The primary legislative provisions underlying the social welfare system generally and the social insurance system in particular are contained in the Social Welfare Consolidation Act 1993 and its subsequent amendments. Section 17, subsection (1)(a) of the Social Welfare Consolidation Act 1993 provides that every person over 16 years and under pensionable age who has reckonable income or reckonable emoluments shall be a self-employed contributor for the purposes of the Act regardless of whether they are an employed contributor or not.
Section 18, subsection (1)(a) provides for the payment of self-employment social insurance contributions by self-employed contributors in any contribution year where a self-employed contributor has reckonable income in accordance with a percentage of that income, currently 3 per cent, and subject to a minimum payment, currently €253. Reckonable income is defined in the legislation in relation to a self-employed contributor as meaning aggregate income, with exclusions for reckonable earnings and emoluments, from all sources for the contribution year as estimated in accordance with the provisions of the income tax Acts. In effect, reckonable income for self-employed purposes includes income from the following sources: benefits-in-kind; income from a trade or profession; interest, annuities and income from foreign property such as investments; rent from any premises in Ireland; income from which tax has been deducted at source such as annuities, bank interest or building society interest, maintenance payments and other miscellaneous sources of income not included in the above; income from dividends and other distributions received from Irish resident companies; certain income from employment which is subject to PAYE, reduced by the amount of any allowable superannuation contributions paid. Examples of people with this type of income are certain company directors and motor-cycle couriers. The PRSI contribution is levied on both earned and unearned income.
If unearned income were not liable as reckonable income for social insurance purposes, many persons whose only source of income is unearned would be denied social insurance coverage. For instance, income from rents and certain forms of investment may be dependent on the activity of the person concerned and may be at risk with the onset of old age or death. This would be contrary to the principal objective of the extension of social insurance coverage to the self-employed which is to extend the coverage of social risks in the population. Furthermore, if unearned income were excluded from the income base, this could be used to limit liability for social insurance contributions through "tax efficient" income payment arrangements. A change in the definition of reckonable income used for the purposes of self-employed social insurance calculations would require a change in primary social welfare legislation to narrow the definition of reckonable income in social welfare legislation from that used in the income tax Acts. It could also have implications for the efficient collection of PRSI collections through the tax system if the definitions of reckonable income for tax purposes were to differ considerably from that used for social insurance purposes. Such a measure would also have financial implications which would have to be decided upon in a budgetary context. My Department has no plans to narrow the PRSI definition of reckonable income at this time.