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

Q My friend needs urgent medical treatment but doesn’t have the funds to pay for it, nor does she have health insurance. I plan to cover the cost of her medical treatment so that she can be taken care of quickly. The bill will probably amount to more than €20,000. Will a tax bill be triggered for my friend or myself if I cover her medical expenses? If so, is there a way to limit the resulting tax bills?

Tommy, County Meath

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

In most cases, these benefits fall under the €3,000 annual exemption for small donations (where any individual can make tax-free donations of up to €3,000 per year to a other). Irish CAT law contains various other reliefs, including an exemption for a gift taken exclusively for the medical care of a permanently incapacitated person. It’s not clear if your friend would be considered that way – and that will depend on the nature of her physical or mental condition.

Even if this medical exemption were not available, the first €16,250 of expenses covered by you should fall within her lifetime CAT tax exemption threshold for unrelated persons – assuming she did not receive any prior performance by you or other unrelated persons. (Under CAT rules, an individual can inherit up to €16,250 tax-free from unrelated persons during their lifetime).

Where the expenses 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.

Additionally, assuming you have sufficient Irish taxable income, such as a salary, you may be eligible for Irish tax relief on expenses, with relief capped at 20% of the cost.

To be eligible for this help, it is not necessary that you are 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 claim details on your annual tax return and if your only income is employment wages, this is a relatively simple process through the Revenue myAccount portal.

Could I face a tax bill after winning the house in a raffle?

Q I was incredibly lucky to win a house in a raffle recently – which my family and I will live in as we had never been able to buy our own house before. I understand that the recent Finance Bill has made a number of changes regarding the tax treatment of non-cash prizes in raffles. Could these changes trigger a tax bill for me?

Leinster Reader

A Generally, lottery or prize winnings in Ireland are tax exempt. From your point of view, the finance law will only ensure the alignment of tax law and general practice. Therefore, no tax – in particular Capital Acquisitions Tax (CAT) – will be imposed on non-monetary prizes won in raffles and raffles, provided they are done in good faith.

The other change here won’t affect you, but it’s worth pointing out. The sale of a private individual’s principal residence is exempt from capital gains tax (CGT – the tax paid on profits from the sale of a property) and this also extends to situations where there is an assignment by means of a raffle or lottery.

However, in these cases, the proceeds to be received by the owner 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 have been working remotely in an ad hoc home office since the pandemic hit in March 2020. I have just learned that this working from home is going to be a largely permanent arrangement going forward. So I plan to convert the room into a real office – with soundproofing, shelving, built-in desk, etc. I also plan to update my computer. My boss won’t cover the cost of these upgrades, so I’ll bear the cost myself. Can I get tax relief for the cost of upgrading my home office?

Des, Co Cork

A The nature of an employment contract is usually such that all relevant costs are borne directly by the employer. Therefore, a claim for additional tax relief for expenses relative to salary is very limited. The advantage here is that the individual’s employment tax issues should be relatively straightforward.

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

In March 2020, this was extended to all people required to work from home. This approach will now be formalized by the 2021 finance law.

However, the relevant deduction available is still limited to 30% of the cost of justified expenses for heating, electricity and broadband – relating to days spent working from home. There is no specific ability for an employee to claim tax relief for other work-from-home expenses and so to determine the position we need to look at general tax principles.

Unlike self-employment benefits, for the expenses to be deductible as an expense from wages, they must be incurred “wholly, exclusively and necessarily” in the performance of the duties of employment. This is a notoriously high bar and Irish Revenue notes that one should consider whether the duties of the job could be carried out without incurring expense.

The expense should not arise from the taxpayer’s personal circumstances or preference. For the expense to be eligible, it must be incurred in the actual performance of the duties of the office or employment or as a direct result of those duties.

In principle, the costs described above would not be considered deductible expenses because they should be considered capital costs, being long-term durable assets. The cost of these assets is usually borne by the business and (capital) tax deductions may be available in such cases – with cost relief spread over eight years.

Although much less common, tax law also allows an employee to claim depreciation. Various conditions must be met, including a requirement that assets must be wholly and exclusively used for employment proposals.

Generally, this would not be satisfied if there was an element of personal use. However, if the assets are used solely for your business functions, you may be entitled to write-offs for qualifying expenses. Irish Revenue does not provide specific commentary on this and its advice on working from home (i.e. it is an online work and tax manual) merely confirms that a deduction expenses would not be available for these costs, without addressing the aspect of depreciation. .

Generally speaking, it is usually more tax efficient for the employer to cover the direct costs of working from home such as equipment, office furniture, etc. Unfortunately, this was not an option in your case.​​

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About Mariel Baker

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