Credit Union and D.I.R.T.

I've had a credit union accout for almost 10 years. This year I changed my account so that D.I.R.T. is automatically deducted from my dividend.

However, I have never made a declaration to Revenue about the dividend prior to this. Now I want to. When I looked at the Revenue website I couldn't find the informaiton I wanted in relation to D.I.R.T. (e.g., was I liable for D.I.R.T. even if I was in secondary school,
any income exemptions, etc). Could someone provide a link to comprehensive information about D.I.R.T.?

I wouldn't worry too much about it.

I rang revenue a couple of years ago and they weren't too concerned about my credit union a/c.(I had discovered on AAM that there would be a tax liability due).

In fact, I was informed that unless there were significant sums involved that they weren't really interested. My CU a/c never had much money in it and I guess it might have been uneconomical for them to process collection of the DIRT due. I have registered to have dirt automatically collected by my CU since this became possible - last year I think?

To appease your conscience, you could ring revenue and explain your predicament.

Marion :hat

that's an unbelievable attitude from revenue. according to the law, credit union dividends shoud be declared.

[broken link removed] provided a useful overview of the taxation issues relevant to the different types of CU account in case that's of any use.

that's an unbelievable attitude from revenue. according to the law, credit union dividends shoud be declared.

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It's not that unbelievable. When you consider that for many people the interest earned in a credit union measures in the Euro's rather than hundreds of euros.

The Dirt on such small amounts is miniscule. Given the pre-occupation that they've had with bigger fish It doesn't surprise me that they've no interest.

It would be unfair if knowing about this all along they suddenly became interested in 10 or 20 years time and hit people with big penalty bills. I don't see that happening however.

I'd hope that anyone who signs up for automatic deduction of DIRT should be cleared with respect to any previous liability. If the great and the good can have multipe tax amnesties it's hardly too much to ask that the Average CU member with a very small amount in savings should be afforded the same.

-Rd
-Rd

might be of interest as well.

i don't really agree daltonr. the very same argument could be said about bank accounts (most are small and earn tiny amounts of interest). i know that revenue have to be realistic and have finite resources but if it's the law that you declare interest earned, then revenue should have used their political influence to oppose the law or move to have it changed if they didn't want to enforce it. telling people not to comply seems out of order.

also, if they do change their tune, then you can be sure that you will be liable no matter what someone told you over the phone.

I'd hope that anyone who signs up for automatic deduction of DIRT should be cleared with respect to any previous liability.

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Do you think this should apply even in cases where there are substantial amounts invested or a suspicion that particular sums arise from undeclared or otherwise nefarious sources?

The odd thing about outstanding liabilities for DIRT on CU deposit interest and income tax on CU dividends is that, in many cases the individual liability may be relatively small, but in total there are so many people with such liabilities that the cumulative amount may be significant and worth chasing up. Does anybody know of any reliable estimate of the size of such liabilities?

Do you think this should apply even in cases where there are substantial amounts invested or a suspicion that particular sums arise from undeclared or otherwise nefarious sources?

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There's two questions there.

1. Substantial Amounts
The amount you can have invested is capped, so the absolute maximum you could be looking at DIRT for a given person in a year is about €220 assuming €38000 on deposit, and an interest rate of 3%.

I'd be amazed if a fraction of 1% of members are maxing out their savings. So yes, in light of the numerous Tax Amnesty's for high net worth individuals engaged in far more serious evasion, then a Credit Union DIRT Amnesty hardly seems an unreasonable way to regularise the situation.

2. Nefarious Sources
As for funds from nefarious sources I'd look on the sources of the funds as the greater crime and people should be pursued on that basis.

Would such an Amnesty be unfair to people who've already paid tax? Yes absolutely, but aren't all Amnesty's unfair to people who paid tax?

-Rd

1. Substantial Amounts

The amount you can have invested is capped,

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Is this true?

so the absolute maximum you could be looking at DIRT for a given person in a year is about €220 assuming €38000 on deposit, and an interest rate of 3%.

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Yes - but the point with all "hot money" tax cases is that the capital originally invested in undeclared accounts has often arisen from sources on which tax was never paid. The tax implications arising in relation to the original capital invested are in most cases far more serious than those arising from the taxation of the interest itself.

So yes, in light of the numerous Tax Amnesty's for high net worth individuals engaged in far more serious evasion

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The two tax amnesties to date (one of which referred to interest and penalties only) were not confined to high net worth individuals. Most of the people who availed of the 1998 and 1994 amnesties were ordinary people with comparitively modest means and lifestyles. Although I have no figures to hand I would guess that 95% of these cases involved sums of less than the €38,000/ IR£30,000 you mention above. A tiny percentage of offshore and bogus account cases involved savings of more than €38,000 - although due to interest and penalty multipliers the actual liabilities arising in these cases sometimes dwarfed these sums.

..then a Credit Union DIRT Amnesty hardly seems an unreasonable way to regularise the situation...As for funds from nefarious sources I'd look on the sources of the funds as the greater crime and people should be pursued on that basis.

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The point is that any general "amnesty" would surely preclude the Revenue from investigating the CU affairs of those who availed of the amnesty. One of the main criticisms of the 1994 amnesty was the inclusion of the confidentiality provisions which prevented Revenue from finding out even the names of those who participated. The confidentiality provisions were a central element of the amnesty. No amnesty will ever work if taxpayers suspect that they will only be highlighting themselves to the Revenue if they avail of it.

