TaxCORNER

Costs for the better half

LAWALLIANCE LIMITED

While it is all right for the bride and the groom to vow "I do" in their wedding ceremony, some may think twice before registering their marriage with the District Office. No matter how often our Constitution changes, tax treatment for spouses has not changed for decades. That's right _ a woman's income is considered as the "other half" of the man's in a tax return.

For any marriage continuing through a full calendar year, the law requires the man to include his wife's income in computing their year-end tax. Husband and wife are considered one taxable unit. Only in the first year of the marriage, unless the couple are married on Jan 1, can they calculate and file two separate tax returns as if they were single.

The painful fact is that the progressive tax rates apply to such integrated income, as Thailand does not have a separate tax table with a more gradual degree of progressiveness. Since some women these days often earn more than their spouses, that income will be in a higher tax bracket than before. Although the law gives an option to the wife to calculate tax and file a return separately from her husband, this is good only for income in the nature of salary. The filing of a separate tax return for other types of income (if they so desire) must not bear a different result from that of the integrated tax return.

The caveat about separate calculation is that income must come from employment _ in other words, as an employee. A service contract is not good enough and it may still be consolidated into the husband's income.

Can the wife deduct her share of tax allowances? Most allowances remain untouched, such as the 50,000 baht in life-insurance premiums plus contributions to provident funds. Deductions for children and educational costs are 17,000 baht per child, but each spouse cannot take the full amount. The child allowances will have to be split in half unless there is a divorce.

The tax treatment selected by the husband could also apply to his wife's income, without giving her a chance to opt for an alternative. In 2001, there was a ruling in which both spouses earned interest from a bank deposit, while the wife also received dividends. The wife wanted to include her interest income in the tax return in the belief that she could have claimed a withholding tax refund due to the credits. The Revenue Department advised that, since the spouses formed a single tax unit, when the husband opted to treat 15% withholding tax on his interest as final and did not include it in the calculation at year-end, the same selection must apply to the interest earned by the wife. Moreover, the wife would not be entitled to a dividend tax credit in this case either, as her husband decided to exclude dividends from the tax calculation.

Things are not much better on the husband's side, as a man is liable for his wife's tax arrears. If the wife's income is not included in the year-end tax calculation, legal action can be taken against the husband even if he is not aware of his wife's business at all. This often happens in cases where the wife is running a small business such as a restaurant, coffee shop or laundry, while the husband is simply working in a company. Some men may have no idea how much their wives actually earn until the tax auditor comes and knocks on the door. Consequently, it's important for the spouse to handle her business in a tax-efficient manner.

If you happen to get caught in the tax-audit net, what should you do? Get divorced around Christmas and register the marriage again in January? As the marriage does not cover the full tax year, the couple is required to calculate and file a tax return separately. In fact, if you do this, you will enjoy being "single" for tax purposes for two tax years. This is a classic example of form always overriding substance in this country.

As the law allows donations to be deductible to a maximum of 10% of net income, make sure that charity receipts are issued accurately. A receipt issued by a temple to "Mr A and family" will not be eligible for use as evidence for a tax deduction. Don't be afraid that you cannot buy your way to heaven if you ask the temple to issue the receipt in your name directly. You will definitely feel you're in hell if you use an improper receipt when the tax auditor calls.

By Rachanee Prasongprasit and Piphob Veraphong. They can be reached at admin@lawalliance.co.th

Bangkok Post

Last Updated : Tuesday April 10, 2007