Wednesday, 22 June 2011
Finance (No. 3) Bill 2011: Second Stage
I move: "That the Bill be now read a Second Time."
The purpose of this Finance Bill is to provide for the necessary changes to the existing tax legislation as a consequence of the enactment of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 or for shorthand, the civil partnership Act. Simply put, this Finance Bill recognises in law the new status of civil partnerships for tax purposes. The Bill sets out the various rights, entitlements and obligations that will apply to the taxation treatment of civil partners and cohabitants. Therefore, it should be seen as implementing changes in the tax area that are a natural consequence of the introduction of the civil partnership legislation.
The civil partnership Act of 2010 created for the first time in Irish law a scheme under which a same-sex couple could formally declare their allegiance to each other, register their partnership and commit themselves to a range of duties and responsibilities. At the same time they would be subject to a series of protections in the course of their partnership in the event of a failure of either party to maintain the other in the event of disputes between them as to the ownership of property.
That Act also gave recognition to long-term same-sex or opposite-sex relationships where those relationships ended. The redress scheme established in that Act provided protection in law to long-term cohabiting couples and a safety net for an economically dependent cohabitant at the end of the relationship on break-up or death.
The civil partnership Act received all-party support in the House and was rightly hailed as one of the most important pieces of social legislation of the last decade. The programme for Government committed the Government to enact the required legislation to amend tax law in this area. I now present this important Bill to the House as a single issue Finance (No. 3) Bill 2011. It implements changes that cover a number of areas in the tax system and it is of special importance to those people covered by it.
The Bill will allow for registered civil partners to receive the same tax treatment as married couples in respect of income tax, stamp duty, capital acquisitions tax, capital gains tax and VAT. For example, in regard to income tax it will allow civil partners to avail of the tax bands and tax credits which are available to married couples. It also provides for similar capital taxes and stamp duty reliefs on the transfer of property by gift or inheritance. For example, transfers of property between civil partners will now qualify for the same exemption from stamp duty as is given to married couples.
In the civil partnership Act the Oireachtas also legislated for a redress scheme for cohabiting couples who choose not to get married or register a civil partnership. The redress scheme provided protection in law for long-term cohabiting couples and provided safeguards for an economically dependent cohabitant where a relationship ended or on death. The Bill now provides for the tax changes consequent on the redress scheme.
For example, where one of the former cohabitants is granted redress by the courts through the transfer of property the changes in the Bill mean that this transaction will not now be liable to stamp duty. It will also mean the donor of the property will not have a capital gains tax liability on the transfer of that property. Previously, the former cohabiting couple would have been deemed as unconnected and subject to full capital acquisitions tax, stamp duty and capital gains tax.
The Bill also provides for income tax relief for maintenance payments made to a financially dependant former cohabitant as ordered by the courts on the ending of a long-term cohabiting relationship. It is important to note that this Bill does not give opposite-sex or same-sex cohabiting couples the same tax treatment as married couples or civil partners. It only legislates for the tax consequences of the redress aspects for cohabitants covered in the civil partnership Act.
In general, the changes under this Bill will be effective for the year of assessment for 2011 and subsequent years. Inheritance, gift tax and stamp duty reliefs will apply as and from 1 January 2011. For example, if a civil partnership was registered in April 2011 the couple will be considered for civil partnership income tax treatment from the date of the registration of the civil partnership and not from the date of the enactment of this Bill. This is in line with the position of people getting married. In the case of inheritance, gift tax or stamp duty reliefs for a civil partnership that was registered in April 2011, for example, the entire annual relief will apply and not just an apportionment from the date of the civil partnership or from the enactment of the Bill.
Deputies can see that this is a short Bill with most of the detail set out in the schedules. It comprises just five sections and four schedules. Sections 1 to 4, inclusive, have related schedules which deal with the various aspects of the tax code applicable. Hence, section 1 deals with income tax and capital gains tax, section 2 deals with stamp duty, section 3 deals with capital acquisitions tax and section 4 with VAT. I will now deal with these in more detail.
Section 1 and the related schedule 1 deal primarily with the income tax treatment of civil partners and the various assessment options available to them. These options are joint assessment, separate assessment or separate treatment. In the absence of an election to the contrary, a couple is deemed to have elected for joint assessment.
Under joint assessment, one civil partner is chargeable to tax, not alone on his or her own total income but also on the total income of the other civil partner. The civil partner who is chargeable to tax on the income of both individuals is known as the nominated civil partner. Under separate assessment, each civil partner is assessed on his or her own income with allowances and reliefs divided between the civil partners.
