Taxation of Married Couples

Cases Involving Non-Residence

Introduction

The charging to tax of the assessable spouse in respect of the joint total incomes of both spouses in accordance with Section 1017 Taxes Consolidation Act [TCA 1997] is more commonly known as the ‘aggregation basis of assessment’ or ‘joint assessment’.

Arising from a commitment given at a recent TALC Direct Tax Subcommittee meeting, this article outlines the Revenue practice regarding the application of the aggregation basis of assessment where one spouse is, or both spouses are, non-resident.

Statutory Position

Entitlement to the married personal tax credit and double rate bands is dependent upon the assessable spouse being chargeable to tax in respect of the joint total incomes of both spouses in accordance with Section 1017 TCA 1997. This view was upheld in the High Court in the tax case of McConnologue v Fennessy [1995 ITR 133].

Non-statutory Practice as regards tax credits and rate bands.

Tax Treatment where only one spouse is resident in the State and that spouse has income chargeable to tax in the State.

Where only one spouse is resident in the State and in receipt of income chargeable to tax in the State, the statutory position is that he/she :

• is chargeable to tax on that income on the basis of separate treatment as a single person; and
• is entitled to the single person’s tax credits and reliefs.

However, in cases where:

• only one spouse is resident in the State;
• that spouse has income chargeable to tax in the State, and
• the non-resident spouse has no income (i.e. the earnings of the spouse working in the State are the only source of income of the couple)

then, by way of practice, aggregation basis may be applied in the normal way (i.e. the Married Persons Tax Credit and the increased rate band should be given accordingly).

Even if the non-resident spouse has income, a measure of relief may, depending of the level of that income, be due where the Irish tax payable under separate treatment in respect of the income chargeable to Irish tax exceeds the tax that would have been payable in respect of that income if the total income of both spouses had been chargeable to tax on the basis of aggregation. See Example 1 (below).

To avail of this practice, the married couple should make a specific election for aggregation basis; and the spouse with income chargeable to Irish tax should be requested to give details of the couple’s total incomes (i.e. the income of both spouses, including income not chargeable to Irish tax).

Cases where both spouses are non-resident but one spouse has income chargeable to tax in the State

The most common type of case in which this situation will arise is that of a spouse who is a cross-border worker or who is working in this country on a temporary assignment.

Where neither spouse is resident in the State but one spouse is in receipt of income chargeable to tax in the State (e.g. income from exercising an employment here), the statutory position is that he/she :

• is chargeable to Irish tax on that income on the basis of separate treatment as a single person; and
• may be granted the single person’s tax credits and reliefs, or a proportion thereof, in accordance with the provisions of Section 1032 TCA 1997.

Where entitlement to tax credits derives from Section 1032 TCA 1997, any apportionment of the allowances, etc. is carried out by reference to the world income of the spouse with the Irish source. The income of the other spouse should not be taken into account.

[Note: As regards Section 1032, residents of another Member State of the European Union are entitled to full personal tax credits and reliefs in respect of any tax year in which 75% or more of their worldwide income is taxable in Ireland.]

However, in cases where

• both spouses are non-resident;
• one spouse has income chargeable to tax in the State; and
• the other spouse has no income (i.e. the earnings of the spouse working in the State are the only source of income of the couple),

then, by way of practice, aggregation basis may be applied in the normal way (i.e. the Married Persons Tax Credit and the increased rate band should be given accordingly).

Even if the other spouse has income, a measure of relief may, depending of the level of that income, be due where the Irish tax payable under separate treatment in respect of the income chargeable to Irish tax exceeds the tax that would have been payable in respect of that income if the total income of both spouses had been chargeable to tax on the basis of aggregation. See Example 2 (below).

To avail of this practice, the married couple should make a specific election for aggregation basis and the spouse with income chargeable to Irish tax should be requested to give details of the couple’s total incomes (i.e. the income of both spouses including income not chargeable to Irish tax).