Dáil Éireann Debate, Wednesday - 20 October 2021
93. Deputy Carol Nolan asked the Minister for Finance if he will address concerns that the current system of tax individualisation may be discriminatory in practice as it penalises one income married couples by making it necessary for them to pay more tax than two income married couples; and if he will make a statement on the matter. [51624/21]
View answer94. Deputy Carol Nolan asked the Minister for Finance if he will consider initiating a review of the current system of tax individualisation to ensure that it is not, either directly or indirectly, creating conditions in which it is more difficult for one spouse to remain at home without incurring additional tax liabilities as a one income married couple; and if he will make a statement on the matter. [51625/21]
View answerI propose to take Questions Nos. 93 and 94 together.
Background
Prior to 2000, income tax allowed for full joint assessment of married couples. This meant that the earner in a single income couple could use the combined tax credits and standard rate band available to both individuals – i.e. double the personal tax credit and rate band available to a single earner. As a result, where the primary earner of a couple had sufficient income to use the available reliefs in full, the second earner faced the marginal rate of tax from the first pound of income earned, which acted as a disincentive to workforce participation for second earners.
A process of moving towards an individualised system of income taxation began in the tax year 2000/2001 with the stated economic objectives of increasing labour force participation and reducing the numbers of workers paying the higher rates of income tax. Many European countries have made similar moves towards a partial or fully individualised income taxation system on the grounds that it improves equality and economic independence for women.
Individualisation was progressed to some extent in later years but never completed. The result is that we now have a hybrid system. Up to €9,000 of the standard-rate band can be transferred between spouses and the married personal tax credit, can be allocated in full to one spouse. Because the income tax system allows married couples to choose whether to be jointly or individually assessed, there can be a difference between the tax liabilities incurred by married couples on the same household income, depending on the method of assessment chosen.
However, in lieu of fully transferable rate bands, a Home Carer Tax Credit may be claimed where one spouse works primarily in the home to care for a dependent person, such as a child. This credit was introduced in the context of the move towards individualisation, in recognition of the choices made by families where one spouse stays at home to care for children or the elderly.
I would make the point that when looking at an issue such as individualisation there are a number of perspectives to consider, for example, on the one hand the points raised by the Deputy and also on the other hand the implications for labour force participation, in particular in respect of female participation in the labour market. There are of course other non-tax factors that also have significant impacts on female workforce participation, including the cost of childcare.
My Department keeps the issue of individualisation of the income tax bands under review. Most recently, the matter was considered in 2019 as part of the Tax Strategy Group deliberations ahead of Budget 2020. However, I have no immediate plans to revisit issue.
Tax Code
The Tax Code sets out the basis on which an individual is assessed to tax and provides for a significant number of credits, reliefs and exemptions, eligibility for which is subject to a wide range of conditions. While the basis of assessment and the credits, reliefs and exemptions available vary depending on the facts and circumstances applicable in each specific case, there is no discrimination in the Tax Code.
Basis of Assessment
Parts 44 and 44A of the Taxes Consolidation Act 1997 (TCA 1997) provide for joint assessment of a married couple or civil partners who live together. Where joint assessment applies, the couple are chargeable to tax on their combined total income. The couple may however apply to be assessed to tax separately, meaning that each individual is taxed as if he or she were not married or in a civil partnership. The couple may choose whichever basis of assessment is most beneficial to them, based on their personal circumstances.
Standard Rate Band
Section 15 of the TCA 1997 provides for the standard rate band, i.e. how much of an individual’s income is liable to tax at 20%. For the 2021 year of assessment, the standard rate band is €35,300 per person. In the case of a married couple or civil partner, each individual is entitled to a standard rate band of €35,300.
If the couple is jointly assessed to tax and either spouse or civil partner has insufficient income to fully utilise his or her own standard rate band, he or she may transfer a portion of their unused rate band to their spouse or civil partner. The maximum portion of the standard rate band which one spouse or civil partner may transfer to the other is €9,000 and any excess unused rate band above this amount cannot be transferred. This is the case irrespective of whether the couple has one or two incomes.
Tax Credits, Reliefs and Exemptions
Part 15 of the TCA 1997 provides for a wide range of tax credits, reliefs and exemptions. Whether or not such credits, reliefs and exemptions are available to an individual or couple depends on the circumstances of the specific case and the eligibility criteria for the individual credit, relief or exemption.
One such credit is the basic personal tax credit, which is provided for in section 461 of the TCA 1997. For the 2021 year of assessment, the basic personal tax credit is valued at €1,650 per person. In the case of a married couple or civil partnership, each spouse or civil partner will be entitled to his or her own basic personal tax credit of €1,650. Again, this is the case irrespective of whether the couple has one or two incomes.
The home carer tax credit of €1,600 is available to married couples or civil partners that are jointly assessed, where one spouse or civil partner stays at home to take care of a dependent person. The carer may earn up to €7,200 per year without affecting the amount of the credit awarded. Where the carer’s income exceeds €7,200, the amount of credit available is reduced by one half of the excess over €7,200, subject to a maximum income limit of €10,400.
Further information on the above may be accessed at the following links:
- Revenue website - www.revenue.ie/en/life-events-and-personal-circumstances/marital-status/marriage-and-civil-partnerships/index.aspx
- Tax and Duty Manual Part 44-01-01 - www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-44/44-01-01.pdf.
- Tax and Duty Manual Part 15-01-29 - www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-15/15-01-29.pdf