Separate assessment is also known as separate assessment within joint assessment, as one civil partner's unused allowances, reliefs and rate bands may be transferred to the other civil partner. Under separate treatment, each civil partner is treated for tax purposes as if he or she continued to be single. The section also deals with maintenance payments for civil partners living apart, for the adaptation of certain provisions to allow for the joint assessment of civil partners living apart or whose partnership has been dissolved or annulled.
Also addressed in Section 1 is the assessment of civil partners for capital gains tax purposes. It sets out the method of joint assessment, makes provision for applications for separate assessment and provides rules for the transfer between partners of unutilised capital losses. These provisions follow the practices and entitlements for married couples.
Finally, the section deals with the income tax treatment of a cohabitant in respect of maintenance payments from a former partner where the relationship has ended. In such cases the person paying the maintenance will get income tax relief in respect of the payment. The person receiving the payment will, in turn, be liable to income tax in respect of the payment. This mirrors in some respects the income tax treatment of married couples and civil partners. The section also sets out rules regarding the transfer of assets between persons where the cohabiting relationship has ended.
Section 2 and its related schedule 2 give effect to the changes necessary to the Stamp Duties Consolidation Act 1999. In future, transfers of property between civil partners will be free of stamp duty in the same way as a transfer between a married couple. The section also inserts a new section into the Stamp Duties Consolidation Act 1999 to provide that stamp duty shall not be chargeable on an instrument executed after 1 January 2011 where property is being transferred on foot of a property adjustment order made following the breakdown of a cohabiting relationship under section 174 of the civil partnership Act 2010.
Section 3 and its related schedule 3 give effect to the changes necessary to the Capital Acquisitions Tax Consolidation Act 2003 which will mean that the same capital acquisitions tax reliefs and thresholds available to married couples will now also be available to civil partners. Likewise, children of a civil partner, including children of the other civil partner, will be entitled to the same capital acquisitions tax thresholds as children of married couples.
The section also provides for an exemption from gift and inheritance tax in respect of a court order made under section 175 of the civil partnership Act when a cohabiting relationship ends. As a result an asset transferred on the cessation of a relationship, where ordered by the courts, will not attract a tax charge for the person making the transfer.
Section 4 and its related schedule 4 give effect to a single change necessary to the Value-Added Tax Consolidation Act 2010. The change relates to the option to tax letting of immovable goods, by extending the definition of "connected persons" to include the civil partner of an individual and the civil partner of a relative of the individual or his or her civil partner.
Section 5 contains provisions relating to Short Title, construction and commencement of the Bill and is self-explanatory.
I thank officials in the Revenue Commissioners and the office of the Attorney General who have put an enormous amount of effort into drafting this Bill. I know the civil partnership Act had all-party support at the time it was debated in the Oireachtas and I hope that all Deputies can now fully support this Bill which deals with the taxation aspects of the civil partnership Act and that the tax affairs of the persons covered by the Act can be established on a new footing. I commend this Bill to the House.
I welcome the opportunity to make a contribution to the Second Stage debate on the Bill and thank the Minister for his contribution and summary. It follows through on the commitments made last year by the previous Government and essentially enacts the taxation elements of the civil partnership Act which received all-party approval in the Dáil and Seanad last year. The purpose of this Bill is to introduce changes required to the Taxes Consolidation Act 1997 as a consequence of the passing by the Oireachtas of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010, the passage of which was a truly landmark decision of the Oireachtas, acting on behalf of the people. The commitment in respect of civil partnership was set out in Fianna Fáil's pre-election manifesto and the agreed programme for Government in 2007. Under the Act, for the first time in Irish law, gay and lesbian relationships have been given official recognition. Such relationships, when registered, enjoy legal recognition and protection. People in committed homosexual relationships who wish to share duties and responsibilities have the choice to register their partnership and become part of a legal regime that fully protects them in the course of that partnership and, if necessary, on its termination. These duties and responsibilities include pension rights, succession rights, maintenance obligations and protection in the event of domestic violence.
The new law recognises and supports the clear diversity in society today. It affords certainty of status and security to civil partners. In a modern society like ours it would be unacceptable to continue to ignore the reality of same sex relationships. It was time that that major gap in the law was addressed. The former justice Minister, Mr. Dermot Ahern, oversaw the passage of the law last year. He said at the time the law "takes nothing from anyone, but what it gives is profound and is positive." He also said its passage showed how Irish society had changed for the better and that it epitomised our Christian and pluralist society.
