Saturday 13 August 2022

Better than average: how a tax rule could give you a refund

As the pandemic has shown us, sometimes one year is significantly better than another financially. If your income has been affected by coronavirus, for better or for worse, remember this when you come to do your next tax returns.

If you have income that has varied considerably over the past few years, there’s a Dutch tax ruling that might help you even things out.

Middeling’ – which means averaging – looks at three consecutive tax years to find your average income. With this average in place, your tax is recalculated and if you would owe at least €545 less in tax than you actually paid, the amount can be refunded.

As the Consumentenbond consumer rights organisation points out, coronavirus might be a reason for a lot of people to think about averaging out their income.

But you may have had three years during which you changed jobs, had a period out of work, or received a substantial bonus one year but not in the others. All of these could be reasons to investigate your tax situation using the three-year average.

There are a number of important conditions: averaging can only apply to income that falls into Dutch ‘box 1’, which covers work and a home that you own and live in. The three years must be consecutive, and you need to have a definitive tax return already for the last year for which you are claiming for the averaging. Obviously you need to have been paying tax in the Netherlands for the whole time.

One ‘averaging’ period can’t overlap with another, and you need to submit the request within 36 months of the time when the tax for those years is definitive (generally there is a six-week period where you can challenge any tax demand from the Dutch tax office). In the averaging, any year with a ‘negative’ income from work and deductible housing costs, will be treated as zero.

A Blue Umbrella spokesman said that few expats are aware of the possibility for averaging, but that it could make a significant difference for some, especially considering the effects of coronavirus. ‘If you have had varying income, for example with a job change or a bonus, it is well worth looking into whether it would be to your advantage to submit a claim for averaging,’ he said.

Once an application (in Dutch) is made, it typically takes around eight weeks for the Dutch tax office to decide on your situation, and you will get the result digitally in your government mail box (at MijnOverheid or Mijn Belastingdienst) and also on paper.

Blue Umbrella is starting a new service to help expats who would like to investigate their situation and, if it is to their advantage, to apply for the ruling, which has to be done by a written request to the local tax office in Dutch.

For a trial period, this service will be available for an all-inclusive fee of €95 plus BTW.

Contact Blue Umbrella to find if averaging could be advantageous for you.

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