In August, the Government proposed an act in the Chamber of Deputies, which would bring fundamental changes to some tax laws (proposal no. 873/0). A discussion about this proposal was supposed to take place during week no. 37, however, it has not taken place yet. The text should come into force on 1st January 2017 but some of the regulations would be applicable to 2016 tax period already.

Here, we are offering you a summary of the most fundamental changes concerning the Act on income tax. Because there are so many of them, this time we bring you the second article on changes in personal income tax. Following articles will bring information about corporate income tax and common provisions.

Benefits for family relatives of employees

The amendment specifies that benefits as identified in Act on income tax § 6 paragraph 9 d) and e) provided by the employer to a family relative of the employee are a part of the employee’s income (we are talking about exempted employee benefits such as recreation benefit, sporting events benefit etc.) This should stop any discussions about taxation of these benefits.

Extension of the definition of exempt non-monetary benefits in the form of healthcare establishment services

This part is concerned with the definition of healthcare establishments the usage of which is considered an income exempt from taxation for the employee. That is if services of said establishment are a form of non-monetary benefit provided by the employer to the employee or his or her family relative from the fund of cultural and social needs, the social fund, from gains after taxation or as a disadvantage to expenses (costs) which aren’t expenses (costs) for reaching, securing and maintaining employer’s gains.

The proposed amendment broadens exemption of these benefits which now applies also to the acquirement of goods and services of health, medical, hygienic and similar character from a healthcare establishment and to the acquirement of prescription medical devices.

According to the explanatory memorandum of the proposed amendment, the new definition will include for example rehabilitation, vitamin supplements or payment for prescription glasses.

Payment of partial surrender of complementary pension savings

Complementary pension savings are no longer limited by age and in connection to that, in accordance with Act on complementary pension savings, the so called partial surrender was introduced. It is used to describe the act of a partial one-time withdrawal of funds requested by the saver under legally set conditions.

Changes about partial surrender concern both the employees whose employer contributes to the savings, and all natural persons who exercise their right to deduct contributions from the basis of assessment.

Certain contributions from the employer to the complementary pension savings of the employee are exempt from income tax. In the case of partial surrender (i.e. if the purpose of pension savings is not fulfilled) the exemption shall be eliminated as according to the relevant legal provisions. The elimination shall be effective both for future contributions made by the employer and for any contribution made by the employer in the previous ten years. Thus, during the year of withdrawal, a new tax obligation arises for the employee, who must submit the relevant tax return form.

Concerning the deduction of contributions, in case of withdrawal of partial surrender from complementary pension savings the new amendment requires “retrospective” taxation of these contributions, formerly not subject to taxation. Deductions made in the previous ten years will be added to the basis of assessment of other income tax.

The mentioned provisions are de facto similar to those introduced earlier when changes were made concerning life insurance.

Invalidity tax and severe health disability with assistance concessions

The emergence of granting material concessions is now tied to the moment the disability pension has started to be drawn. As according to the new amendment the concessions should be granted from the moment the disability pension has been granted.

The moment of granting of concessions for holders of severe health disability with assistance card (SHD/A) is supposed to be modified similarly. The new amendment defines this moment as the date when the card is granted not when it is issued, as it is in the current provisions.

This proposed change aims to eliminate the unfair situation which arises for persons who have been granted disability pension or SHD/A card on the same date but for different reasons have started to draw the pension or been issued their card on a different date.

The above stated changes apply to all material concessions.

Kindergarten fees concession

This part only specifies that the concession for placement of child in kindergarten is applicable to expenses done by the payer for the period in question, not during. The original text was easily misinterpreted and caused uncertainties when applied in practice.

Now it should be straightforward, that for the concession for kindergarten placement the deciding factor are expenses relating to the actual placement of a child in such facility during the tax period in question, not regarding the moment of their actual payment.

Entitlement to a tax credit and non-taxable amounts for employees

The rise of electronic communication is closely linked to a proposal for wider options of how to “sign” the declaration of the taxpayer (the so called “pink paper”). It is now possible to sign the declaration not only physically but also electronically, if it is definitely verifiable, that this act has been done by the relevant employee. For this he or she may make use of an electronic signature or a declaration done through the employer’s internal information system.

Other changes have been made in the text of the declaration itself and in how the validity of decisive data is proved. This data follow from other points discussed in this article (the conditions for receiving concessions for children, SHD/A, kindergarten fees, complementary pension savings etc.).

Favourable tax treatment for parents and tax benefit

Just like in the previous years we should be seeing an increase of favourable tax treatment concerning dependent children.

Concerning the first child the favourable tax treatment should stay at 13.404 CZK per year. Concerning the second child it should increase to 19.404 CZK and with the third and all other children it should amount to 24.204 CZK per year.

The maximum amount of tax benefit stays unchanged at 60.300 CZK per year.

Next to that the new text should be more precise with definitions about which children should be counted in the total amount of children in a household. The new text includes only those children which are dependent on the relevant taxpayer. This amended provision will be used for households, where more taxpayers exercise their right to favourable tax treatment. In these cases the dependent children are considered as part of one household but the process is done separately with each one of the taxpayers. The explanatory memorandum provides the following example: in a household where two partners both have children from previous relationships and some children together, the children of one partner from previous and current relationship are to be considered together.

In case of exercising the right to the tax benefit the condition about income having to be at least six times the minimal wage stays, however, there is a significant change in the assessment of what type of income should be considered here. According to the new text it should be only income from employment and professional income and no longer also rental income and capital gains.

This should result in preventing of the so called artificial inflation of the newly excluded types of income, which used to be used for gaining access to the tax benefit without increasing the tax liability and insurance contribution adequately.

Tax return submitted by persons managing a succession

Some changes have been made to the possibilities of decreasing the basis of assessment for a tax return submitted for a deceased taxpayer for the time period from his or her death till the end of succession proceedings.

Until now such cases allowed only for the use of previously existing tax loses, the new text allows for the deduction for support of professional education and deduction for support of research and development, and also for employees with a physical disability.

Also the relationship between a tax return submitted during an insolvency procedure and a tax return submitted for a deceased taxpayer who had been in an insolvency procedure until the day of his death is made clearer.

The tax from the first tax return will be considered a deposit for the tax stated in the latter.

It can be expected that during the legislative process the amendment will go through some more changes and we will strive to keep you updated as the process goes on. In case you have any questions about this topic, don’t hesitate to contact us.