Prior to the introduction of the new system of pay related social insurance (PRSI) in April 1979, part of the former flat-rate contributions were tax relieved. Contributions paid by an individual under the Social Welfare Acts in respect of widow's contributory pension, orphan's contributory allowance and old age contributory pension were allowable as a tax deduction in each of the years 1961-62 to 1978-79. The contributions paid in respect of retirement pension and death grant were also allowable from 1971-72 to 1978-79.
On the introduction of the new system of PRSI, the tax relief was withdrawn in the Finance Act, 1979, section 6. However, in setting the new PRSI rate account was taken of the fact that income tax relief would not be available.
In relation to the taxation of social welfare pensions, I would draw to the Deputy's attention that it is a general principle of taxation that, as far as possible, income from all sources should be subjected to tax. In line with this principle, most social welfare payments, including pensions, are therefore reckonable as income for tax purposes. Treating social welfare pensions as for income tax purposes is essentially a matter of equity. The extent to which taxation actually arises in a given case, from having such pensions reckonable as income for tax purposes, depends essentially on the amount of other income that the recipient or the recipient's spouse has in the same tax year. If there is no other income in addition to the social welfare pension, the existing exemption limits and allowances can be expected to ensure that there is no tax to be paid.
