Dáil Éireann Debate, Wednesday - 20 March 2024
259. Deputy Duncan Smith asked the Minister for Finance to give consideration to committed couples including those with children being jointly assessed for tax purposes and in addition being able to apply for home carer tax credit without being married or being in a civil partnership (details supplied); and if he will make a statement on the matter. [12754/24]
Amharc ar fhreagraI note that the Deputy has referred to committed couples. For the purpose of this reply it is assumed he is referring to cohabiting couples.
Where a couple is cohabiting, rather than married or in a civil partnership, they are treated as separate and unconnected individuals for the purposes of income tax. Each partner is a separate entity for tax purposes, therefore, cohabiting couples cannot file joint assessment tax returns or share their tax credits and tax bands in the same manner as married couples.
The basis for the current tax treatment of couples derives from the Supreme Court decision in Murphy vs. Attorney General (1980). This decision was based on Article 41.3.1 of the Constitution where the State pledges to protect the institution of marriage. The decision held that it was contrary to the Constitution for a married couple, both of whom are working, to pay more tax than two single people living together and having the same income. The Constitutional protection of Article 41.3.1 does not extend to non-married couples.
The home carer tax credit can only be claimed by couples who are married or in a civil partnership and have elected to be jointly assessed to tax, where either spouse or civil partner, the ‘home carer’, cares for one or more dependent persons.
It is important to point out that if the tax treatment of married couples was to be extended to cohabiting couples, consideration would need to be given to the practicalities that would arise for Revenue if they were to administer such a system.
It would be very difficult for Revenue to administer a regime for cohabitants, similar to that for married couples. Married couples and civil partners have a verifiable official confirmation of their status. It would be difficult, intrusive and time-consuming to confirm declarations by individuals that they were actually cohabiting and to establish when cohabitation started or ceased.
There would also be issues with regard to ‘connected persons’. To counter tax avoidance, ‘connected persons’ are frequently defined throughout the various Tax Acts. The definitions extend to relatives and children of spouses and civil partners. This would be very difficult to prove and enforce in respect of persons connected with a cohabiting couple where the couple has no legal recognition.
To the extent that there are differences in the tax treatment of the different categories of couples, such differences arise from the objective of dealing with different types of circumstances while at the same time respecting the constitutional requirements to protect the institution of marriage.
There may be an advantage in tax legislation for a married couple or civil partners as regards the extended rate band, the ability to transfer certain tax credits and entitlement to the home carer tax credit in specific circumstances. However, the legal status for married couples has wider consequences from a tax perspective both for themselves and persons connected with them.
Therefore, any changes in the tax treatment could only be considered in the broader context of the tax system and future social and legal policy development, given that the legal status of married couples has wider consequences than from a tax perspective.
The tax treatment of couples was reviewed and considered as part of the 2020 Tax Strategy Group process. The Income Tax TSG Paper included an overview of the tax treatment of couples and outlined the rationale for the different treatment between married couples/civil partnerships and cohabiting couples. Further details can be located at the following link - www.gov.ie/en/publication/fdd38-budget-2021-tsg-papers/
It should be noted that the recent report of the Commission on Taxation and Welfare put forward no recommendation regarding the tax treatment of cohabiting couples. However, it did recommend a phased move towards individualisation of the Standard Rate Cut Off Point as a step towards addressing disparities in the income tax system, facilitating increased employment, and decreasing the gap in the employment rate between men and women.
Should this occur, couples that are married or in a civil partnership would no longer be treated differently to cohabitants as each person would be treated as a single taxpayer without the option of being jointly assessed.
It should be noted that both the PRSI and USC are already applied on an individualised basis.
Finally, I have no immediate plans to amend the tax treatment of cohabitating couples.
