Bernard Durkan (Kildare North, Fine Gael)
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206. To ask the Minister for Finance his plans to amend the tax credit system to allow de facto families in long-term relationships receive the same tax benefits as married couples; and if he will make a statement on the matter. [39771/14]

Michael Noonan (Limerick City, Fine Gael)
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The position is that where a couple is cohabiting, rather than married or in a civil partnership, they are treated as separate and unconnected individuals for the purposes of income tax.  Each partner is a separate entity for tax purposes and, therefore, cohabiting couples cannot file joint assessment tax returns or share their tax credits and tax bands in the same manner as married couples.

The basis for the current tax treatment of married couples derives from the Supreme Court decision in Murphy vs. Attorney General (1980), which held that it was contrary to the Constitution for a married couple, both of whom are working, to pay more tax than two single people living together and having the same income. 

However, a cohabiting couple where both partners are working get, in total, the same tax credits as a married couple or couple in a civil partnership (i.e. €3,300).  In addition, the same amount of income is subject to tax at the 20% rate (i.e. €32,800 each).  This equates to the €65,600 threshold in the case of a married couple or couple in a civil partnership.

If both cohabitants earn in excess of the standard rate band (i.e. €32,800), then they both pay tax at 41% on any income in excess of €32,800.  Married couples or couples in a civil partnership where both individuals work get the same treatment.

Furthermore, as a result of the changes introduced in the recent Budget, these thresholds will increase in 2015 to €33,800 and €67,800, respectively. This means that where both cohabitants pay tax at the higher rate, an additional €2,000 of a cohabiting couple's income will be subject to income tax at 20% rather than at 40%, resulting in a potential increase in net take home pay of up to €400 per annum.