Written answers

Tuesday, 17 February 2004

10:00 pm

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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Question 134: To ask the Minister for Finance if his attention has been drawn to the different tax treatment of separated, cohabiting and married parents; and the rationale for this structure. [4689/04]

Charlie McCreevy (Kildare North, Fianna Fail)
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Under the income tax code, married parents may elect for joint assessment, separate assessment or single assessment. Under joint assessment, the couple can transfer their personal credit and part of their bands between them. In the case of a married couple, where only one spouse has income, the facility for joint assessment allows the earning spouse to avail of the married personal credit, which is double the personal credit of a single person, and an increased standard band. In addition, the home carer tax credit may be claimed by a married couple who are jointly assessed for tax where one spouse remains working in the home to care for children or other dependent persons.

Under separate assessment, each spouse is assessed on his or her own income, but one spouse's unused personal credit, reliefs and the transferable portion of the standard rate band may be transferred to the other spouse. This means that the tax payable under separate assessment does not exceed the tax payable had that couple elected to be jointly assessed. The home carer credit may not be claimed by spouses who opt for separate assessment.

Under single treatment, each spouse is treated for tax purposes as if unmarried. Under single treatment, one spouse's unused credits, reliefs and standard rate band cannot be transferred to the other spouse. As with separate assessment, the home carer credit may not be claimed by spouses who opt for single assessment.

Separated couples, whether parents or not, are generally treated as if unmarried — that is, assessed as single persons — but they may, where a legally binding maintenance arrangement is in place, jointly elect to be treated for tax purposes as if the separation had not taken place.

The general position in the case of legally enforceable maintenance agreements is that, where the couple are 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 couple jointly elect to be treated for tax purposes as if the separation had not taken place, then the payer does not receive a tax deduction for the maintenance payments and the receiving spouse is not taxable on them. On the other hand, 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.

Maintenance payments in respect of children are not taxable in the hands of the children or the receiving spouse. The effect of this is that the payments are treated the same way as if the taxpayer was providing for the child out of his or her after tax income. This is in line with the tax treatment of all other parents, where the cost of maintaining their children is not tax deductible.

Parents who are separated from each other may each claim the one parent family credit in respect of their child where that child resides with the parent at any time during the year of assessment. However, a man and woman living together as man and wife are specifically excluded by the tax code from entitlement to the one-parent family tax credit.

It is possible in certain circumstances for separated persons who jointly elect to be jointly assessed for tax purposes to claim the home carer tax credit. However, in such circumstances and because of the joint assessment, the one-parent family credit may not be claimed by either parent.

Cohabiting parents are treated as single persons and there are no special income tax allowances for unmarried couples living together. The tax system treats members of cohabiting couples, with or without children, as separate and unconnected individuals. Each partner is a separate entity for tax purposes and credits, bands and reliefs cannot be transferred from one partner to the other. The home carer credit may not be claimed by cohabiting couples, as the credit is restricted to married persons who are jointly assessed for tax.

To the extent that there are differences as outlined in the tax treatment of the different categories of couple, such difference arises from the objective of dealing with different types of circumstances while at the same time respecting the constitutional requirement to protect the institution of marriage. I have no plans to change the different treatments under the tax code at this time.

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