LA LINEA DE LA CONCEPCION

on low general income

The tax deduction for pension income is a deduction in income tax and National Insurance contributions for pensioners with a combined pension income up to a certain amount.

Who is entitled to a tax deduction?

• Recipients of an old-age pension from the National Insurance scheme

• Recipients of AFP early-retirement pension in the public sector

• Recipients of AFP early-retirement pension in the private sector with effect from before 2011

• Recipients of corresponding pensions from EU/EEA countries. «Corresponding pension» means a pension from general, mandatory pension schemes that include all inhabitants of the country in question. If you only receive other pension disbursements, such as seamen's pension or a pension under the guaranteed early retirement scheme from the Norwegian Public Service Pension Fund, you will not be entitled to the tax deduction.

Basis for calculating the tax deduction – total pension income

The total pension income forms the basis for calculating the tax deduction. The following benefits are included in the total pension income:

• taxable employment-related and non- employment-related pension, including pensions from abroad which are taxable in Norway

• pensions from abroad which are not taxable in Norway

• benefits derived from surrendered property • an annuity that is part of an emploment-

related pension scheme, except for payments from a collective annuity established after the income year 2006, the premium for which is taxed as income from employment.

Tax-free pension disbursements, such as the compensation supplement for the new early-retirement pension (AFP) in the private sector and supplementary benefit for spouses from the national insurance scheme for recipients of a retirement pension and early-retirement pension when the effective date is before 1 January 2011, are not included in the total pension income. In the income year during which the taxpayer begins to draw retirement pension from the national insurance scheme or early-retirement pension, pension income received prior to the date on which the pension began to be drawn will not be included in the total pension income. If you are married or a spouse-equivalent cohabitant, the tax deduction is stipulated independently of your spouse’s or cohabitant’s income.

The size of the tax deduction

The maximum tax deduction for the 2013 income year is NOK 30,300. You cannot be granted a tax deduction that is greater than the sum total of your income tax and National Insurance contributions.

The tax deduction is reduced in the following cases:

• The tax deduction for old-age pension from the National Insurance scheme is reduced if you have drawn less than 100 percent of the full pension. The old-age pension can be drawn either as 20, 40, 50, 60, 80 or 100 percent (retirement percentage). For example, if the retirement percentage is 50

percent, the tax deduction will be 50 percent of the maximum deduction. If the retirement percentage is changed during an income year, a weighted average is calculated for the income year. If, for example, you draw 50 percent pension in the first six months of the year, and 100 percent pension in the last six months, the weighted average for the income year will be 75 percent. • If you are drawing early-retirement

pension in the public sector or the old early-retirement pension (before 2011) in the private sector and also receiving income from employment at the same time, the pension will be reduced against the income from employment. The tax deduction will be reduced by the same percentage as the pension. For example, if you receive 35 percent of a full early- retirement pension, the tax deduction will

be 35 percent of the maximum deduction. • The tax deduction will be reduced by an

amount corresponding to the number of months during the year in which you have received a retirement pension from the national insurance scheme or an early- retirement pension. If you have received a pension for six months, you will be granted a tax deduction for six of the twelve months of the year.

• The tax deduction will be reduced in steps in the case of pensions over NOK 170,750 and will cease in its entirety when your total pension income is NOK 537,709 or greater.

Amount limits

The tax deduction is reduced in steps when the taxpayer’s total pension income exceeds the limits set by the Storting. For 2013, the deduction will be reduced by:

• 15.3 percent of the total pension income in excess of NOK 170,750 up to and including NOK 259,800

• 6 percent of the total pension income between NOK 259,800 and NOK 537,709 If you only draw a partial pension and/or only receive a pension for part of the income year, the amount limits are reduced in the same way as the tax deduction.

Useful information for married people/ registered partners on a low pension

The tax deduction for pension income is calculated individually based on gross pension income. The deduction is given from the income tax and national insurance contributions that are calculated for the individual. If your annual pension is less than NOK 170,750 and you have no other income, the total income tax and national insurance contributions will be lower than the maximum tax deduction. Unutilised maximum tax deduction cannot be transferred and used by the other spouse/partner. If you receive capital income (interest, etc.) as a couple, it may be beneficial to enter some of the capital income in the tax return under the person who has the lower pension. The spouse with

TOPICS

the lower pension can then make better use of the tax deduction and your combined tax will be reduced. If you have capital expenses (interest deductions, etc.), it may be beneficial to enter the capital expenses under the spouse/partner with the higher pension/ income. For information on the incomes and deductions that can be allocated freely, see «Spouses, registered partners and spouse- equivalent cohabitants» on page 25. In connection with the pre-completion of tax returns, it is not practicable for the Tax Administration to allocate income and deductions in the most favourable way. This means that if a different allocation other than that which appears in the pre-completed tax return is more favourable for you as a couple, you must correct and submit the tax returns yourself. At skatteetaten.no, you can perform a pre-liminary calculation of what your tax will be after the tax deduction.

