Barry Cowen (Laois-Offaly, Fianna Fail)
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133. To ask the Minister for Finance if payments made under circular letter S.3/2007 of 22 January 2007 are subject to income tax; and if he will make a statement on the matter. [45682/13]

Kevin Humphreys (Dublin South East, Labour)
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147. To ask the Minister for Finance following budget 2014, if he will outline the taxation treatment of retirement gratuity payment for local authority councillors will be following the abolition of top slicing relief; and if he will make a statement on the matter. [45635/13]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 133 and 147 together.

Circular letter S.3/2007 of 22 January 2007 sets out the payments made to local authority councillors on retirement.

Section 4 of the Finance (No. 2) Bill 2013 provides for the cessation of Top Slicing Relief in respect of any payments chargeable to tax under section 123 of the Taxes Consolidation Act 1997, which are made on or after 1 January 2014. All other reliefs or exemptions in relation to such termination payments continue to apply as appropriate.

Interpretation of tax law is a function of the Revenue Commissioners and I am informed by them that the payments to local authority councillors on retirement are taxable under section 123 of the Taxes Consolidation Act 1997 with the exemptions and reliefs provided for by way of section 201 and Schedule 3 to that Act. This is the same relief provided to all other employees in receipt of an ex-gratia payment on redundancy or termination of an office or employment.

Under section 201 an individual claimant is entitled to a basic exemption of €10,160 plus an additional €765 for each full year of service. Where the individual has no pension lump sum entitlement or has waived his or her right to that pension an increased exemption of €10,000 is also available under Schedule 3 of the Taxes Consolidation Act 1997. Otherwise the €10,000 figure is reduced by the actuarial (current use value) amount of that lump sum entitlement.

In addition, Schedule 3 of the Taxes Consolidation Act 1997 provides for the Standard Capital Superannuation Benefit (SCSB) which be claimed where the SCSB as determined exceeds the basic and increased exemption. This relief is determined by reference to the average earnings of the claimant over the previous 36 months of employment, the SCSB is calculated as the average pay for the last three years multiplied by the number of complete years of service, and then divided by 15, less any pension lump sum entitlement.

Top Slicing relief, which continues to be available in respect of ex-gratia payments made up to 31 December 2013, is determined by reference to the average effective rate of tax charged over the 3 previous years of assessment on the taxable element of the ex-gratia payment, as compared to the tax payable on the same payment at the marginal rates of tax in the current year.

Top Slicing Relief will not be available where the payments to local authority councillors on retirement are made on after 1 January 2014.