Vol. 405 No. 3
94 Mrs. T. Ahearn asked the Minister for Finance the reason persons who are permanently incapacitated as a result of an accident and whose financial compensation is partially exempted from income tax, have to pay income tax on the entire sum and subsequently reclaim the exempted portion; if he intends to alter the legislation in this regard; and if he will make a statement on the matter.
Compensation paid in a lump sum for personal injury is not charged to income tax. I presume that what the Deputy may have in mind is the tax treatment of income arising from investment of the compensation amount.
Section 5 of the Finance Act, 1990 exempts investment income from income tax where the income arises from compensation paid following the institution of civil action for damages in respect of personal injury. For the exemption to apply the income must represent the sole or main income of an individual who, as a result of the injury, is permanently and totally incapacitated by reason of mental or physical infirmity from maintaining himself.
I take it that what the Deputy is referring to is a situation where compensation is invested in a medium subject to deposit interest retention tax. Retention tax applies to deposit interest generally, and I have no plans to change that position. I would point out, however, that persons in the circumstances described can claim a repayment of retention tax deducted from deposit interest on the compensation amount. I would also point out that there are a number of investment options which are not subject to retention tax, including Government securities and certain savings options operated by An Post.