Tax limitation – low general income

The tax limitation is granted automatically in connection with the tax assessment. You therefore do not need to claim it. You can be granted a tax limitation if you receive a disability pension because your earning capacity is impaired by at least two-thirds. The same applies if you receive either transitional benefit, a surviving spouse’s pension or a pension for a family carer from the National Insurance scheme.

You can also be granted a tax limitation if you receive supplementary benefit for persons who have only been resident in Norway for a short period.

If you receive work assessment allowance from the National Insurance scheme during the same period in which you receive a disability pension, you will not be entitled to tax limitation. The tax limitation rule means that you do not have to pay income tax or National Insurance contributions if your income does not exceed certain limits set by the Norwegian Parliament. For information about the amount limits; see «Tax calculation». A tax limitation is also granted when, using the normal tax calculation method, the sum of the above-mentioned taxes is greater than 55 percent of the difference between the income and the amount limit. See «Skatteregler for pensjonister» (Tax rules for pensioners – in Norwegian only) at skatteetaten.no for more information about tax limitation.

Calculation of income

The basis for calculating tax limitation is your general income. There is no separate item in the tax return for general income. In order to arrive at this income, start with Item 3.6 (total basis for income tax). Any addition to general income in the form of a distribution from a general partnership (Item 2.7.10 or

2.7.11) should be deducted. If relevant, you then add any

• special allowance (Item 3.5) • deductible tax-free return for share

dividend and/or gains on shares, see the topic «Shares etc.» on page 19.

A standard addition to income of 1.5 percent of any net capital in excess of NOK 200,000 (NOK 100,000 for each spouse) is then added. For spouses/registered partners, the net capital must be set to 50 percent of their combined net capital. When calculating the addition to income, the capital value of your primary dwelling (i.e. your own dwelling where you were living permanently on 31 December 2013) must not be included in net capital. «Primary dwelling» here also includes dwelling houses on farms and their naturally associated plot.

Tax calculation Single persons

If your income is higher than NOK 127,000, the total amount of municipal/county tax, equalisation tax and National Insurance contributions shall not exceed 55 percent of the amount which exceeds NOK 127,000. Any surtax and/or wealth tax will not be reduced.

Spouses – the main rule

For spouses, the tax limitation is calculated individually for each spouse. Capital, capital income and capital expenses that spouses can freely allocate between themselves in the tax return must be allocated with half to each spouse. For information on the incomes and deductions that can be allocated freely, see «Spouses, registered partners and spouse- equivalent cohabitants». If the income is greater than NOK 116,700, the total amount of income tax to be paid to the municipality/

county, equalisation tax and National Insurance contributions shall not exceed 55 percent of the amount that exceeds NOK 116,700. Any surtax and/or wealth tax will not be reduced.

What the tax will be under the ordinary rules is calculated based on how you have allocated capital income/expenses between you in the tax return. The allocation may therefore have a bearing on whether the tax will be limited and the size of the tax limitation.

In order to achieve the lowest tax overall, it will generally be beneficial to enter capital income in the tax return of the spouse with the lower income and tax limitation, and capital expenses in the tax return of the spouse with the higher income.

In connection with the pre-completion of tax returns, it is not practicable for the Tax Administration to allocate income and deductions in the most favourable way. This means that if a different allocation other than that which appears in the pre-completed tax return is more favourable for you as a couple, you must correct and submit the tax return yourself. At skatteetaten.no, you can perform a preliminary calculation of what your tax will be after the tax deduction.

Spouses where the one spouse receives disability pension and supplementary benefit for a spouse – exception from the main rule If you or your spouse receive disability pension with supplementary benefit for a spouse, the tax limitation will be calculated jointly based on your combined income. This applies irrespective of whether or not the spouses are assessed separately or jointly. If the income is greater than NOK 233,400, the

EXAMPLE 1:

Eva draws 100 percent of her pension and is a pensioner for the whole year. Her pension income is NOK 150,000. She has no other income.

