2021 Budget Memorandum: Other measures and measures previously announced

More human system for allowances to be put in place at Tax and Customs Administration

Numerous changes have already been made in response to the ‘childcare allowance affair’, such as appointing two state secretaries to oversee the Tax and Customs Administration and adopting a hardship scheme.

In the 2021 Tax Plan a proposal for an ‘Act to Improve the Administration of Allowances’ has been added to these. This Act should make it possible, in the short term, to implement a better, more human system and to increase citizens’ legal protection. The most notable measures set out in the legislative proposal are as follows:

The all-or-nothing nature of childcare allowance has been abandoned. The Tax and Customs Administration will determine your entitlement to childcare allowance based on the proportion of the costs that you, as a parent, have paid to the childcare organisation on time. Previously, you had to pay back the entire allowance if you had not paid the full amount to the organisation on time. Under specific circumstances the Tax and Customs Administration will claim back a lower amount than that prescribed by law. This is only possible if reclaiming the full amount would be disproportionate. Partners are no longer partners for allowance purposes from the moment one of them is admitted to a nursing or care home. Interested parties can make their views known to the Tax and Customs Administration early in the process to avoid the need for subsequent objections and appeals.

Life-course savings scheme

Until 2012 employees had the option of saving for a life-course savings benefit. When the life-course savings scheme was abolished it was specified that employees with an entitlement under such a scheme exceeding € 3,000 on 31 December 2011 could make use of transitional arrangements. These transitional arrangements will end on 31 December 2021. This means that if the life-course savings benefit has not been paid out in the form of a wage by 1 January 2022, the value of the credit will be taxed.

The transitional arrangements have come up against practical problems and are therefore being amended as follows:

The institution administering the life-course savings scheme will become the withholding agent for payroll tax at the fictitious moment of payment (the moment when it is assumed that the remaining life-course savings benefit is paid out). This fictitious moment of payment is being brought forward. If the benefit has not been paid out in the form of a wage by 1 November 2021, the fictitious moment of payment will be 1 November 2021. The institution will not take tax credits into account. These can be claimed by the employee in his/her income tax return. The tax credit for leave under the life-course savings scheme is one of these.

One-off rent reduction for tenants on low incomes

In spite of the fact that housing associations take the level of a person’s income into account when allocating housing, there are people who are paying rent that is too high for their income. From 1 January 2021 eligible tenants will therefore be able to request a one-off rent reduction from their housing association. You qualify for a rent reduction if you rent social housing from a housing association (not private sector) and satisfy the following conditions:

Your monthly rent exceeds:

€ 619.01 for a single- or two-person household. € 663.40 for a household of three persons or more.

Your annual income is no more than:

€ 23,225 gross per year for a single-person household. € 31,550 gross per year collectively for a multiple-person household.

Please note: Your income for 2019 is taken as a basis to assess whether you are eligible for the rent reduction.

Cash gifts no longer deductible

From 2021 it will no longer be possible to deduct gifts that are given in cash. In addition, written documents will be required as evidence of gifts.

Excessive loans (€ 500,000 scheme)

In June the legislative proposal on ‘Excessive Loans’ was submitted. Under this proposal debts of a director/major shareholder (DGA) that exceed € 500,000 will be taxed from 31 December 2023.

If on 31 December 2023 a DGA, together with his/her partner, has a debt to a company in which the DGA (indirectly) holds at least 5% of the shares, the excess amount above € 500,000 will be taxed as fictitious regular income in box 2. It will be taxed at a rate of 26.9%. Debts of children, grandchildren, parents and grandparents will also be taxed if they have a debt exceeding € 500,000. This will apply per family member.

Home acquisition debts for which a mortgage right has been granted to the company or that were entered into before 1 January 2023 will not be taken into account.

Example

On 31 December a DGA has a debt of € 1,000,000 to his company. € 250,000 of this concerns a debt for the purchase of his own home and was entered into before 1 January 2023. The amount of loans to be taken into account for purposes of the excessive loans calculation is therefore € 750,000. The DGA therefore has to pay 26.9% tax on € 250,000 (€ 750,000 -/- € 500,000): € 67,250.

If a dividend is distributed at a later date, this is first offset against the fictitious regular income. This therefore ensures that double taxation is avoided.

Tip: In 2020 the rate in box 2 is still 26.25%. It may be advantageous to reduce your debts in 2020 by means of a dividend payment.

Tip: Have you entered into a large amount of debt for property that forms part of your private assets? If so, it may be advantageous to transfer this to a company or your children in 2020 at a transfer tax rate of 2% or 6%.

What was missing from the tax plans?

Various legislative proposals were also missing in relation to a number of issues. These include, for example, a proposal to replace the current Assessment of Employment Relationships (Deregulation) Act to future-proof the labour market. A number of further legislative proposals are expected in the spring!