Transitional rules in the new taxation of pensioners

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The Ministry of Finance has laid down regulations concerning transitional rules for persons with low or medium income who are subject to a greater tax burden under the new rules.

The Ministry of Finance has laid down regulations concerning transitional rules for persons with low or medium income who are subject to a greater tax burden under the new rules. The purpose is to produce a less abrupt transition to the new tax level. The transitional rules apply to all who fulfil objectively defined criteria and they are not discretionary. The rules entail the granting of a tax reduction. The tax reduction is granted automatically through the tax settlement notice.

The transitional rules apply to

Taxpayers who:

  • are entitled to a tax allowance under the new rules and
  • have higher capital expenses than capital income (for example, have higher interest costs on loans than interest from bank deposits or other capital income) and who,
  • for income year 2010, had a tax limitation on low general income. All three criteria must be fulfilled.

Married couples where:

  • only one spouse is entitled to tax limitation, tax allowance for pension income or special allowance for disability under the Tax Act Section 6-81 (1) and who,
  • for income year 2010 had their tax jointly calculated under the tax limitation rule for low general income

Married couples where:

  • both spouses are entitled to either tax limitation or a tax allowance and
  • jointly have higher capital expenses than capital income and,
  • for income year 2010, had their tax calculated jointly under the tax limitation rule for low general income.

The calculation of the increased tax

  • For a single old-age pensioner, the tax increase is calculated by comparing what the tax will be under the new tax allowance rules and the tax calculated according to the rules for single disabled persons receiving a disability pension (the tax limitation rule)
  • For a married old-age pensioner, the tax increase is calculated by comparing what the total tax will be for the spouses under the tax allowance rules and the tax calculated according to the rules for married recipients of a disability pension who receive supplementary benefit for spouses (the tax limitation rule)
  • For a married recipient of a disability pension who is not receiving a supplementary benefit for spouses, the tax increase is calculated by comparing total tax for the couple under the new tax limitation rules for married couples and the tax calculated in accordance with the rules for married recipients of a disability pension who are receiving supplementary benefit for spouses (the tax limitation rule) 

Reduction of stipulated tax

Income year 2011

Under the transitional rules, a tax increase which exceeds NOK 600 for single persons and NOK 1,200 for married couples will be reduced by a percentage (compensation rate). 

  • Single persons: Taxpayers who are not married and who have gross income of less than NOK 220,000, for 2011, have all tax increase above NOK 600 due to the new pensions rules reduced. For income from NOK 220,000 to NOK 440,000, the tax reduction is gradated proportionally as the income increases. Gross income above NOK 440,000 is not comprised by the transitional rules, and no tax reduction is granted.
  • Married couples: Married couples who have combined gross income below NOK 330,000, for 2011, have all tax increase above NOK 1,200 due to the new pensions rules reduced. For income from NOK 330,000 to NOK 770,000, the tax reduction is gradated proportionally as the income increases. Gross income above NOK 770,000 is not comprised by the transitional rules, and no tax reduction is granted.

Gross income means the total of all income included in general income, including share dividends before deduction for risk-free return under the Tax Act Section 10-12. Supplements under the Tax Act Section 10-42 are not included in gross income.

 

Income years 2012 and 2013

In 2012 and 2013, the compensation rate is gradually reduced to respectively 2/3 and 1/3 of the compensation rates for 2011. The transitional rules apply up to and including income year 2013.

As of 2014 all pensioners will be taxed in accordance with the ordinary rules.(A compensation rate for individual selected levels of gross income for single persons and married couples, respectively, is presented in Proposition 59 S (2010-2011) concerning Appropriation changes in the National Budget 2011).

 

Examples

For a married couple with gross income of NOK 390,000 for income year 2013 and increased tax of NOK 25,000, this will result in a tax reduction of NOK 6,902. (25,000 - 1,200 x 29% = 6,902). The tax increase in 2013 will be NOK 18,098.

For a single person with gross income of NOK 250,000 for income year 2013 and increased tax of NOK 15,000, this will result in a tax reduction of NOK 4,176.(15,000 - 600 x 29% = 4,176). The tax increase in 2013 will be NOK 10,824.

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