Tax partners are allowed to allocate part of their income and tax deductions as they see fit. And in practice, this can make a significant difference to the amount of income tax payable.
Joint income components
The random allocation does not apply to all income, nor to all tax deductions, but only to:
- income (positive or negative) from one’s own home;
- income from a substantial interest (Box 2) and dividend tax;
- the personal allowance (in practice, this mainly concerns specific healthcare costs and tax-deductible donations);
- income from savings and investments (Box 3) and dividend tax.
Partners must choose their preferred allocation in their tax returns. In principle, the chosen allocation may be amended until such time as both partners’ final tax assessments become final.
Divide everything up
The Arnhem-Leeuwarden Court of Appeal recently ruled in a case in which the taxpayer argues that it should be possible to divide ALL income between tax partners. Otherwise, single-earners are at a tax disadvantage compared with dual-income households.
The Court finds, however, that the choice made by the legislature is not entirely devoid of reasonable grounds. The court may not question the validity of the grounds relied upon by the legislature, given the broad margin of discretion enjoyed by the legislature. The taxpayer’s appeal is therefore dismissed. The arbitrary allocation between tax partners remains limited to the income and deduction items designated for that purpose.