For many years Fianna Fáil has been to the fore in redressing the obvious legal discrimination against same sex couples. The Prohibition of Incitement to Hatred Act 1989 banned incitement to hatred of a person or group of people on a range of grounds, including sexual orientation. The Act was steered through the Oireachtas by the then Fianna Fáil justice Minister, Mr. Gerard Collins. In 1993, when Fianna Fáil was in government, the then Minister, Mrs. Máire Geoghegan-Quinn, brought forward the Criminal Law (Sexual Offences) Act that finally brought to an end the unfair criminalisation of homosexual practices. The Employment Equality Act 1998 and the Equal Status Act 2004 made it an offence to discriminate against people in employment or the provision of goods and services on a range of grounds, again including sexual orientation. Through these legislative measures the State has clearly shown that people as individuals are entitled to receive fair and equal treatment before the law, regardless of their sexual orientation.
Fianna Fáil will continue to build on the progress made by the guidelines for school principals produced jointly by the Department of Education and Skills and GLEN, Gay Lesbian and Equality Network. The guidelines support lesbian and gay students and assist those who work with them in schools and colleges. We will also support raising awareness in national economic policies that support equality and diversity and the role played by them in attracting tourists and business to Ireland. Deputy Dara Calleary will expand on this theme later in the debate.
The Bill before the House provides for the same taxation treatment for civil partners in a registered partnership currently available to married couples in the areas of income tax, stamp duty, capital acquisitions tax, capital gains tax and VAT. It also provides that a child whose parent is in a civil partnership will be treated the same for taxation purposes as a child of a married couple. This means, for example, that children of civil partners will be treated the same for inheritance tax as children of a married couple. According to the Revenue Commissioners - the Minister has confirmed this today - the tax changes will apply for the full 2011 tax year and, in effect, be applied retrospectively for the earlier part of the year. This welcome initiative will be of benefit to many.
The Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 was commenced in January. As a result, same sex couples who got married or registered their partnership abroad are now fully recognised as civil partners in Ireland. The first public civil partnership ceremonies were held in Ireland on 5 April and received widespread media attention.
As GLEN has stated, the Bill before the House is a critically important advance for civil partners. It provides important certainty and security for the many same sex couples who have registered, or are planning to register, their civil partnerships. It also introduces changes to allow a redress scheme for opposite sex and same sex cohabiting couples and gives protection to a financially dependent person at the end of a long-term cohabiting relationship. In essence, a dependent cohabitant can apply for financial relief if the relationship breaks down. Qualified cohabitants can apply to a court for maintenance, property or pension orders if they can prove they are financially dependent on their former partner. To be deemed a qualifying cohabitant, the couple must have lived together for at least five years or two years if they have children.
An equally important aspect of the Bill and last year's legislation is that, for the first time, recognition is granted to the many thousands of relationships in our society involving unmarried heterosexual couples. There have been cases where people have been in a long-term, committed relationship which has broken down for one reason or another. One person in such a relationship may have made great sacrifices to raise children and look after the home, yet when such a relationship ends, he or she may find he or she has no protection whatsoever in the eyes of the law. As far as the State was concerned, there was never a relationship. That major anomaly had to be addressed.
The legislation passed last year provides for some redress in certain circumstances and represents a welcome breakthrough. It has come as a relief to many who are currently or potentially could be affected by these circumstances. Under the Act, a qualified cohabitant may apply for maintenance orders, property adjustment orders, pension adjustment orders and related orders such as attachment of earnings orders. They may also apply for provision to be made from the estate of a deceased cohabitant. Such a person would not have an automatic right to obtain such orders, but a court may make such an order if it is satisfied that the person was financially dependent on his or her cohabitant partner. In taking a decision in that regard, the court has to take a number of factors into account, including the financial circumstances, needs and obligations of each cohabitant, in addition to the rights of others, including spouses, former spouses, civil partners, former civil partners and dependent children of either partner, the duration and nature of the relationship, and the contribution made by each, financially and otherwise, during the tenure of their relationship. Such orders may not affect the rights of spouses or former partners. That was a major breakthrough.
The Minister has made it clear that the same taxation treatment does not apply to cohabitating persons, which is fair enough because in the overwhelming majority of cases they do have the option of marriage. There are some cases where that is not possible. However, in the majority of cases it is an option for them, whereas for same sex couples, until last year, there was no such option to have their relationship recognised before the law. As I noted, cohabitants do not have the same tax rights as married couples and civil partners. Therefore, with regard to income tax, for example, cohabitants will continue to be taxed as single people and unused credits and standard rate bands cannot be transferred between cohabitants. One can argue that is fair enough because in the majority of cases they have the option of marriage, whereas a same sex couple does not have that option. Until last year there was no option available to have such a relationship recognised by the State.
The Law Reform Commission has suggested qualified cohabitants could be classed differently for capital acquisitions tax purposes. In the event that one partner wishes to transfer an asset to the other, under the existing law, effectively they will be treated as strangers.