Fergal Browne (Fine Gael)
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I welcome the Minister of State to the House. I tabled a parliamentary question through Deputy Paul Keogh last March in respect of the tax relief available for people paying maintenance for their children. I highlighted a case involving a married individual who fathered a child outside marriage and pays maintenance for that child but does not receive tax relief. I am now confused because the reply to my question informed me that there was no tax relief in respect of maintenance payments. However, the person tells me that friends of his who pay maintenance for their children are availing of tax relief.

Are these people categorised in different tax bands? Why am I being told on the ground that people are receiving lump sums in the region of €4,000 while I am officially informed that they are not receiving such tax relief? Why is the individual to whom I referred being told that if he was single or separated and paying maintenance, he would be entitled to some tax relief but the fact that he is still married but paying maintenance for a child fathered outside marriage means he cannot receive tax relief? I believed my parliamentary question would clarify matters but it has only confused matters. The Department of Finance is saying one thing but the exact opposite appears to be happening on the ground.

Tom Parlon (Laois-Offaly, Progressive Democrats)
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I am informed by the Revenue Commissioners that there is no tax relief for maintenance payments towards the upkeep of children, including children born outside marriage. The effect is that the payments are treated in the same way as if the taxpayer was providing for the child out of his or her after-tax income. The position in respect of the tax treatment of maintenance payments for separated spouses is more complex.

A one-parent tax credit can be claimed by a single parent, regardless of whether he or she is widowed, single, deserted, separated or divorced, who is not living with another person as man and wife and who has a qualifying child resident with him or her for the whole or part of the relevant tax year. A qualifying child means a child who is born during that tax year or is under 18 years of age at its beginning, is over 18 years of age and receiving full-time education or undergoing a full-time training course for a trade or profession for a minimum of two years or is permanently incapacitated, either physically or mentally, from maintaining himself or herself and becomes so before reaching 21 years of age or has become permanently incapacitated after reaching that age but while he or she has been receiving full-time education.

The payment or non-payment of maintenance by such a single parent is not a determining factor in the entitlement to the one parent family tax credit. Senators may also wish to note that as a result of an entitlement to this credit, a person may also be entitled to an enhanced standard rate tax band valued at €36,000 in 2006. This is €4,000 greater than the standard band for a single person. A person in receipt of the one parent family tax credit in respect of a child who is incapacitated may also be entitled to receive the incapacitated child tax credit, which is worth €1,500 in 2006. The latter is not dependent on receipt of the former.

The tax treatment of maintenance payments for separated spouses is a complex area and I hope Senators will bear with me as I try to explain the position clearly. In general, separated couples are treated for tax purposes as if they are unmarried. However, where a legally binding maintenance arrangement is in place, they may elect to be treated for tax purposes as if the separation had not taken place. This election is not a right of one spouse and must be claimed jointly by both spouses. Where such an election is received, the couple continues to be treated as a married couple for tax purposes and any maintenance payments have no tax consequences.

The general position in the case of legally enforceable maintenance agreements is that where the couple is treated for tax purposes as if unmarried, a tax deduction for maintenance payments for the benefit of his or her spouse is granted to the paying spouse, but the payments are taxed in the hands of the receiving spouse. However, if the spouses jointly elect to be treated for tax purposes as if the separation had not taken place, the payer does not receive a tax deduction for the maintenance payments and the receiving spouse is not taxable on them. Non-legally binding maintenance payments are not taxable in the hands of the receiving spouse but the paying spouse cannot claim a tax deduction for them.

The Government acknowledges the continuing cost pressures on parents, particularly those with young children, and that the direct expenditure approach is the main way in which the State provides support to parents. The Government has substantially increased child benefit since entering office in 1997. Senators may be interested to hear that overall expenditure on child benefit has increased by 279%, from €506 million in 1997 to almost €2 billion in 2006.

A new early child care supplement of €1,000 in a full year for each child up to his or her sixth birthday was announced in the budget. This payment will commence shortly and is exempt from income tax. With the increases in child benefit announced in the budget, this will bring the amount a family will receive in direct financial support for each of the first two children under the age of six years to €2,800 per year, equivalent to more than €50 per week. This will be even higher where a family has more than two children under the age of six years.