Tax Planning Exempt Income

Exempt income

Life is full of decisions one of the ones you can decide to make is whether you try to minimize the amount of tax you pay. This leads to a further decision of whether you do this legally or illegally.

Legally this is called tax avoidance or tax planning depending on the scale of how you organize your affairs. Both are perfectly valid means of minimizing your tax

Illegally this is called tax evasion, the shadow economy or sponging of the rest of society. It has high penalties for detection including hefty fines and prison sentences. Each time you evade tax then you end up driving the amount taken by other people to higher levels as they have to compensate for the amount you are not paying.

One of the ways to avoid income tax is through exemptions.

Within the Irish tax code there are various exemptions to income tax.

(1)   Exemption Limits:

Once you reach the grand age of 65 then any income you earn below €18000 is exempt from income tax. Once you reach 66 then you also avoid PRSI. If you are over 70 then you are charged a reduced rate of Universal Service Charge

 (2) Personal injury settlements (s 189), payments from the Haemophilia HIV Trust (s 190), Hepatitis C compensation (s 191), and payments in respect of thalidomide victims (s 192).

(3) Income of artists, writers and composers, subject to an overall annual limit of €50,000 (s 195).

(4) Interest on savings certificates (s 42) and instalment savings schemes (s 197).

(5) Income of recognised charities (s 207, 208).

(6) Income of amateur sports bodies (s 235).

(7) Rent from letting farm land (s 664). A claimant must be aged 55 or over, or unable through physical or mental incapacity to carry on farming. Exemption is given for the lower of:

(i) the farm rental income surplus, or

(ii) €40,000 where the lease is for more than 14 years, €30,000 where the lease is for 10 to 14 years, €22,500 where the lease is for seven to 10 years, or €18,000 in any other case.

(9) Rent-a-room relief (s 216A). Income from lodgers is exempt provided your gross income from such letting does not exceed €12,000 in the tax year.

(10) Home childcare earnings of up to €15,000 in the tax year (s 216C).

(11) Earnings of special assignees (s 825C). 30% of income above €75,000 in the case of employees assigned from a tax treaty country to work in their employer’s Irish operation.

(12) Start Your Own Business relief (s 472AA). Where a person previously long-term unemployed sets up a business, the first €40,000 of profits in a tax year are exempt. Expires 31.12.2016.

Frank McGivney www.meathaccountants.com 0469293891

Brief look at introduction of Income tax to Ireland

History and Lessons that can be learned about tax and the way society is structured:

In 1799 The English prime minister William Pitt who was also the chanchellor (and the youngest prime minister at 24) decided that income tax would be a great idea so they brought it into law for the empire so that they could finance a great war between Britan and the french under the leadership of the one and only Napoleon (now you know who to blame) It was based around schedules which reflected in descending order the class system of the population. This class system is still used today although the top few having been in effect abolished. So it started with a schedule for Landlords (the top class) then farmers then the privileged with annuities and then the self employed and then the poor trades people.
Capital Gains tax was introduced in Ireland in 1975 so up until then you could avoid paying tax (to some degree) by making sure you lived of money you got from selling assets and capital transactions (once again favoring the richer in society)
A detailed analysis of the current tax system would also in my opinion reflect a built in class system.
Anyway so now you know who to blame needless to say if I recall correctly William Pitt left office in 1801. In 1978 when the tax was announced it was estimated that 10 million pounds would be taken in but in fact only 6 million was taken. So even back then the departments of finance weren't the best at projections.

Even still some lessons can be learned from history because even today capital gains tax is lower than the high rate of income tax and therefore one way of reducing tax liabilities is to make sure a transaction is classed as capital in nature (i.e a one off transaction as part of an investment or an emergency sale) rather than as a trade. This was reflected in the celtic tiger when the revenue went after people for income tax for selling house they had bought and moved into and done up and then sold on. (they weren't always successful in getting this classed as income tax as a it may be shown to have not meet some of the badges of trade if set up correctly).
If you are in business take a look at this website to allow you to take credit card payments with your smart phone I use them myself and they are very effective Sumup Credit Card Reader For smartphones

Anyway so that a bit of history, Hope the dates are correct been a long time since i studied history.
Frank McGivney & Co Ltd, Chartered Management Accountants 38 Cherryhill Court, Kells, Co Meath Ireland 0469293891