TAX

Study-Related Tax Benefits

By Patricia van der Hut

In these economically turbulent times it may be a good idea to take up a study and see if you can expand your knowledge and improve your opportunities on the labor market. As following a study can be an expensive endeavor, the Dutch tax authorities have created a substantial tax advantage that may give you that last nudge towards taking the plunge and going back to school.

If your study meets certain requirements, the expenses incurred are tax-deductible. These requirements are:
1. the study or course is followed for the purpose of improving your position on the labor market
2. you (or your fiscal partner) have borne the cost of the studies yourself.

Improving Your Position
It is not necessary for your study to actually result in a better-paid job, as long as it is likely that by following this study you will be able to find a good position on the Dutch labor market.
Not every study will be considered an improvement of your opportunities. The courts, in judging the importance of learning Dutch, following a course in fast reading, or taking driving lessons, have ruled that these courses are too general to qualify and that the related costs are not tax-deductible.

Bearing the Costs
You have to prove you have borne the cost yourself. This can be proven, for instance, by means of a bank transfer from your account. If you have taken out a bank loan to finance your studies whereby the bank transferred the loan directly to the training center or university, a statement from the bank regarding the terms of repayment of the loan will be sufficient too.
This is also the case if, for instance, your parents gave you a loan to pay for the study, but transferred the money directly to the training center or university. In this case, you will have to deliver proof by means of a written loan agreement between you and your parents.
If your employer has contributed to your tuition fee, you can only deduct the amount you have paid yourself.

Definition of Study Expenses
Besides the tuition fees, the costs of books and syllabuses are also eligible for tax deduction. The following expenses are excluded from deduction:
- cost of living, such as expenditures in connection with housing, food, beverages, and clothing
- rent for study space, including inventory
- travel and overnight expenses, including excursions.

If you have bought a computer, the depreciation of the computer is tax-deductible. In general, a computer has to be depreciated over a period of three years, taking into account a final value of 10% of the purchase value. This calculation can also be used for second-hand computers. For instance, if you buy a computer that is one year old, you can write off the computer in two years.

Thresholds and Limits
Study expenses are deductible insofar as they exceed a threshold of € 500. The excess is deductible up to a maximum of € 15,000 per year. For those who follow an expensive course it may therefore be worthwhile to pay the tuition fee in two or more instalments over two different years in order to fully benefit from the tax advantage.
If you are older than 18 and younger than 30, you can opt for an exemption from this maximum amount of € 15,000 for a period of 16 calendar quarters, in which case the entire amount of study expenses can be offset against your income. The threshold of € 500 remains applicable.

Government Allowance
In some situations you can be eligible for a provisional government allowance for your study expenses, the so-called Studiefinanciering. This allowance is initially granted as a loan. If you complete your study successfully, the loan will be converted into a tax-free gift. If you terminate your study unsuccessfully, the allowance will be formally transferred into a loan.
If you are eligible for Studiefinanciering, you cannot deduct the actual expenses you have made but only fixed amounts that are set by the government.
The study expenses you have made are not tax-deductible in the year incurred, but in the year that the government allowance has been formally transferred into a loan or a tax-free gift. If the allowance becomes a tax-free gift, the threshold of € 500 is increased with this tax-free gift.

No Income
What if you have followed a study and incurred tax-deductible study expenses, but didn’t have any income? In that case, you can submit an income tax return and declare the study expenses you have made. Since you didn’t have any income during that year, the balance of your tax return will be negative. This loss will be carried forward indefinitely to the next year you do have a positive income.
It is possible to submit tax returns retroactively over a maximum period of five years. This means that, if you incurred any study expenses between the year 2005 and now, you will be able to submit a tax return and claim the relief. If you have already submitted your tax returns, you can request a retroactive adjustment of the final tax assessment – to a maximum of seven years.

Fiscal Partnership
Under Dutch tax law, married people are automatically considered fiscal partners. As of 2010, people who live together and have children or are joint owners of a house are also automatically considered to be fiscal partners.
If you are not married but have shared a joint household for more than six months and are both registered on the same address, you can opt, on your tax return, to be considered fiscal partners. If you and your partner are fiscal partners, certain elements of your income tax return can be split between both your returns in order to achieve the maximum benefit. This also applies to study expenses. For instance, if you incurred study expenses, your partner may be able to deduct these on his or her tax return, rather than carrying forward the expenses. This can be profitable if your partner is in a higher tax bracket than you are.

Averaging Your Income
Especially when you have followed an expensive course, your taxable income in the year the expenses were deducted may be quite low compared to following years. You can then file a request to have the income over three years averaged. The taxable income of these three years will be added up and divided by three and the income tax due will be calculated over this average income. If the difference between the actual income tax you have paid in those years and the tax on the average income is more than € 545, you will receive the surplus as a rebate. Averaging your income is only possible if the income tax returns for these years are definite and have been settled.

As you can tell, the tax situation for students is well worth looking into, even if you have already completed your studies. Be sure to seek professional advice, so that you can enjoy the maximum benefit.

Patricia van der Hut is partner at Finsens in Amsterdam. She can be contacted at 020 - 623 44 47 or pvanderhut@finsens.nl

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