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Determination of assessable income

In principle, taxable income is determined by adding up the net income in each category available to a tax household during the year of taxation.

Taxable income is a total income

This means that it includes all the net income of the members of a tax household in one or more categories of income.

At the same time, losses in certain categories of income are set off, in principle, against other kinds of income and any overall loss can be carried over to the total income of the subsequent six years. However, there are certain exceptions.

For example, agricultural losses cannot be set off where other income exceeds €104,239 for the taxation of income in 2008. In this case, they can be set off only against agricultural profits in the following six years.

Real property losses cannot be set off against total income except for the fraction resulting from expenditures other than loan interest, up to a limit of €10,700. The fraction that exceeds €10,700 or results from loan interest can be set off against income from real property in the following ten years.

Likewise, losses from the exercise in a non-professional capacity of activities treated as business or professional profits for tax purposes may not be set off against total net income but only against profits from such activities made in the same year or in the following six years.

Under the same conditions as taxpayers domiciled in France, taxpayers not domiciled in France may set off losses of the same origin against profits or income from French sources, provided that the losses are from French sources. This possibility is not available to taxpayers domiciled outside France whose taxable income is notionally based on three times the real rental value of their home(s) in France.

Taxable income is an annual available income

The tax household is, in principle, taxed on actual available income during the year (or tax period, if it derives from a non-salaried professional activity).

However, exceptional or deferred income may, under certain conditions, be taxed under the income splitting system (quotient), which alleviates the impact of progressive taxation.

Taxable income is a net income

For economic or social reasons, certain personal expenditures of the tax household are treated for tax purposes either as expenses deductible from total income or as tax reductions or credits that represent a capped percentage of the expenditure.

Court-ordered or statutory maintenance payments may be deducted from total income, in principle for the actual amount. Other specific expenses may also be deducted, though theamount is generally capped. For example, a tax incentive to constitute retirement savings in addition to pay-as-you-go pension schemes has been introduced in the form of a capped deduction from total net income.

Under the 2009 Budget Act, the total benefit resulting from certain tax breaks (deductions from total income, tax reductions and credits) was limited to €25,000 plus 10% of the tax household’s taxable total net income.

In principle, the cap applies only to tax breaks granted in return for an investment or a service provided to the taxpayer. It does not apply to tax breaks linked to the taxpayer’s personal situation (deduction of maintenance payments, tax breaks linked to dependency or disability) or to a public interest benefit without consideration (preservation of historic monuments, donations to charity, sponsorship, etc.).

Taxpayers not domiciled in France taxed only on their income from French sources may not deduct expenses from their total income, nor are they entitled to tax reductions or credits that may be granted to taxpayers domiciled in France.

Source: French Tax Office

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Posted by on Aug 31 2010. Filed under Assessable income, Assessable income. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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