2018 IRPF: What are the legal discounts?

With the provision of Individual Income Tax Statement auxiliary programs by the Federal Revenue of Brazil (NI 1791 to 1795/2018, it is time to prepare for the deadlines and the news disclosed since the publication of RFB NI 1756/2017, which was the subject of another DPC’s publication (check here).

A very important point is the correct identification of the legal discounts that the individual taxpayer can make at filing of the Annual Adjustment Statement (the individual taxpayer - DAA).

Which statement template to use

In order to make use of the discounts, the taxpayer should establish which statement form to use (if there is no longer situation of requirement to send the complete statement).

Generally, the simplified statement is indicated for those who have less than 20% in expenses on the Income Tax calculation basis (limited to BRL 16,754.34) to be discounted. However, if the deductible expenses are higher than 20% (or the legal limit), the full statement should ideally be adopted.

Note: Regardless the chosen model, the taxpayer should always keep all proof of expenses and receipts in case of any requirement of the Federal Revenue.

Records at the 2018 IRPF Statement Generator Program (PGD)

Taxpayers should inform at the "Payments Made" tab the payments made to:

a) legal entities, when they represent a discount in the taxpayer's statement;

b) including taxpayers, physicians, dentists, lawyers, veterinarians, accountants, economists, engineers, architects, psychologists, physiotherapists, and also those paid as rent , alimony and interest.

 

It is noteworthy that the deductions registered at PGD are in compliance with the current legislation, and that the expenses correspond to services actually rendered and paid.

Dependents and feeding

The taxpayer may deduct BRL 2,275.08 for each dependent informed if the complete statement template is chosen.

Concepts:

Dependents - Persons who had a dependency relationship with the taxpayer, regardless of whether they were for less than 12 months, in 2017. In addition, the dependency relationship should be framed in any of cases provided in the schedule of the program.

Feeding - Alimony beneficiaries (adult or child), and / or with whom the taxpayer had educational and/or medical expenses. The relationship may be the result of a judicial decision, an agreement confirmed in court or by public deed.

Educational expenses

The deduction of expenses incurred by the taxpayer with his own education and the dependents and the feeders informed at the statement is foreseen, such as:

 

a) early childhood education, including kindergartens and pre-schools;

b) elementary school;

c) high school;

d) university, including graduate and postgraduate studies (dependents up to 24 years-old and university or technical high school students may be included);

e) professional education, including technical and technological education.

 

The individual annual deduction limit is BRL 3,561.50.

Medical expenses

It is possible discount the payments related to taxpayers and feeding and dependents indicated at the statement for doctors, dentists, psychologists, physiotherapists, occupational therapists, speech therapists, hospitals, laboratory examinations, radiological services, orthopedic appliances, orthopedic and dental prostheses, health plans, among others.

Donations

Contributions to institutions that fall within the donations rules with tax incentives may be deducted from the income tax payable base.

The so-called incentive donations may only be paid to the municipal, state, district and national child and adolescent investment money, which fall under the Statute of the Child and Adolescent ( “ECA”); municipal, state, district and national investment money that fall under the Senior Citizens' Statute; projects approved by the Ministry of Culture and under the Culture Incentive Law (Rouanet Law); projects approved by the Ministry of Culture or the National Cinema Agency (“Ancine”) and included in the Audiovisual Activity Incentive Law; projects approved by the Ministry of Sports and included in the Sports Incentive Law.

It is noteworthy that the sum of such donations may not exceed 6% of due income tax limit amount.

 

Alimony

The amounts paid as alimony, in compliance with a court decision, may be deducted. It is important to notice that its payment in a free will (informally) may not be deducted.

 

Social Security

The taxpayer may discount from Income Tax calculation basis all contributions to the Social Security, behalf of the taxpayer and those dependents enroled in the statement, whether as a formal or independent worker. However, the taxpayer should have received a taxable income enough during 2017 for accounts settlement with IR.

Complementary Welfare

The payments on behalf of taxpayer and those dependents listed in the statement, to supplementary pension entities similar to those of the Social Security and to the Public Service Complementary Welfare Funds may be discounted.

The deduction for supplementary social security contributions plus for Individual Scheduled Retirement Fund (Fapi) is limited to 12% of total income computed at of calculation income tax basis due, and it is necessary to respect all conditions imposed by the IRPF legislation.

Individual Scheduled Retirement Fund (Fapi)

The Fapi amounts are deductible, subject to the same conditions set out above for Complementary Welfare.

 

Employer's contribution paid by the domestic employer

It is possible to discount the amounts paid as employer contribution paid to Social Security as a domestic employer, limited to one domestic employee, per statement, and to the amount paid in 2017 (subject to the legal limit of a monthly minimum salary, in addition to the 13° salary and vacations, also referred to 1 minimum salary).