Sunday 29th October, 2006

 

$36,000 limit for college claims

 
 
 
 
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In American history, taxation evolved as a means of funding first the Civil War, and then WWII. In 1986, the Internal Revenue Code was redesigned as a management tool for the economy. A major premise was that consumer spending could be curtailed by imposing greater tax rates.

Locally, we have experienced a progressive lowering of the tax rate, so that now, 2006, people earning less that $60,000 per year, pay no taxes. For all else, income is taxed at a rate of 25 per cent.

Early in 2006, there was significant confusion about the interpretation of the new tax laws, and several individuals discontinued their individual annuity contributions erroneously.

Deductions

Now in the last quarter, it is important that we revisit, exactly what deductions and credits remain for income tax return purposes. Individuals will have up until the last business day in 2006 to maximise their claim allowances.

There remains a maximum claim of $12,000, per year for individuals with approved pension plans, and deferred annuity plans. This $12,000-claim must also take into consideration the allowed 70 per cent of NIS contributions for the year.

To derive maximum benefit, individuals must add up the allowable amount of NIS contributions, pension deductions and annuity payments. If this figure is less than $12,000, then the individual can pay the difference into an annuity account.

With respect to tertiary education at foreign institutions an individual can claim up to $18,000. If two parents together fund the tertiary education costs, of a child, each parent can claim. In effect a household can claim up to $36,000, for education in 2006.

If you are a first time homeowner, with a property acquired between January 2003 and December 2005, you can claim $10,000.

All alimony and domestic maintenance payments approved by a Court can be claimed in the tax returns.

If you have investments in a venture capital company, you are entitled to claim up to 25 per cent.

All your claims are to be deducted from gross income, what is then left is called “chargeable income”, and taxed at 25 per cent.

When an individual saves/invests what is left over from wages or salary, he is using money on which he has paid taxes. In reality it is the difference between saving $75, after you have paid taxes, as opposed to saving $100, which is tax exempt.

Who files?

Apart from the claims, the tax laws have shifted some responsibility for the collection of taxes to the employer.

Employers are now liable if they fail to collect an approved Tax Declaration Form 1 - the TD1, from employees. Such employees are not required to file.

Those who have to file tax returns are those who receive income from more than one source, those whose claims exceed the amount approved on the TD1, those who are self-employed, and those who have temporary work, from different employers.

Failure to abide by the laws, or rampant evasion, will lead to increased tax rates, which will warrant some heavy spending later on, because taxation is a revenue device. Alternatively, it will reduce consumerism!

 

 

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