Tax Briefing Issue 05-ROS Form 11 2010 – Retirement Annuity Relief
Earnings Limit
Section 790A of the Taxes Consolidation Act (TCA) 1997 provides that the aggregate earnings limit for 2010 for the purpose of giving Income Tax relief to an individual on contributions or qualifying premiums made to various pension products is €150,000. However, section 790A also provides that for the purpose of determining how much of a contribution or qualifying premium paid in the year of assessment 2011, is to be treated under the relevant legislation[1] as paid in the year of assessment 2010, the earnings limit for 2010 is deemed to be €115,000.
RAC Mini-calc
The ROS Form 11 has a RAC mini-calc, which calculates the amount of relief due on qualifying premiums made to a retirement annuity contract based on the net relevant earnings (NRE) of the individual, the earnings limit in place for the year and the age related percentage applicable for that year.
Where relief is claimed for 2010 in respect of RAC premiums paid in 2010 and 2011, the RAC mini-calc is incorrectly calculating the relief in a limited number of circumstances where the NRE for 2010 is greater than €115,000.
In all other situations, for example, where
- the individual's NRE for 2010 does not exceed €115,000, or
- the premiums were paid in 2010 only (including premiums carried forward from prior years for relief in 2010), or
- the premiums were paid in 2011 only
the RAC mini-calc is calculating the relief correctly.
It will not be possible to get the 2010 Form 11 corrected in time for the 2010 pay and file deadline of the 31 October 2011. As a result, the validation in place between the ROS mini-calc and the Form 11 means that it will not be possible to claim the correct RAC relief in the Form 11.
Intervention required
ROS customers are advised to take the following approach. Claim the RAC relief as PRSA relief. There is no mini-calc and it will be possible to enter the correct relief in the fields:
- (d) PRSA contributions paid directly by you to a PRSA provider
- (e) Amount paid between 1/1/2011 and 31/10/2011 for which relief has not already been granted and for which relief is being claimed in 2010
- (f) Amount paid in a prior year, for which relief has not been obtained.
No entry should be made in the RAC mini-calc.
A note should be entered in the additional notes field in the Personal Details screen to the effect that the PRSA relief claimed is in fact in respect of RAC contributions.
Note: with this approach a Notice of Assessment will issue granting the correct relief, but showing it as PRSA relief instead of Retirement Annuity relief. The liability on the notice will be correct.
Revenue will review cases which have already been filed to identify instances where excess relief was granted.
Examples
The following examples illustrate how the earnings limit should apply for 2010 where relief is being claimed for premiums paid in respect of retirement annuity contracts in circumstances where the premiums are paid in both 2010 and 2011 or in 2011 alone (the RAC mini-calc will give incorrect results in examples A, B & C).
In each example it is assumed that the individual's age is less than 30.
Example A
“A” has NRE of €160,000 for 2010. He pays RAC premiums of €20,000 in 2010 and €2,000 in 2011 and wants to claim relief in respect of both for 2010.
Full relief is due for the premium paid in 2010 as it is less than the maximum allowable tax relievable premium of €22,500 for payments made in that year (i.e. 15% of €150,000).
However as regards the premium of €2,000 paid in 2011, the maximum tax relievable premium allowable for 2010 (for the purposes of determining how much relief can be claimed for the amount paid in 2011) is €17,250, given that the earnings limit is deemed to be €115,000 (i.e. 15% of €115,000).
As the amount of the premium actually paid in 2010 already exceeds €17,250, no additional relief may be claimed for 2010 in respect of the amount paid in 2011.
Relief is therefore due for 2010 in respect of premiums of €20,000.
Example B
“B” has NRE of €130,000 for 2010. She pays RAC premiums of €15,000 in 2010 and €4,500 in 2011 and wants to claim relief in respect of both for 2010.
Full relief is due for the premium paid in 2010 as it is less than the maximum tax relievable premium of €19,500 allowable for 2010 (i.e. 15% of her NRE of €130,000).
However, as for Example A, the maximum tax relievable premium allowable for 2010 (for the purposes of determining how much relief can be claimed for the amount paid in 2011) is €17,250, (i.e. 15% of €115,000).
As the premium of €15,000 paid in 2010 is less than the restricted amount of €17,500, she has some capacity to claim relief for the 2011 premium. Relief may therefore be claimed in respect of €2,250 of the premiums paid in 2011 in addition to the relief for the payment of €15,000 made in 2010.
Relief is therefore due for 2010 in respect of premiums of €17,250.
Example C
“C” has NRE of €160,000 for 2010. He pays RAC premiums of €4,000 in 2010 and €18,500 in 2011 and wants to claim relief in respect of both for 2010.
Full relief is due for the premium paid in 2010 as it is less than the maximum tax relievable premium of €22,500 allowable in that year (i.e. 15% of €150,000).
As for Examples A & B, the maximum tax relievable premium allowable for 2010 (for the purposes of determining how much relief can be claimed for the amount paid in 2011) is €17,250, (i.e. 15% of €115,000).
Relief may be claimed in respect of €13,250 of the premium made in 2011 in addition to the relief claimed for the premium €4,000 made in 2010.
Relief is therefore due for 2010 in respect of premiums of €17,250.
Example D
“D” has NRE of €100,000 for 2010. She pays RAC premiums of €5,000 in 2010 and €11,000 in 2011 and wants to claim relief for both in 2010.
Full relief is due for the 2010 premium payment as it is less than the maximum tax relievable premium of €15,000 allowable in that year (i.e. 15% of €100,000).
In this example, the restricted deemed earnings limit has no impact (because NRE is less than €115,000). The maximum tax relievable premium allowable for 2010, where relief is claimed for an amount paid in 2011, remains at €15,000 (i.e. 15% of €100,000).
Relief may be claimed in respect of €10,000 of the premium made in 2011 in addition to the relief for the payment of €5,000 made in 2010.
Relief is therefore due for 2010 in respect of premiums of €15,000.
Example E
“E” has NRE of €160,000 for 2010. He pays RAC premiums of €5,000 in 2010 and €11,000 in 2011 and claims relief for both in 2010.
Full relief is due for the 2010 premium as it is less than the maximum tax relievable premium of €22,500 allowable in that year (i.e. 15% of €150,000).
The maximum tax relievable premium allowable for 2010 (for the purposes of determining how much relief can be claimed for the amount paid in 2011) is €17,250, (i.e. 15% of €115,000).
In this example, full relief can be claimed for the premiums paid in 2010 and in 2011 as the aggregate value of both is still less that €17,500.Relief is therefore due for 2010 in respect of premiums of €16,000.
Example F
“F” has NRE of €140,000 for 2010. She pays an RAC premium of €21,000 in 2011 and claims relief in respect of that amount for 2010.
In this example the maximum relief allowable for 2010, in respect of an amount paid in 2011, is €17,250 (i.e. 15% of €115,000).
Accordingly, the relief for 2010 is restricted to €17,250.
[1] Sections 774(8), 776(3), 787(7) or 787C(3) TCA 1997.
Source: Revenue Commissioners. www.revenue.ie Copyright Acknowledged.