Dominic Coyle answers your questions

Clearing up DIRT confusion

In your column on August 25th, you said that "DIRT will discharge your full tax liability on deposit interest regardless of your overall income".

In Form 12 tax returns, section 16, you have to disclose your gross interest received (on which DIRT was deducted). This will appear as income on your P21 PAYE Balancing Statement and you are given a tax credit of 20 per cent in panel 4. Effectively, you are required to pay an additional 22 per cent tax on the interest.

This appears to be different from the advice that you have given. I have probably overlooked something!

Ms J.G., e-mail

That's certainly the way it looks at first sight. However, when it comes to tax, nothing is ever as simple as one would think it should be. First off, rest assured that you are not required to pay an additional 22 per cent tax on gross interest. The confusion is probably caused by the way in which DIRT is recorded in the Revenue's Income Tax Balancing Statement (Form P21). It may be logical from an accountant's viewpoint, but to the rest of us it is simply unclear and leads to the sort of confusion that exists in this case.

Gross Deposit Interest is listed clearly in the "income" section of the statement, eg "Deposit Interest €500". This income is then effectively taxed at 20 per cent by being added to the 20 per cent tax band, but without the addition being noted separately.

For example this year, for a single or widowed taxpayer with no children and gross interest of €500, the 20 per cent band would be printed as €32,500, with no indication that this figure is made up of the standard 20 per cent band of €32,000 plus €500 for gross deposit interest. By increasing the 20 per cent band in this way, the Revenue is effectively excluding your gross interest from any income tax charge above the original DIRT levied. Of course, the health levy does still apply - something of which this column is convinced the vast majority of bank depositors are totally unaware.

SSIA exit tax

I have received my balancing statement at the maturing of my SSIA.There is a deduction of DIRT. I am 70, married and my pension is 25,000. Please advise if I can reclaim this deduction from the Revenue.

Mr B.O'M., Kerry

The most important thing you need to know is that you cannot reclaim the tax deducted from your maturing Special Saving Incentive Account (SSIA).

Why? Well, what is being deducted is not Deposit Interest Retention Tax (DIRT) as you imagine but exit tax on what is an investment product, not a simple deposit.

If we were talking DIRT, it might be possible to claim an exemption or an offsetting payment but not with exit tax.

This is deducted at the rate of 23 per cent and is levied on the interest or investment gain on the SSIA and not on the original sum you deposited or on the 25 per cent top up added to that sum by the Government.

Quinn Life

Last week, we carried a warning from an SSIA holder who was charged more tax than he should have been. It transpired that his SSIA had been passed from Aberdeen Asset Management to Quinn Life when the former exited the market.

Quinn Life has been in touch to state that it is not responsible for the error. It says Aberdeen provided it with the wrong figures for the customer's SSIA contributions prior to their transfer to Quinn Life and that it has been unable get correct details from Aberdeen despite a number of subsequent enquiries.

Quinn Life also notes that it is required by the Revenue to collect the correct amount of exit tax on a maturing SSIA. Quite so. The problem is, of course, that it has apparently not collected the correct tax in this case.

Mr W.B., the initial correspondent, notes that he had contributed the maximum contributions from the outset. It really should not have been beyond Quinn Life using its own in-house resources - and cross checking with other Aberdeen transfer data - to ascertain this.

Either Quinn Life, realising there were problems with some transfer data, contacted this customer ahead of maturity but decided to apply the exit tax at the higher end of his estimation and the allegedly erroneous Aberdeen data - or it did not contact the customer at all before he raised the problem.

Quinn Life notes that, to meet its Revenue requirements, it needs documentary evidence of the customer's SSIA contributions before the transfer to Quinn.

I would argue that there was some onus on Quinn Life, at the time of transfer, to ensure that it had this correct documentation - and checking with transferring customers at the time to ensure it was correct, not three years later when it has already deducted the apparently incorrect level of exit tax. After all, it is making money on the management of the funds.

The point being made by Mr W.B. still applies. Always check your closing statement. Mistakes do happen.

• Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice.

Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.