
> 
> Based on the threads above this statement appears to be inaccurate?


I have made such contributions before October 31st but made the tax/_PRSI_ reclaims after this date and had no problem. The statement above about making the claim before October 31st is incorrect unless it applies in the case of self employed/assessed or something?


> Am I correct in assuming, tax relief/refund is available once contribution is made prior to 31 Oct, even if 2006 tax return has already been filed with Revenue.


Certainly for _PAYE _but I don't know what rules apply to self employed/assessed.


> Also, PRSI/Levy relief/refund  is also available from welfare on contribution paid. (subject to age based % limits)


Not sure if this is a question but yes is the answer as per the key post linked from the key posts thread in this forum.


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## Lemurz (25 Oct 2007)

Thanks Clubman.

Yes, I'm referring to PAYE.

Can't find that key post on making a PRSI claim  (must be going blind) - Can you post a link to it?

Thanks
Lz


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## ClubMan (25 Oct 2007)

It's a long thread which started before the _SW/Revenue _processes were all sorted out so skip to near the end to get the latest salient info as it's a lot simpler now that it was when _PRSI _relief on "standalone" pension (not just _PRSA_) contributions was first introduced.

Claiming PRSI relief on standalone PRSA contribution

Also while I'm at it...

October 31 - what does it mean for PAYE worker?


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## Lemurz (25 Oct 2007)

Cheers for that Clubman.

Revenue actually told me today backed dated AVCs were not eligible for PRSI refund - guess you don't work for the Revenue


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## ClubMan (25 Oct 2007)

Just to clarify - from my own experience you can make a pension contribution before October 31st and *after that date *claim tax and _PRSI _relief against the previous year's income. I presume that since I was able to do this (more than once) it is how the process works generally. At least for _PAYE _workers. _Revenue _can get their info wrong so you need to be careful. If in doubt get professional advice.


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## Lemurz (25 Oct 2007)

Another question someone might know the answer to.

If your AVC contibution exceeds the annual % allowed, can the unrelieved excess be carried forward for tax relief into future tax years (PAYE individual)?

Thanks in advance.


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## ClubMan (25 Oct 2007)

As far as I know - yes.


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