Tax returns: exceptional expenses and extraordinary costs

For taxpayers, filing a tax return means listing all sources of income (professional, rental, etc.). But reporting any expenses that may be deducted from your taxable base is another key element of the process. On the infamous 100F form, this is the purpose of pages 13–18 of your tax return (entitled “exceptional expenses” and “extraordinary costs”). Let’s take a closer look at what these two categories refer to specifically, and what you can declare to benefit from a substantial tax allowance in certain circumstances*.

Extraordinary costs

Let’s start with extraordinary costs, which are often the most misunderstood. This term refers to unavoidable extraordinary expenditure relating to a specific event that the taxpayer must cover for practical, legal or moral reasons. Deemed to significantly reduce the taxpayer’s ability to pay tax, these expenses are as follows:

• medical expenses not covered by social security insurance (illness, invalidity, serious accident);
• expenses for children’s education;
• costs of caring for ageing parents;
• sudden and unforeseeable events (fire, flood, theft) not covered by personal insurance;
• funeral expenses;
• expenditure related to a career change.

Whether or not such expenses are tax-deductible depends on your taxable income and your tax household. That said, certain extraordinary costs give rise to a fixed amount of tax relief regardless of your taxable income. This is true of costs associated with childcare and domestic services, for example. As far as domestic services are concerned, you can choose whether you wish to opt for an allowance based on actual costs or a flat-rate tax relief amount of up to EUR 450 per month (providing invoices as proof). It is up to you to choose the system that benefits you most in light of your personal circumstances. Domestic service costs include the remuneration paid to individuals employed to carry out domestic work within the home and to those employed to take care of any dependents. It is mandatory for the workers in question to be declared to social security. Taxpayers with dependent children who are not counted as part of the tax household are entitled to an allowance of up to EUR4,020 per child.

The new sustainable mobility allowance also falls under this category. So, what does it involve? Upon request, a taxpayer aged at least 18 at the time of purchase can obtain an allowance on their taxable income when buying a new vehicle from the following list, provided it is for private use only:

• a zero-emissions car running exclusively on electricity or hydrogen fuel cells, first registered after 31/12/16;
• an electrically assisted pedal cycle acquired after 31/12/2016;
• a bicycle acquired after 31/12/2016.

The allowance amount is EUR5,000 when buying a car and EUR300 for a bicycle.

This allowance amount will be lower if the individual is in receipt of direct assistance from the government or any other public body. It is deductible during the year in which the full vehicle payment is made. However, the allowance will not be granted if the same allowance was granted in any of the four previous tax years. Where a couple is taxed jointly, each spouse is entitled to the allowance.

Extraordinary costs refer to unavoidable extraordinary expenditure relating to a specific event that significantly reduces the taxpayer’s ability to pay tax.

Exceptional expenses

Exceptional expenses are costs associated with personal life that the vast majority of taxpayers must pay. Examples of such expenses include taking out insurance, a pension savings scheme or a home savings plan, or paying spousal maintenance.

The maximum amount that you can declare as an exceptional expense depends on why the expense was incurred and the number of people in your tax household. There are several kinds of exceptional expense.

 A) Premiums (payments) and contributions paid to companies. Examples include:

• life assurance, life insurance and invalidity insurance;
• civil liability insurance;
• mutual healthcare insurance and additional cover;
• mortgage protection insurance (premature death cover).

The maximum annual tax relief amount is EUR 672 per dependent person in the tax household. The maximum tax relief threshold may be raised to reflect the age and composition of the household if only one premium is paid (for mortgage protection insurance).

Something to watch out for: in the 2017 tax reform, tax relief for insurance premiums was merged with that of interest expenses (…), which previously gave rise to separate tax relief.

Something to watch out for: in the 2017 tax reform, tax relief for insurance premiums was merged with that of interest expenses (bank charges), which previously gave rise to separate tax relief. This means that whereas interest payments (aside from mortgage interest payments) previously gave rise to tax relief of up to EUR336 and the tax relief on insurance was EUR672, totalling EUR1,008 prior to the reform, the total available tax relief is now EUR672.

B) Mortgage savings scheme. Tax relief on regular payments made to mortgage providers is capped at EUR1,344 for people aged between 18 and 40, and EUR672 for people aged over 40 (per dependent in the tax household).

C) Retirement savings plan. The annual tax-deductible premium is capped at EUR3,200 for retirement savings expenditure paid into a retirement fund.

D) Additional payments made by the employee as part of a supplementary pension scheme subscribed by their employer. Up to a total of EUR1,200 per year may be deducted from taxable income.

E) Donations. Donations must be made to registered charities and the sum in question must be between EUR120 and EUR1,000,000. Furthermore, donations cannot amount to more than 20% of net income.

F) Spousal maintenance payments in accordance with a court order, up to a limit of EUR24,000. Such payments are tax-deductible if you are a divorced parent.

G) Social security contributions paid to the Centre commun de la sécurité sociale (Joint Social Security Centre – CCSS).

A minimum flat-rate may be automatically deducted for certain exceptional expenses. This amounts to EUR480 per taxpayer and EUR960 for jointly taxed couples where each person earns income through salaried work. If the exceptional expenses exceed this minimum flat-rate, a deduction of the actual amount will be applied so long as all supporting documents related to this exceptional expense are provided.

While this article is not exhaustive, it is still abundantly clear that these three pages of the tax return deserve the taxpayer’s full attention. They can be used to declare a wide array of expenses, thereby optimising your tax return substantially. If you have any doubts or would like more information, we would encourage you to contact a tax adviser who will be able to help you fill out your tax return correctly. A number of official guides are available in stores or online, offering valuable assistance for any taxpayer who takes the time to read them carefully and attentively. Good luck! And remember, the effort will be well worth it when you see how much money you can save!

 ^{* The details described in this article take into account the tax reform that entered into force on 1 January 2017.}