Taxing Knowledge

Aug 19, 2019

Sunday Business Post, Sunday, 18 August 2019

This week, the focus on Irish education is for all the right reasons.  A cohort of some 60,000 of our (mostly) young people will learn the outcome of their final secondary level exams.  Academic achievement is not the only element of the secondary school experience, and formal third level education is not suitable for everyone.  Yet many students will hope that their leaving cert results will get them the course they want, and where they want it, while many of their parents and guardians will hope that they can afford to fund it.

Despite this, the early election promise from Minister for Education Joe McHugh this week that college fees would be frozen for five years (always providing he and his party colleagues would be re-elected to government) seems not to have landed well in all quarters.  The Irish Universities Association said higher education needs to “hear what Fine Gael will do to solve the long-accepted funding crisis”. 

Whatever your view on whether or not such a crisis exists, there are tax breaks when it comes to funding education.  For most families, the most useful is a tax refund, theoretically up to €1,400 per course, but the way this relief operates is more complicated than it needs to be.  

First of all, it is necessary to ensure that the course in question is eligible for the tax relief. The relief is only granted for eligible courses from eligible institutions.  Courses in colleges which are publicly funded are generally eligible; private colleges not so much.  A long established course from a long established third level institute should be eligible for tax relief but more recent offerings might not be.  This process needs to be made much simpler. 

For courses which do qualify, a claim of 20% of the fee up to a maximum amount of €7,000 per course can be made.  But not all payments to colleges qualify for the 20% tax rebate. For instance, exam fees and registration and capitation fees don’t qualify.  Even if the payment does qualify, the tax relief often isn’t much help when parents have just one child in college.  That’s because in many cases the college fee being paid is about the same as the so-called “disregard amount”.  If you don’t pay more than the disregard amount each year, there will be no relief given.

Where two or more people going to college are being supported, the relief becomes useful because the disregard amount is subtracted only once from the total college fees paid in the year.  Nor must the person being supported through college be a child, or even a relative.  On the downside, other expensive aspects of college - accommodation, subsistence, transport and academic materials - are not eligible for any tax relief.  It’s hard not to conclude that this tax relief was dreamt up by someone with a large family living on a bus route to a university.

For businesses the cost of purchasing education for employees is often tax deductible in full. Any employer running up costs providing training for their employees should get a deduction from their own taxable income for the cost of the course, provided the training is in some way relevant to the work the employee is doing. 

This is as it should be, as an element of the employer’s PRSI collected goes into a national training fund levy operated by the Department of Education and Skills.  This contribution has been progressively increased by 0.1 percentage points in recent years, and will likely increase again in 2020.  In effect, employers are being asked to make more of a direct contribution towards the development of the national skills set in the workforce.  At the National Economic Dialogue some months ago, the Minister for Finance pointed towards the increase in the PRSI element as part of a commitment to better funding the Higher Education sector.  It should at least facilitate the freezing of fees that his ministerial colleague in education is so keen on.

You’d think that third level education would be above something as crassly political and economic as Brexit, but the sector will be severely affected.  It is commonplace for Irish students to go to college in the UK and vice versa, and this includes students from Northern Ireland coming down the M1 to study in Dublin.  The standard practice across the EU is that nationals from another EU member country aren’t charged higher college fees than the locals.  Similarly, the tax reliefs available for sending students to institutions in other EU member countries generally apply as they would if the student was attending an Irish college or university. 

Post Brexit, the position for British students studying here, or Irish students studying in Northern Ireland or elsewhere remains unclear.  There had been indications that the status quo would be maintained for a period of some years at least, but the uncertainty over the manner of the British departure from the EU seems to have cast a large shadow of doubt over this.

For this week at least though, let’s acknowledge the achievements of all the leaving cert students. 


Dr Brian Keegan is Director, Public Affairs at Chartered Accountants Ireland