Ciara Conway (Waterford, Labour)
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Question 93: To ask the Minister for Finance the position regarding plans to tax lump sums payable to fire fighters upon retirement; if this taxation is dependent on years of service; if the tax will apply to the entire sum or a percentage thereof; the rate that will apply; when the tax will come into effect; and if he will make a statement on the matter. [17941/11]

Michael Noonan (Limerick City, Fine Gael)
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There are no proposals to specifically subject lump sum retirement gratuities of retained fire fighters to income tax other than what applies to all taxpayers.

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 or retirement gratuities 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 payment;

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 retirement gratuity received in the previous 10 tax years.)

Any amount of redundancy payment or retirement gratuity in excess of whichever exemption applies is liable to income tax. However, there is a further relief, called "top slicing" relief, which ensures that the lump sum is not taxed at a rate higher than the employee's average rate of tax for the three years prior to termination.

The Finance Act 2011 introduced a provision to restrict the tax-free element of ex-gratia redundancy payments or retirement gratuities to a lifetime limit of €200,000 with effect from 1 January 2011.

If the Deputy needs any further clarification in relation to an individual case the Revenue Commissioners will be happy to assist.