Dáil Éireann Debate, Thursday - 8 March 2007
136 Mr. Kehoe asked the Minister for Finance the tax credit system that a person who is separated from their spouse belongs to; and the expenses a separated person who pays maintenance for their children and looks after their children two to three days a week is entitled to claim for tax purposes. [9203/07]
View answerI am informed by the Revenue Commissioners that, as regards separated spouses, the above question gives rise to a number of issues that may be enumerated as being:
1. the tax treatment of maintenance in respect of children;
2. the tax relief in respect of child care;
3. the tax treatment of maintenance to a spouse;
4. the tax credits to which separated spouses may be entitled.
As regards items 3 & 4, it is probably best to outline these in the context of situations where maintenance is payable under a voluntary arrangement and where the maintenance is payable under a legally binding arrangement.
1. The tax treatment of maintenance in respect of children
Maintenance in respect of a child is ignored for tax purposes irrespective of whether such maintenance is paid under a voluntary or legally binding maintenance arrangement.
2. The tax relief in respect of child care
There is no tax relief in respect of child care irrespective of whether parents of the children in child care are married, separated, widowed or unmarried.
3. Non-legally binding (voluntary) maintenance arrangements
3.1 Tax treatment of maintenance payments
Where a legally binding maintenance arrangement is not in place (i.e. voluntary maintenance payments are made) the spouse who makes the payments is not entitled to a tax deduction for them. Additionally, the spouse who receives the payments is not taxed on them.
3.2 Tax credits
Both spouses are taxed on their own income as single persons. Each spouse is entitled to the single person's tax credit and, if in employment, the PAYE tax credit.
However, if the voluntary payments are sufficient to wholly or mainly maintain the spouse, the payer will be entitled to claim the married persons tax credit. The spouse receiving the payments can also claim single person's tax credit against his/her income (if any).
In addition, the one-parent family tax credit may be claimed by a single parent whether widowed, single, deserted, separated or divorced, who is not co-habiting and who has a dependent child resident with him or her for the whole or part of the relevant tax year.
4. Legally binding maintenance arrangement
4.1 Tax treatment of maintenance payments
Where a legally binding maintenance arrangement is in place, the spouse who makes the payments is entitled to a tax deduction for them. Additionally, the spouse who receives the payments is taxed on them.
4.2 Tax credits
Both spouses are taxed on their own income as single persons. Each spouse is entitled to the single person's tax credit and, if in employment, the PAYE tax credit.
In addition, the one-parent family tax credit may be claimed by a single parent whether widowed, single, deserted, separated or divorced, who is not co-habiting and who has a dependent child resident with him/her for the whole or part of the relevant tax year.
Alternatively, a separated couple who have in place a legally binding maintenance arrangement (i.e. the maintenance payments are legally enforceable) can elect to be treated as a married couple for income tax purposes if they are both resident in the State.
A divorced couple also have the option of being treated as a married couple for income tax purposes if they are both resident in the State and neither spouse has re-married. However, where a civil annulment is obtained there can be no election to be taxed as a married couple.
Where a separated couple wish to be treated as a married couple for tax purposes, they must submit a joint election in writing before the end of the tax year (the election must be signed by both spouses). If such an election is made, maintenance payments are ignored for tax purposes, that is, the spouse making the payments does not get a tax deduction for them and the spouse who receives the payments is not taxable on them.
Where both spouses have income, separate assessment will apply. Tax credits and standard rate cut-off point will be apportioned between the spouses, subject to a review at the end of the year. This ensures that any unused tax credits or relevant rate bands may be given to the other spouse.
Where only one spouse has income the full tax credits, reliefs and tax rate bands will be given to that spouse.
More detailed information is contained in the Revenue Commissioners' explanatory leaflet IT 3 — What to do about tax when you separate which is available on the Revenue website www.revenue.ie.
137 Mr. G. Murphy asked the Minister for Finance if a tax clearance certificate will be issued to a person (details supplied) in County Cork. [9228/07]
View answerI have been informed by the Revenue Commissioners that an application for a tax clearance certificate has not been received from the person concerned. As soon as an application is received, it will be examined with a view to issuing the required certificate.
138 Mr. Kehoe asked the Minister for Finance the criteria for persons wishing to claim rent tax credit from rents obtained from members of their family or extended family; and if he will make a statement on the matter. [9234/07]
View answerI assume that the Deputy is referring to the tax exemption on rental income available to a person who meets the conditions of the "Rent-a-Room" scheme. This scheme exempts from income tax income received from the letting of rooms in a person's sole or main residence provided the income does not exceed €7,620 in a year.
I announced in Budget 2007 that with effect from 1 January 2007, I intended to close off use of this scheme in cases where the rent received was from connected persons. Accordingly, the Finance Bill 2007 provides that rent-a-room relief will not apply where the rental income in question is received by a person from his or her adult child. However, the relief continues to be available where rent is received from any other member of the person's immediate or extended family whether or not those persons are claiming an allowance for rent which they pay.
