When can you consider yourself fiscal partner? And what effect does it have on your tax declarations and the 30%-ruling?
Spouses may benefit from filing joint income tax returns in the Netherlands. Though fiscal partners are required to file two sperate tax returns and each individual is assessed separately, they can benefit by allocating certain designated joint income items and deductions among themselves in a tax efficient manner. This includes the mortgage interest deduction, personal deductions (such as gifts, sickness costs), Box II income (income from substantial interest and Box III (income from savings and investments).
Another benefit that may be available is payment of some of the levy rebates to the non or low-earning partner which rebate could otherwise not be (fully) effectuated due to lack of income of that non or low-earning partner.
1) Who can be considered fiscal partners? Definition of fiscal partnership for income tax purposes
In general, married couples are considered as fiscal partners for Dutch tax purposes. The same applies to registered partnership as this is treated equally as marriage. A fiscal partnership would cease to be recognized if both a petition for divorce or legal separation is filed and they are no longer registered at the same address.
Tax payers who have been living at the same address and have a joint living agreement are also considered fiscal partners.
In addition to aforementioned formalized living arrangements, a couple may be considered as fiscal partners for Dutch tax purposes for income tax purposes if they are living at the same address and meet one or more of the following conditions:
• they have a child together (or if one of them has a child that the other has recognised)
• if one (at least) has been considered as pension partner of the other based on the (company) pension plan
• they own a house together that qualifies as principal residence
• if both are adult and a minor child is living with them (except if the living arrangement of the adults is based on a rental agreement in writing), or
• they qualified as fiscal partners last (calendar) year.
Two main exceptions to the fiscal partnership for income tax purposes include the parent child scenario if the child is younger than 27 and non-residents that do not meet the conditions to be treated as qualifying non-resident tax payer.
One can be considered fiscal partner for part of the year. When a couple is considered fiscal partners for at last part of the year, they can file a joint income tax return (despite that each is taxed individually and regardless of whether the income allocation rules apply).
Technically, tax payers must be considered as full year partners in order for them to be allowed to allocate joint income items and joint deductions. However, by fiction, tax payers who have not been fiscal partners for the whole year can opt to be treated as full year partners solely for purposes of these allocations rules. As such, even when they have not been fiscal partners for the whole year, allocation is possible for the joint income items and deductions of the whole year. At least this applies to full year residents. If one partner has the 30% ruling and the other has not, the non-eligible partner may benefit from the partial non-resident status of the partner who is eligible to the 30% ruling, since for instance, the Box III income is allocated in full to the partial-non resident tax payer. Tax payers who have migrated to or from the Netherlands cannot freely allocate their joint income and deductions for that year. The only exception to this rule is for their joint resident period in that migration provided that they migrated at the same date. If not, then they are considered partners but they cannot allocate. Therefore, it is often recommendable that if one partner has the 30% ruling and the other does not, that they migrate at the same time so that the non-eligible partner does not have to pay Box III on the Box III income based on a pro rata approach for the full months of Dutch tax residency.
For sake of completeness’, special rules may apply to non-residents living in EU, EEA, Switzerland or BES Island and who have met the conditions for qualified non-resident tax payers. This status will give them a resident treatment in the Netherlands since 90% or more of their personal or family income is subject to Dutch income taxation.
3) Benefits of allocation
Allocation of deductions among the fiscal partners allows for fuller utilization of deductions, such as mortgage interest, study costs and medical expenses. For example, if the partner incurring study costs does not have sufficient income in order to avail the entire deduction thereof, some part of the deduction or all of it can be claimed by the other partner having a higher income.
Fiscal partners can obtain a significant saving with respect to Box III income (from savings and investments) by pooling their assets. In Box III, income from savings and investments is taxed at 30% by means of a progressively determined return on investment (ROI) rate applied to a net asset basis. Net asset value is the total of assets minus debts and minus a personal threshold. The personal threshold for a single tax payer is € 30,360 (in 2019), whereas that for fiscal partners is € 60,720 (in 2019). Hence, by pooling assets (and benefitting from the progression effect or by higher utilisation of the non-earning partner’s levy rebate) and using the doubled threshold, fiscal partners are usually able to make a significant amount of tax saving. As just explained, the allocation rules are also important in the situation where one partner has the 30% ruling and the other has not.
4) Levy rebate
In the situation that one partner has sufficient income and pays enough income tax / national insurances and the other does not or does not have enough income to utilize the applicable levy rebates (i.e. general levy rebate, labour levy rebate and combination rebate), the non-used part of the levy rebate is paid out to that non or low-earning partner. Each year, this benefit is getting smaller unless date of birth is before 1963.