Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context

Question 125: To ask the Minister for Finance the taxation applicable to the gratuity paid on retirement to retained firefighters; and if he will make a statement on the matter. [17052/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

The position is that Section 201 of the Taxes Consolidation Act 1997 and Schedule 3 to that Act set out the legislation in relation to the exemptions that apply to retirement gratuities, and the taxation of any balance after applying these exemptions. The same rules apply to all employees and office holders.

Statutory redundancy payments are exempt from income tax. In addition, ex-gratia redundancy payments in excess of the statutory redundancy amount are exempt from income tax up to certain limits namely: a basic exemption of €10,160 plus €765 per complete year of actual service in excess of the statutory redundancy; or standard Capital Superannuation Benefit i.e. 1/15th of the person's annual income (average of the last three years) for each year of employment less any tax-free lump sum which is received or receivable under any approved or statutory pension scheme. It is open to the taxpayer to choose whichever relief is of most benefit.

The basic exemption from income tax as outlined above can be further increased by up to €10,000 if the person is not a member of an occupational pension scheme. This can only be claimed if the person has not made any claims in respect of a lump sum received in the previous 10 tax years. Any amount of redundancy payment in excess of whichever exemption applies, is liable to income tax. The Revenue Commissioners publication IT21 is a comprehensive guide to understanding how these reliefs apply.