Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael)
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94. To ask the Minister for Finance the reason employer contributions to a provider are now deemed to be benefit-in-kind when the purpose of personal retirement savings accounts was to obtain a tax relief in payroll; and if he will make a statement on the matter. [25585/15]

Michael Noonan (Limerick City, Fine Gael)
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Tax relief on pension contributions by or behalf of employees to occupational pension schemes and by employees or individuals to pension arrangements such as Personal Retirement Savings Accounts (PRSAs) or Retirement Annuity Accounts (RACs) is limited each year by reference to the annual earnings of the employee or individual (subject to an annual earnings cap of €115,000) which operates in conjunction with age-related percentage limits of those earnings (ranging from 15% to 40% of earnings, depending on the age of the contributor).  These limits act as both an incentive to tax-relieved pension saving and as a control over its potential abuse.

Employer contributions to trust-based occupational pension schemes approved by the Revenue Commissioners are not subject to the limits outlined above and are specifically exempt from being charged to tax as remuneration or a benefit-in-kind (BIK) of the employee members of such schemes under s.118(5) of the Taxes Consolidation Act 1997 (TCA).  This treatment of employer contributions to occupational pension schemes is possible because controls have historically been applied to the maximum benefits that can be funded from such schemes for individual members.

Given that PRSAs are contract-based accounts the assets in which are the property of each individual PRSA owner, it was recognised on their introduction in 2002 that the application of controls over the benefits payable from PRSAs was not a practical option and that contribution-based controls were required.

In the case of employer contributions to PRSAs, such contributions are treated as a business cost of the employer for tax purposes but are not exempt from a BIK charge on the employee. Tax legislation provides that an employer contribution to a PRSA is treated for tax relief purposes as a contribution made by the employee. However, provided the aggregate amounts of employer and employee contributions to a PRSA do not exceed the annual tax-relieved limits, no effective BIK tax charge arises. It is only where the combined employer/employee contributions exceed the relevant limits that a BIK tax charge will arise. Moreover, any employer contributions to a PRSA which would not qualify for tax relief in one year because of the operation of the tax-relieved limits may be carried forward and treated as a PRSA contribution made by the employee in the following year subject to the age-related percentage limits.