Eva’s tax is calculated as follows:

Eva’s tax before the tax deduction: NOK 24,928 - Tax deduction (max. equal to assessed tax) NOK 24,928

= Eva's tax NOK 0

Eva cannot be granted a tax deduction that is higher than the sum total of her in- come tax and National Insurance contributions.

Eva is married and her spouse is not entitled to a tax deduction for pension income. Her spouse receives NOK 20,000 in interest income. In order to fully utilise the tax deduction, her spouse’s interest income should be entered in Eva’s tax return. In this case, Eva’s tax will increase by NOK 5,600 (28% of NOK 20,000) to NOK 30,528, while her spouse’s tax is reduced by NOK 5,600.

Eva’s tax is then calculated as follows:

Eva’s tax before the tax deduction NOK 30,528

- Tax deduction NOK 30,300

= Eva's tax NOK 228

Transferring the interest income thus results in her getting the maximum tax deduction. The combined tax of the spouses is reduced by NOK 5,372.

sum total of tax on general income and National Insurance contributions shall not exceed 55 percent of the excess amount. The tax reduction will be divided proportionately between each spouse’s share of the tax before reduction. Any surtax and/or wealth tax will not be reduced.

Tax deduction or tax limitation

In certain cases, a taxpayer can receive benefits that meet the conditions for both tax reduction for pension income and tax limitation pursuant to either the Taxation Act, section 17-1 (low general income) or section 17-4 (inability to pay tax). This could apply, for example, in connection with:

• transition from one benefit to another – from a surviving spouse’s pension to old-age pension – from disability pension as a result of impairment of earning capacity of at least two-thirds to old-age pension • receiving both old-age pension and

disability pension as a result of impairment of earning capacity of at least two-thirds –

for example, 80 percent disability pension and 20 percent old-age pension.

In such cases, the Tax Administration will calculate the tax using the rule that results in the lowest tax for the income year in question.

Transitional rules

Transitional rules have been adopted for pensioners with low general income who will have to pay significantly more tax as a result of the new rules. The transitional rules are limited to unmarried persons with a gross income of less than NOK 440,000 and married couples with a gross income of less than NOK 770,000.

Who do the transitional rules apply to? • single taxpayers who are entitled to a tax

deduction and who have higher capital expenses than capital income and who were granted a tax limitation for 2010 • married couples where only one of the

spouses is entitled to a tax deduction, tax limitation or special allowance pursuant to the Taxation Act, section 6-81 first paragraph, and who were granted a tax limitation for both of them together for 2010 • married couples where both spouses are entitled to either a tax limitation or a tax deduction and who, to-gether, have higher capital expenses than capital income and who were granted a tax limitation for both of them together for 2010.

Calculation of extra tax

Extra tax is calculated as follows:

• For unmarried persons, it is calculated by comparing tax calculated pursuant to the new rules on tax deduction with tax calculated pursuant to the tax limitation rule. • For married couples, it is calculated by

comparing tax calculated pursuant to the new rules on tax deduction or tax limitation with tax calculated pursuant to the rules that apply to disabled married couples whose income is stipulated together pursuant to the tax limitation rule in the Taxation Act, section 17-2 second paragraph. For those who receive an old-age pension and who have been granted tax-free supplementary benefit for a spouse, the tax-free supplementary benefit reduced by a special minimum deduction must be added to the calculation basis for tax limitation for the comparison to be correct.

Reduction in tax for the income year 2013

Gross income will be used as the basis. • Single persons with a gross income of less

than 220,000 are granted a tax reduction equal to 33 percent of all extra tax in excess of NOK 600.

• Single persons with a gross income of more than NOK 440,000 are not granted a tax reduction.

• For those whose gross income exceeds NOK 220,000, the tax reduction is reduced in proportion to increasing income up to NOK 440,000. The tax will be reduced by 33 percent of the tax reduction calculated in this way.

• Married couples with a gross income of less than 330,000 are granted a tax reduction equal to 33 percent of all extra tax in excess of NOK 1,200.

• Married couples with a gross income of more than NOK 770,000 are not granted a tax reduction.

• For those whose gross income exceeds NOK 330,000, the tax reduction is reduced in proportion to increasing income up to NOK 770,000. The tax will be reduced by 33 percent of the tax reduction calculated in this way.

Tax limitation due to