Tax partners are not required to file a joint income tax return. But it is certainly worth doing! By allocating income and tax deductions wisely, you can save on tax. You have to work out this allocation yourself. The tax authorities won’t sort it out for you!
Tax partner
Who is your tax partner? You have no choice in the matter. If you meet the criteria, you are a tax partner.
If you are married or in a civil partnership, your spouse or civil partner is also your partner for tax purposes. However, you will no longer be considered a partner from the moment when:
- an application for divorce or legal separation has been filed AND;
- you are no longer registered at the same address.
If you are living with an adult without being married, you are considered a partner for income tax purposes if you:
- is registered at the same address AND;
- one (or more) of the following conditions is met:
- you have entered into a notarised cohabitation agreement;
- a child was born as a result of the relationship;
- you have acknowledged a child;
- the property that is your main residence is jointly (economically) owned;
- a minor child of one of the partners is registered at the shared residential address;
- you were already a tax partner in the previous calendar year.
Income allocation
As tax partners, you may choose how to allocate your income, provided that you file a joint tax return, from:
- significant interest (Box 2);
- saving and investing (Box 3).
Your income from a substantial interest will be taxed in 2018 at a proportional rate of 25%. The rate therefore does not depend on which of the partners declares the income. However, by allocating income from a substantial interest, you may be able to ensure that tax credits are utilised to the full or that you make use of the tax threshold.
The rate in box 3 is also proportional. However, the calculation of the flat-rate return in box 3 results in some progression in the tax burden. You can therefore save tax by allocating this income in a certain way, provided your tax base for Box 3 is higher than (approximately) €100,000. You can also ensure that tax credits are utilised to the full with income from Box 3.
Deductions
You may choose how to allocate the deductible items as follows:
- the balance of the notional value of the owner-occupied home and the deductible costs and interest;
- personal allowances (extraordinary expenses, education costs, charitable donations).
With this allocation, the trick is, of course, to claim as much of the allowance as possible at the highest rate. Which rate that is depends on your and your partner’s personal circumstances.
Filing a tax return jointly
It goes without saying that it is easier to work out the most tax-efficient way to allocate income when you file your income tax return jointly as tax partners. All tax return software allows for this. However, you are not obliged to file a joint return. If you both file separate returns, you will need to agree between yourselves which income and deduction items each of you will include in your respective returns. The risk of a sub-optimal allocation is then considerably greater.