Dáil Éireann Debate, Wednesday - 29 September 2004
291 Mr. Crowe asked the Minister for Finance the number of persons in receipt of maintenance allowance subject to income tax and approximately the amount the overall sum of tax paid amounts to; if, in view of the fact that in the Six Counties this kind of taxation does not exist, he has plans to amend this pattern of taxation or indeed abolish it entirely. [21665/04]
Amharc ar fhreagraThe general position in the case of legally enforceable maintenance agreements in this jurisdiction 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 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 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.
I am informed by the Revenue Commissioners that the most recent data relating to the short tax ‘year' 2001 indicates that there were 4,800 cases where maintenance payments were made under legally enforceable maintenance agreements in that tax year. The aggregate value of the maintenance payments under those agreements amounted to €24.5 million. On a 12 month basis, this equates to €33 million approximately. After making adjustment for the proportion of recipients who would not be liable for tax, the tax liability attaching to the €33 million is of the order of €7 million. Taking account of incomes growth in the intervening period, this would amount to about €8 million in 2004.
The general position in United Kingdom income tax rules, which apply in Northern Ireland, in relation to maintenance arrangements entered into after 15 March 1988 is that income which is used for maintenance payments is taxed in the hands of the person making them, in effect by denying him or her a tax deduction. The payments are not chargeable to tax in the recipient's hands.
It is important to note that in the arrangements which apply in Ireland and in the United Kingdom, there is a common underlying principle in place that income — in the form of the maintenance payments — should be subject to taxation. Under the general arrangements which apply in this country, the payments are taxed in the hands of the recipient. In the United Kingdom, the general position is that they are taxed in the hands of the person who makes them. In this jurisdiction as mentioned above, the option exists in certain circumstances of tax treatment as if a separation had not taken place. While this may result in no tax being paid by the recipient spouse, it also means that the paying spouse receives no deduction, thus ensuring that the income is subject to taxation.
If the general position in this country in relation to legally enforceable separation agreements were to be altered in order 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 taxation in the hands of either the recipient or the payer this would breach the principle that income should be subject to taxation. Accordingly, there are no proposals to abolish or alter the present arrangements regarding the taxation of maintenance payments which have been in place since June 1983.
