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Will I trigger a tax bill for my friend or myself if I cover her medical bills?

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Q My friend needs urgent medical treatment but does not have the funds to pay for it and neither does she have health insurance. I’m planning to cover the costs of her medical treatment so she can get seen to quickly. The bill will likely run to more than €20,000. Will any tax bill be triggered for either my friend or myself if I cover her medical costs? If so, is there any way to limit any ensuing tax bills?

Tommy, Co Meath

 

A Generally the provision of a benefit, such as a gift or discharge of personal expenses is within the scope of Irish Capital Acquisitions Tax (CAT) for the recipient.

In most cases, such benefits come well within the €3,000 annual small gift exemption (where any individual can give tax-free gifts of up to €3,000 a year to another). Irish CAT law contains various other reliefs including an exemption for a gift taken exclusively for the medical care of a permanently incapacitated individual. It is unclear whether your friend would be so regarded – and this will depend on the nature of her physical or mental condition.

Even if this medical exemption was unavailable, the first €16,250 of the costs covered by you should fall within her lifetime CAT tax-free threshold for non-relatives – assuming that she has received no prior benefits from you or other non-relatives. (Under CAT rules, an individual can inherit up to €16,250 tax-free from non-relatives over his or her lifetime). 

Where the costs are spread over two calendar years, she should also be entitled to the annual exemption for each year. In such circumstances, an amount of up to €22,250 should be exempt from CAT and no tax liability should arise for her.

Furthermore, assuming you have sufficient Irish taxable income such as salary, you may be entitled to Irish tax relief on the expenses, with the relief capped at 20pc of the cost.

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To be eligible for this relief, there is no requirement for you to be a relative of the person receiving the treatment – but the expenses must be paid by you for the provision of health care.

If applicable, you will need to file details of the claim in your annual tax return and if your only income is employment salary, this is a relatively simple process via the Revenue myAccount portal.

 

Could I face tax bill after winning house in a draw?

Q I was incredibly lucky to win a house in a draw recently – which my family and I will be living in as we had never been in a position to buy our own home previously. I understand the recent Finance Bill brought in a number of changes around the tax treatment of non-cash prizes in raffles. Could those changes trigger a tax bill for me?

Leinster reader

 

A Generally lottery or prize winnings in Ireland are exempt from tax. From your perspective, the Finance Act will merely ensure that tax law and general practice align. As a result, tax – specifically Capital Acquisitions Tax (CAT) – will not arise on non-cash prizes won in raffles and draws, provided they are conducted in a bona fide manner.

The other change here will not impact you, but it is worth highlighting. The sale of an individual’s main residence is exempt from Capital Gains Tax (CGT – the tax paid on any profits made from the sale of an asset) and this also extends to situations where there is a disposal by means of raffle or lottery.

However, in these cases, the proceeds receivable by the homeowner could exceed the market value of the property. The new legislative change means that the CGT exemption will be limited to the gain on the market value of the property and the excess will be taxable.

 

Q I’ve been working remotely in an ad-hoc home office since the pandemic hit in March 2020. I’ve just learned that this homeworking is going to be a largely permanent arrangement going forward. So I’m planning to convert the room into a proper office – with soundproofing, shelves, built-in office desk and so on. I’m also planning to upgrade my computer. My boss won’t cover the cost of these upgrades so I’ll be bearing the cost myself. Can I get any tax relief for the cost of my home office upgrade?

Des, Co Cork

 

The nature of an employment arrangement is usually such that all relevant costs are incurred directly by the employer. As a result, a claim for additional tax relief for expenses against salary is very limited. The upside here is that the individual’s employment tax matters should be relatively simple.

Prior to the pandemic, working from home was relatively rare and Irish Revenue had provided a guidance note on this – covering allowable (limited) tax deductible expenses where formal arrangements were in place.

In March 2020, this was broadened to all persons required to work from home. This approach will now be put on a legislative basis by Finance Act 2021.

However, the relevant deduction available is still limited to 30pc of the cost of vouched expenses for heat, electricity and broadband – relating to days spent working from home. There is no specific facility for an employee to claim tax relief for other home working costs and so to determine the position, we must look to general tax principles.

In contrast with self-employment profits, for expenditure to be deductible as an expense against salary, it will need to be incurred “wholly, exclusively and necessarily” in the performance of employment duties. This is a notoriously high bar and Irish Revenue note that it must be considered whether the employment duties could be performed without incurring the expense.

The expense should not arise because of the personal circumstances or preference of the taxpayer. For the expense to be allowable, it must be incurred in the actual performance of the duties of the office or employment or as a direct consequence of those duties.

In principle, the costs outlined above would not qualify as a deductible expense as they should be regarded as capital costs, being long-term enduring assets. The cost of such assets are usually incurred by the business and tax (capital) allowances can be available in such instances – with relief for the cost spread over the course of eight years.

While much less common, tax law also allows an employee to claim capital allowances. Various conditions must be satisfied including a requirement that the assets be wholly and exclusively used for the proposes of the employment.

Generally, this would not be satisfied if there is some element of personal use. However, if the assets are used solely for your employment duties, you may have entitlement to capital allowances for the qualifying expenditure. Irish Revenue do not provide specific commentary on this matter and its guidance on working from home guidance ( that is, it’s e-working and tax manual) merely confirms that an expense deduction would not be available for such costs, without addressing the capital allowances aspect.

As a general point, it is usually more tax-efficient for the employer to incur the direct costs of home working such as equipment, office furniture and so on. Unfortunately, this was not an option in your case.​​

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