Is this true?

The amount one can have in a [broken link removed] (generating dividend income subject to self assessment/declaration for income tax and not DIRT) is capped at €64K or 1% of the total CU branch capitalisation whichever is greater. Money in excess of this must be lodged (or moved unilaterally by the CU if necessary) into a [broken link removed] (generating interest which is subject to DIRT). There is a cap of €26K on the amount that can be held in a deposit account unless more than that was held before October 1997. The above limits apply to CU accounts in the Republic of Ireland and different limits may apply in Northern Ireland.

So the above limits and an assumed dividend and deposit interest rate of 2.5% (arbitrarily chosen because this is what my CU recently paid out) would imply a maximum dividend of €1,600 subject to 0%, 20% or 42% income tax depending on personal circumstances and a maximum interest return of €650 subject to 20% DIRT. Arguably not peanuts even if most people may have a lot less than this in their local CU...

I'm fairly positive that my CU a/c is a share a/c and I pay DIRT on it. I didn't change the status of my a/c when I registerd for DIRT.

Up to 2002, unlike Deposit a/c in banks or share a/cs in Building Societies, share a/cs in CUs did not attract DIRT. I'm sure most people believed that because they were advertised as being DIRT free and because the name CU never appeared on Form 12's that their tax liablilty was zero.

Also, I think that it is only last year that the name CU was entered on Form 12 as an institution on which income had to be declared?

Is it correct to say that people who do not pay tax and who have not opted to pay DIRT on their CU a/cs have no further tax liability?

Marion :hat

Sorry - traditional share accounts attract dividend payments which were and are still subject to self assessment declaration for income tax. I suspect that many people, both now and in the past, never bothered to declare CU share account dividends as additional income. Special share accounts were introduced in the last few years and dividends are subject to DIRT at source. So too were medium and long term share accounts which offer some exemptions from DIRT but charge DIRT at source on any interest in excess of the relevant limits. These share account variants are in addition to normal CU deposit accounts which are often only of relevance to members who exceed the limits on how much money can be held in shares.

Yes - but the point with all "hot money" tax cases is that the capital originally invested in undeclared accounts has often arisen from sources on which tax was never paid. The tax implications arising in relation to the original capital invested are in most cases far more serious than those arising from the taxation of the interest itself.

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Yes, but I'd be willing to bet you all the change in my pocket that this isn't true in this case. In the vast majority of cases these savings were amassed from income on which tax was already paid.

I'm only coming at this from a common sense position (which I think revenue is also doing) that it makes sense to accept that in the past most CU members had a miniscule liability, and probably didn't even know how to declare the income. And were led to believe that they didn't have to.

Anyone with Hot money in a CU should be nervous, but let's draw a line for the majority of small members so they know their future obligations, but are not worried about being wrapped up in a costly scandal in 10 years time.

Perhaps the government could rush through some legislation to say that it was legal all along to evade tax on CU dividends.

-Rd

I am one of the majority who opted to have tax deducted at source from cu dividends. Up to now I have actually declared my interest -mainly because I had claims for tax rebates on cu loans used for house repairs etc. However I did notice that regardless of the amount I declared the revenue stuck to the one figure year in year out. ie a few years ago I required some quick cash (for a lump sum avc ) and withdrew €3,000 from my cu. I showed the the actual interest received on the form 12 but the revenue stuck to an old figure, which was a based on a 10 year old figure which in turn was based on mucher higher interest rates. As it turns out I complete a form 12 each year ( not a goody goody) as I had large dental expenses one year and the AVC another year and also my better half doesn't necessarily work 12 months each year, with the result I am usually looking for a rebate. The p21 I then receive takes account of the actual dividend received.
After all this my questions are a) when did the at source deductions commence and b) am I correct in thinking that once the deductions commence there is no further onus to declare dividends to revenue as I think I remember reading that regardles of tax band that the deduction is final settlement?

After all this my questions are a) when did the at source deductions commence and b) am I correct in thinking that once the deductions commence there is no further onus to declare dividends to revenue as I think I remember reading that regardles of tax band that the deduction is final settlement?

According to [broken link removed] the new regime of (optional) deduction of DIRT at source started on 1st January 2002 although I know that my own CU didn't introduce the required accounts until later than that date. Where DIRT is deducted at source that is the full extent of one's tax liabilities even on dividends. If self declaration of dividends is chosen then they remain subject to income tax.

Thanks Clubman: Must enquire of Dundalk cu when they commenced deductions at source. Imagine it should show on statement ie dividend less tax. certainly not on any divident certificate to date.
cheers

Setanta, I don't think that the DIRT will show on your statement. The divided is received after the DIRT has been deducted. Only the net figure is shown - ie the dividend actually received.

If you have registered to pay DIRT and have savings which are pledged against the loan for a 3-year period minimum then there is no DIRT payable as long as the interest does not exceed €480 or €635 (5 years). In this instance the a/c is called a Special Term Share A/C. (info taken from a printout of an article by Jim Aughney in the Irish Independent - no date shown)

By the way, one has to inform the CU that they wish to have DIRT deducted. It won't be automatically deducted.

Marion :hat

Thanks Marion, I completed a form which the CU sent out to all shareholders ( or whatever we're called) so must enquire after New Year. No point in paying twice.