Deductible Education Expenses in 2015

|| Part 2 of a 2 part series – Education tax relief

Here are a few tips on how to make the most of tax relief associated with education expenses:

I do my education shopping in hypermarkets. What should I do when I ask for the bill?
The recommendation given by the tax authority is that different types of expenditures be broken down into different invoices: one for the expenses that the IRS accepts as education expenses (textbooks) and another in the category of general family overheads. If you include all the items in one bill, the computer system of Finance cannot distinguish between the two and categorises all expenses as belonging to the category of family overheads.

In whose name should my children’s education expenses appear?
The tax authority clarifies that invoices for dependents can be requested either in the name and tax number of the children or of the parents. However, if you request the invoice with the NIF (tax number) of the children, you will also need a password to access the online Portal in order to validate these expenses.

How are children’s expenses deducted in divorce situations where there is joint custody?
Finanças stipulates that in these situations, the e-Invoice is prepared to share the education bill with the NIF of children by both parents. However, if one parent pays child support, he/she can choose to deduct 50% from the maintenance payments to the other parent or 50% from those expenses in the bills issued in the children’s tax number.

Are there education expenses that do not appear on the e-Invoice?
Yes. There are also some areas of education expenses that may not yet be directly registered in e-Invoice system. This is because public schools are not required to issue invoices. Nevertheless, these entities must notify the tax authority by the end of January 2016 of the values supported by taxpayers with tuition and deductible fees as educational expenses. Most taxpayers will only be able to view these expenses online in early 2016.

I have a son studying abroad. Are his educational costs also deductible?
If the cost of education and training take place in another member state of the European Union or the European Economic Area, the taxpayer can communicate them through the tax authority portal, inserting the essential data of the invoice or equivalent document that supports them. Therefore, taxpayers should enter these expenses directly in e-Invoice page. To facilitate this task, Finanças plans to issue an appropriate “app” in the near future.

Doubts regarding costs of meals and school transport
School canteens and transport services are (in most cases) not provided by the schools themselves but rather by local municipal authorities. Local councils, in turn, often hire companies to provide these services. These entities do not have CAE allowing them to be classified by the IRS as education expenses and are subject to a VAT rate of 23%, entering therefore in the category of family overheads.

However, in the opinion of the Order of Chartered Accountants (CTOC), these expenses should be recorded as education expenses. Education ministry’s competencies regarding the provision of services are delegated to local authorities. The nature of the expenditure stays the same, regardless of who is the final service provider.

By Dennis Swing
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Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.