It is a general principle of taxation that all income, from whatever source, is income for tax purposes, unless specifically exempted by legislation.
Section 19 of the Taxes Consolidation Act 1997 (TCA 1997) provides that income from offices or employments, and from annuities, pensions, or stipends payable out of State funds, is within the charge to tax under Schedule E. Section 112 TCA 1997 charges income tax on all Schedule E income received in a year, with the exception of proprietary directors who pay tax in the year the income arises. A charge to tax under schedule E is imposed in respect of certain Social Welfare payments by virtue of section 126 TCA 1997. Section 126 (2) TCA 1997 specifically provides that payments made under the old age (contributory) pension (now known as the State pension (contributory)) are deemed to be emoluments to which Chapter 4 of Part 42 (Collection and recovery of income tax on certain emoluments (PAYE system)) applies.
Therefore, employment income, the State pension and occupational pensions are subject to tax under Schedule E. However, the State pension is not subject to Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).
As the Deputy may be aware, the current tax arrangements for persons aged 65 or older compare favourably with the tax treatment of the generality of taxpayers. The age tax credit or the age exemption limits and marginal relief are available to persons aged 65 or over. While reduced rates of USC also apply for persons aged 70 or older where their total income is €60,000 or less per annum.
The Commission on Taxation and Welfare examined the issue of age being a factor for determining the charge to income tax and USC as it narrows the base and breaches the concept of horizontal equity. Further details are set out in the Report of the Commission, available on the Government’s website.
As the Deputy will appreciate, decisions regarding tax incentives and reliefs are normally made in the context of the annual Budget and Finance Bill process. Such decisions must have regard to the sound management of the public finances and my Department's Tax Expenditure Guidelines.
