Dáil Éireann Debate, Thursday - 9 December 2004
140 Mr. O’Shea asked the Minister for Finance the proposals he has to include in the Finance Bill provision to abolish the payment of income tax and social welfare deductions on maintenance payments where such payments are the only income of a separated spouse (details supplied); and if he will make a statement on the matter. [32822/04]
View answer142 Mr. F. McGrath asked the Minister for Finance his proposals to rectify the situation regarding income tax on maintenance payments to separated women; and if he will make a statement on the matter. [32854/04]
View answerI propose to take Questions Nos. 140 and 142 together.
There are no proposals to alter current arrangements regarding the taxation of maintenance payments, which have been in place since June 1983. 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.
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 has 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 its 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 relating to 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.
The question of pay related social insurance deductions from maintenance payments or the reckoning of income in the form of maintenance payments for social welfare means test purposes would be a matter for my colleague, the Minister for Social and Family Affairs.
