Tax is a dirty job
Charlie Weston sheds some clean light on the murky world of deposit interest retention tax
OFFICIALS in this country are not often accused of having a sense of humour, but whoever was responsible for coming up with the acronym for the tax on deposits may have had a little chuckle.
Calling it DIRT (deposit interest retention tax) would be funny for the rest of us if the tax was not so severe.
And it seems with every passing Budget the DIRT rate is increased.
Back at the start of 2009 the rate was 20pc, but the emergency budget that year saw it rise to 23pc. It then shot up to 25pc, before rising to 27pc in the last Budget.
There is certainly nothing funny about a tax rate of 27pc on savings.
This tax is deducted by the bank or credit union before the interest is paid to you.
If you request it, you are entitled to be given a statement of the amount of DIRT deducted from your interest.
No further tax is due on deposit interest, even if the recipient is liable to pay income tax at the higher (41pc) rate, according to 'Family Finance 2011' by Colm Rapple.
However, you do have to declare the interest received as income if you are making a tax return.
Some people over the age of 65 can avoid the tax, if they meet certain conditions. If you meet the criteria you can actually have your interest paid on your deposit without having DIRT deducted.
You can get your deposit interest paid without the deduction of DIRT or get a refund, if you are over 65 and:
•Your income is below €18,000 for a single person, or €36,000 for a couple.
•Your tax liability (including your spouse's) for the year is below your tax credits (including your spouse's) for that year. In other words, you are not liable for tax.
In general, joint accounts where one of the account holders is aged 65 or over, will only qualify for the refund of DIRT if the other account holder is that person's spouse, according to the Citizens Advice Bureau.
However, if another person, such as your son or daughter, has the authority to operate your bank account on your behalf, and is named as an account holder for this purpose only, you will continue to qualify for the refund of DIRT provided you are the beneficial owner of the account.
In this case, when claiming a refund of DIRT, you must include a declaration that you (not your child) has an entitlement to all of the interest paid in respect of the deposit.
You can get your deposit interest paid without the deduction of DIRT or a DIRT refund, if you are permanently incapacitated from maintaining yourself and, your tax credits (including your spouse's) for the year exceed the tax that would be chargeable on your (and your spouse's) income for the year.
Others who may qualify for an exemption from DIRT or a DIRT refund are the trustees of a trust fund for a permanently incapacitated person, charities and people not resident for tax purposes.
A claim for repayment of DIRT is made on a simple form that you can get in any tax office, larger post offices or from the institution where you have your savings. You will need a certificate from the bank or the DIRT taken off your interest.
Fill out the form, attach the certificate, and send it the tax office listed on the form.
You can make claims going back four years.
Credit unions and DIRT
When you save money with a credit union you get shares in the credit union.
If you receive a dividend on these shares, it is worked out as a percentage of the value of your shares.
The way the dividend is taxed depends on the type of credit union account that you have -- a regular share account or a special share account.
Check with your credit union if you are not sure which type of account you have.
If you have a regular share account, DIRT is not deducted by the credit union. It is your responsibility to declare the dividend in your annual tax return, according to the Citizens Advice Bureau.
If you have no tax liability on your income, you will not be taxed on your dividend.
For this reason a regular share account is a good choice if you are not liable to pay income tax but you don't meet the requirements above to obtain a refund of DIRT that has been deducted.
If you pay income tax at the 41pc rate, then this rate will also apply to the dividend you receive on a regular share account and it may be preferable to open a special share account.
If you have a special share account, your credit union will deduct DIRT from your dividend at 27pc.
special term accounts
Special term accounts are deposit accounts that have a set term and have limits to the amounts that can be deposited in them.
They can be medium or long term.
But you can get dividend income up to €480 tax-free with a medium term account or €635 tax-free with a long-term account, after which you will be charged DIRT.
Irish Independent Supplement