The deduction for risk-free return is a deduction that reduces your taxable share income so that you pay less tax. The deduction indicates the amount of dividend or gain that you can receive tax-free.
It is set to a basis for deduction for risk-free return multiplied by a risk-free interest rate:
Basis for deduction for risk-free return x risk-free interest rate = deduction for risk-free return
A deduction for risk-free return for shares/holdings is calculated annually at the end of each income year.
Basis for deduction for risk-free return
The basis for the deduction for risk-free return is calculated per share and will generally be the fee that the shareholder paid for the share at the time (acquisition value), including expenses which are directly attributable to the acquisition, e.g. broker expenses.
Risk-free return interest rate
The risk-free interest rate is established in January in the year after the income year. The risk-free interest rate is determined based on the mean three-month interest rate for treasury bills.
The deduction for risk-free return
The deduction for risk-free return is calculated for each share owned as of 31 December during the income year, and shows the dividend amount that can be received tax-free.
If the dividend is greater than the deduction for risk-free return, the excess amount will be taxed as general income (i.e. at the rate of 27% for 2015 and 25% for 2016). From 2016 onwards, share income will be multiplied by 1.15 (25% x 1.15 = 28.75%)
If the dividend is less than the deduction for risk-free return in a particular year, the unused deduction for risk-free return will be used to reduce the future taxable dividend and/or gain for subsequent years (see the example below).
The deduction for risk-free return is linked to the individual share and cannot be transferred to other shares.
Example
Trine owns a share for which she paid NOK 10,000. The acquisition value is therefore NOK 10,000.
In this example, the risk-free interest rate is set to 2%.
Year 1
The basis for the deduction for risk-free return for the share is NOK 10,000
Deduction for risk-free return = basis for deduction for risk-free return x risk-free interest rate
Deduction for risk-free return: 10,000 x 2% = 200
Trine receives NOK 500 in dividends in year 1.
Taxable dividend = Dividend – deduction for risk-free return
Taxable dividend: 500 – 200 = 300
Year 2
The basis for the deduction for risk-free return for the share is NOK 10,000
Deduction for risk-free return = basis for deduction for risk-free return x risk-free interest rate
Deduction for risk-free return: 10,000 x 2% = 200
In year 2, Trine receives NOK 100 in dividends.
Taxable dividend = Dividend – deduction for risk-free return
Taxable dividend: 100 – 200 = - 100
As the deduction for risk-free return exceeds the dividend amount received, the taxable dividend in this case will be zero. Trine therefore has an unused deduction for risk-free return of NOK 100, which can be carried forward to next year. Any unused deduction for risk-free return must also be included in the calculation of the deduction for risk-free return for the following year by adding it to the basis for the deduction for risk-free return.
Year 3
The basis for the deduction for risk-free return for the share in year 3 is the acquisition value + unutilised risk-free return from year 2.
Basis for deduction for risk-free return: NOK 10,000 + NOK 100 = NOK 10,100
Deduction for risk-free return = basis for the deduction for risk-free return x risk-free interest rate
Deduction for risk-free return for the year: 10,100 x 2% = 202
Remaining deduction for risk-free return from year 2 = 100
Total deduction for risk-free return in year 3 = 202 + 100 = 302
In year 3, Trine receives NOK 400 as a dividend.
Taxable dividend = Dividend – deduction for risk-free return
Taxable dividend: 400 – 302 = 98