Helped during college - money subject to tax?

Paul Tergat

Hi

I was on JSA for a while and was struggling to get work so my friend very generously offered to give me money to go get my masters to then help me get work (which im delighted to say worked out!)

I was just wondering though if this money was subject to tax?

He paid for my fees for the year €12.5k and gave me €1k a month for the duration of the course. Any help appreciated.

Cheers

Alan Shore

Are you going to pay them back? If so then it's a loan and not subject to tax, if not then its a gift and subject to Capital Acquisitions Tax. http://www.revenue.ie/en/tax/cat/thresholds.html

Paul Tergat

Oh yeah once I get my first pay packet and see my net we are then going to sort out a schedule of repayments. Is it really so simple even though there is no written agreement that it's then regarded as a loan?

Also to add, there will be no interest on the loan when being repayed so am I right in thinking that when im paying back my mate is not subject to any taxation?

Cheers

Arciphel

As an aside, did you claim the tax back on the fees you paid in college?

Paul Tergat

Arciphel wrote: »

As an aside, did you claim the tax back on the fees you paid in college?

No, didnt think I could on a 1 year masters course? I got some help towards it from the local authority so I think that means I cant get any tax back?

DUBACC

Isnt this what Bertie claimed was a loan? :P

What Alan Shore said above is spot on. Although as you claimed it is indeed a loan, then no tax will be due.

Legend100

Been a while since I looked at CAT but wouldn't the interest free loan be "free use of property" for CAT purposes and hence the notional interest be a gift?

Would more than likely be under the 3k annual exemption anyway I guess

too_sleepy

Interesting
This is something I've been looking into.
Oh boy the revenue don't miss a trick. Receiving a loan from someone without paying the going intest rate is deemed a gift.
The revenue example is. 100,000 zero interest loan. If through a bank you'd pay 10,000 a year in interest than your receiving a gift each year of 10,000 and that's taxable as a gift.
Depending on who loaned you the money there are different gift thresholds.
Son/daughter 250,000
Brother/sister 33'000
Other 16,000

Now I think that's each year. So if your gift benefit is under these thresholds each year there's no tax liability.
Also, even if you calculate there's no liability you'll have to declare it to revenue if it's within 80% of your threshold.

Itchianus

too_sleepy wrote: »

Interesting
This is something I've been looking into.
Oh boy the revenue don't miss a trick. Receiving a loan from someone without paying the going intest rate is deemed a gift.
The revenue example is. 100,000 zero interest loan. If through a bank you'd pay 10,000 a year in interest than your receiving a gift each year of 10,000 and that's taxable as a gift.
Depending on who loaned you the money there are different gift thresholds.
Son/daughter 250,000
Brother/sister 33'000
Other 16,000

Now I think that's each year. So if your gift benefit is under these thresholds each year there's no tax liability.
Also, even if you calculate there's no liability you'll have to declare it to revenue if it's within 80% of your threshold.

The thresholds are lifetime thresholds. Sure think about it, otherwise you could work in a family business and get a salary of 50quid a week and pay no income tax, but receive tax free gifts of up to 250k a year!

too_sleepy

Yes, makes sense.
Seems each Group has its own threshold. So receiving upto the limit from a parent, and the limit from. Brother, and a upto the limit from a friend can be done. Each is considered separate as far as revenue is concerned.
Query,
Revenue lists is under excemptions:
the first €3,000 of all gifts taken by a donee from one disponer in any calendar year.

Regarding the interest free loan, so long as the interest would not have been over 3,000 there's no liability.
My query is this statement taken from the revenue site clearly states the first 3,000 taken by a donee from one disponser, does this mean if you receive 3,000 each from 5 people you've no liability?

Itchianus

too_sleepy wrote: »

My query is this statement taken from the revenue site clearly states the first 3,000 taken by a donee from one disponser, does this mean if you receive 3,000 each from 5 people you've no liability?

Correct, but how often do you think that happens?! (And before you get any bright ideas there are also rules to counterract situations where people devise a scheme to route money through other people to their intended beneficiary).

Paul Tergat

too_sleepy wrote: »

Interesting
This is something I've been looking into.
Oh boy the revenue don't miss a trick. Receiving a loan from someone without paying the going interest rate is deemed a gift.

I thought its a gift if you dont pay the money back at all? That was my understanding of it and then you are subject to tax if its over the threshholds.

If you do then pay it back its a loan. At that point you are only liable for tax should there be interest on the repayments?

Itchianus

Paul Tergat wrote: »

I thought its a gift if you dont pay the money back at all? That was my understanding of it and then you are subject to tax if its over the threshholds.

If you do then pay it back its a loan. At that point you are only liable for tax should there be interest on the repayments?

If you receive a gift of money, it's a gift - no confusion here I presume.

If you receive a loan of money, it's a loan, but if it's an interest free loan, then the amount of interest foregone by the lender is effectively a gift.

If you receive a loan and never repay it, at some point it becomes a gift, I suppose it can become a grey area.

Paul Tergat

Itchianus wrote: »

If you receive a gift of money, it's a gift - no confusion here I presume.

If you receive a loan of money, it's a loan, but if it's an interest free loan, then the amount of interest foregone by the lender is effectively a gift.

If you receive a loan and never repay it, at some point it becomes a gift, I suppose it can become a grey area.

So in my case then i would be taxable on the interest that i would have normally paid? How would I work this out?

Itchianus

Paul Tergat wrote: »

So in my case then i would be taxable on the interest that i would have normally paid? How would I work this out?

It'd hardly exceed the 3k annual exemption surely?

too_sleepy

Although, if the benefit is 80% of the threshold the revenue still want to know.
Why you would inform them I've no idea, a reasonable calculation shows that 100,000 over 10 years at 4% would cost you 21,000 in interest. So 2,100 per year would be your gift if you weren't paying interest to your friend. It's below the 3,000 so no tax to pay.