Mark Ward (Dublin Mid West, Sinn Fein)
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233. To ask the Minister for Finance further to Parliamentary Question No. 329 of 18 January 2023, the reason that cohabiting partners cannot be jointly assessed as cohabitants for tax purposes in the same way a married couple would be, in view of the fact that they are assessed jointly for social protection entitlements (details supplied); and if he will make a statement on the matter. [5328/23]

Michael McGrath (Cork South Central, Fianna Fail)
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The basis for the current tax treatment of married couples derives from the Supreme Court decision in Murphy vs. Attorney General (1980). This decision was based on Article 41.3.1 of the Constitution where the State pledges to protect the institution of marriage. The decision 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. The Constitutional protection of Article 41.3.1 does not extend to non-married couples.

As such, in situations where a couple is cohabiting, rather than married or in a civil partnership, each partner is treated for the purposes of income tax as a separate and unconnected individual. Because they are treated separately for tax purposes, credits, tax bands and reliefs cannot be transferred from one partner to the other.  

In the event that the tax treatment of married couples was to be extended to cohabiting couples, consideration would need to be given to the practicalities that would arise for Revenue if they were to administer such a system.

It would be very difficult for Revenue to administer a regime for cohabitants, similar to that for married couples.  Married couples and civil partners have a verifiable official confirmation of their status. It would be difficult, intrusive and time-consuming to confirm declarations by individuals that they were actually cohabiting and to establish when cohabitation started or ceased. 

There would also be legal issues with regard to ‘connected persons’. To counter tax avoidance, ‘connected persons’ are frequently defined throughout the various Tax Acts. The definitions extend to relatives and children of spouses and civil partners. This would be very difficult to prove and enforce in respect of persons connected with a cohabiting couple where the couple has no legal recognition. 

To the extent that there are differences in the tax treatment of the different categories of couples, such differences arise from the objective of dealing with different types of circumstances while at the same time respecting the constitutional requirements to protect the institution of marriage.

There may be an advantage in tax legislation for a married couple or civil partners as regards the extended rate band and the ability to transfer credits. However, the legal status for married couples has wider consequences from a tax perspective both for themselves and persons connected with them.

The tax treatment of couples was reviewed and considered as part of the 2020 Tax Strategy Group process.  The Income Tax TSG Paper included an overview of the tax treatment of couples and outlined the rationale for the different treatment between married couples/civil partnerships and cohabiting couples. Further details can be located at the following link - www.gov.ie/en/publication/fdd38-budget-2021-tsg-papers/

The difference in tax treatment for married couples is not confined to Income Tax, and is also a feature of other tax heads, such as Capital Acquisitions Tax.  Therefore, any changes in the tax treatment could only be considered in the broader context of the tax system and future social and legal policy development, given that the legal status of married couples has wider consequences than from a tax perspective.

The recent report of the Commission on Taxation and Welfare put forward no recommendation regarding the tax treatment of cohabiting couples. However, it did recommended a phased move towards individualisation of the Standard Rate Cut off Point as a step towards addressing disparities in the income tax system, facilitating increased employment, and decreasing the gap in the employment rate between men and women. 

It should be noted that both the PRSI and Universal Social Charge are already applied on an individualised basis.

Finally, as signalled in the Budget, my Department has begun initial work on developing a medium-term roadmap for personal tax reform, taking account of the recent report of the CoTW, and considering a range of measures across income tax, USC and PRSI together with other related personal taxation issues.

I expect that, when completed, this work will help inform deliberations relating to a number of aspects of the income tax system in the context of future budgets.