Joe Higgins
Question:136 Mr. J. Higgins asked the Minister for Finance if he will abolish income tax on maintenance payments; and if he will make a statement on the matter. [31627/04]
View answerWednesday, 1 December 2004
Questions (111)
Written answers
The present arrangements regarding the taxation of maintenance payments have been in place since June 1983. The general position in the case of legally enforceable maintenance agreements in this jurisdiction is as follows: 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. However, 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 — 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, which is available on the Revenue Commissioners website at www.revenue.ie, sets out how separate assessment works.
In the case of non-legally binding maintenance payments, such 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.
In the arrangements which apply, there is an underlying principle in place that income — in the form of the maintenance payments — should be subject to taxation. If the general position on legally enforceable separation agreements were to be altered so that the payer rather than the recipient were to be subject to tax on the amount of the maintenance, such a move would benefit recipients but the position of those who are required to make such payments would disimprove.
If maintenance payments were not subject to the taxation in the hands of either the recipient or the payer, this would run contrary to the general principle that income should be subject to taxation. As the Deputy is aware, it is not the practice to comment on proposals, if any, to change tax law in the lead-up to the annual budget.