Ciarán Cuffe
Question:40 Mr. Cuffe asked the Minister for Finance the reason maintenance payments made to separated spouses are considered taxable income, in view of the fact that such amounts have already been taxed. [24799/04]
View answerThursday, 14 October 2004
Questions (45)
Written answers
Maintenance payments, depending on arrangements, made to a separated spouse may be subject to income tax in the hands of the payer or the receiver. However, the maintenance payment is not taxed twice.
The general position in the case of legally enforceable maintenance agreements is that the spouse who pays the maintenance is entitled to a tax deduction for payments made for the benefit of the other spouse. The maintenance payments are taxed in the hands of the receiving spouse and the couple are treated for tax purposes as if unmarried.
A separated couple may, except where a civil annulment has been obtained, jointly elect to be treated for tax purposes as if the separation had not taken place provided they are both resident in the State and, if divorced, neither have remarried. When such an election is made the maintenance payments are ignored for tax purposes. Therefore, the payer does not receive a tax deduction for them and the receiving spouse is not taxable on them. Where the receiving spouse has income other than the maintenance, separate assessment will apply in respect of that income. The Revenue Commissioners' information leaflet IT2, taxation of married couples, sets out how separate assessment works and is available at www.revenue.ie.
Non-legally binding maintenance payments are not taxable in the hands of the receiving spouse and the paying spouse cannot claim a tax deduction for them. However, the paying spouse would be entitled to the married person's tax credit if he or she is wholly or mainly maintaining the other spouse.
It is important to note that in the arrangements which apply, there is an underlying principle in place that income, including income in the form of the maintenance payments, should be subject to taxation. As explained above, the tax may be paid by the recipient or by the paying spouse, depending on the arrangements in place. The option in certain circumstances of tax treatment as if a separation had not taken place may result in no tax being paid by the recipient spouse but it also means that the paying spouse receives no deduction, thus ensuring that the income is subject to taxation.
If the Deputy has a particular case in mind and wishes to furnish the details, the Revenue Commissioners will examine it to ensure that the correct tax treatment applies.