Jim Mitchell
Question:51 Mr. J. Mitchell asked the Minister for Finance whether there is an upper limit above which the 5 per cent of total income in a covenant does not apply.
Written Answers. - Covenant System.
Covenants by a parent or grandparent to a child or grandchild are effective for tax purposes only if the amount covenanted does not exceed 5 per cent of the covenantors total income. The legislation does not set out an upper limit on the level of total income to which the 5 per cent applies but there is an inbuilt control in the system. If the amount covenanted together with any other income the child or grandchild has brings his or her effective tax rate to the same level as the effective tax rate of the parent or grandparent, then there will be no tax advantage arising from the covenant.