Irregular returns – What it is, definition and concept

Irregular returns are the income that is generated in a tax period of more than two years and in a clearly irregular way.

To better understand what these irregular returns are, you have to understand what tax periods are. A tax period is defined by the tax law as a calendar year, therefore, for there to be irregular returns, they must have been generated within a period of more than two calendar years. Also, they are not frequent.

The fact that they have been obtained in a clearly irregular way, means that they are not a fixed and constant income over time like. For example, the fixed salary that a worker receives every month for doing his job (regular returns). Irregular returns are not periodic, but are received alternately. A clear example can be the activity of an artist.

If the tax law defined the tax period as the entire active life of the taxpayer, there would be no difference between regular and irregular returns.

Effects of irregular returns

The qualification of this type of returns is important in the Income Tax.

The consequence of defining these returns as irregular is a reduction provided that they are allocated in a single tax period. In Spain it is 30%.

The objective of imposing this reduction is to correct the progressivity that appears in a tax period, when these returns have actually been generated during several periods, but it can only be attributed to one year exclusively.

The reduction imposed in the tax law only influences the income that is part of the general taxable base of the tax. Unlike what happens with regular work income, the reduction in this case is applied to full income and not to net income.

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Types of irregular returns

The types of irregular returns are:

  1. Irregular income generated by personal work: For example, the income obtained by literary awards.
  2. Irregular returns generated by real estate capital: For example, the income that the landlord receives from the tenant for damage to the rented property.
  3. Irregular income generated by movable capital: For example, those received by industrial property rights.
  4. Irregular income generated by economic activity: For example, compensation, aid or capital subsidies to buy fixed assets.

Example

To better understand what these irregular returns are, let’s look at an example. Mr. A retires with a monthly pension of $ 1,000 and his mutual benefits him with a one-time payment of $ 100,000.

  • Is the pension an irregular return? No, since it is not generated in more than two tax periods nor does it receive it alternately, but you will receive the amount established in your retirement pension every month.
  • Is the complete retirement an irregular return? In this case, in a single tax period, Mr. A will receive a payment of $ 100,000, it is an alternate income and has been generated in a period of more than two years (his entire active life). This means that it is necessary to regulate the excessive progressiveness of this performance in a single year. For this reason, you will be able to benefit from the reduction established in the tax law of this yield.

It should be noted that the information presented in this article corresponds to the Spanish case. In other countries, this definition may be known by another name.

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