In a recent appeal case the tax payer/appellant was claiming tax relief on maintenance payments he had made to his ex-wife following their separation.
The divorce had taken place in another jurisdiction and the court had ordered the tax payer to make specified payments specifically, for the upkeep of his child.
The taxpayer claimed that although the court order specified the payments were for his child, he had an informal agreement with his ex-wife that 50% of the payments constituted spousal maintenance and therefore qualified for Irish tax relief.
However, Revenue took the position that only formal court-ordered spousal maintenance payments qualify for tax relief under sections 1025-1026 TCA 1997. They argued that as the foreign court order explicitly stated that the payments were for the child’s alimony, with no mention of spousal maintenance, the payments did not qualify for relief. Any informal arrangement between the former spouses was irrelevant for tax purposes.
Below we have highlighted the Revenue treatment of maintenance payments.
The tax treatment of maintenance payments in Ireland depends on whether the payments are legally enforceable or voluntary, and whether they are for the benefit of a former partner or children.
Here’s a breakdown:
1. Legally Enforceable Maintenance Payments
These are payments made under a court order, deed of separation, or other legal commitment (e.g., covenant or trust). They can also include payments made on behalf of a former partner, such as mortgage payments.
For the Payer:
– The payer can claim tax relief on the amount paid for the benefit of the former partner. This means the payments are deductible from the payer’s total income.
– Tax relief is not available for payments made for the benefit of children.
For the Recipient:
– The recipient is taxed on the payments received for their benefit. These payments are taxable under Case IV, Schedule D.
– Payments specifically for the benefit of children are not taxable.
Option to Be Taxed as a Married Couple:
– If both parties agree, they can choose to be taxed as a married couple or civil partners. In this case:
– The maintenance payments are ignored for tax purposes.
– The couple is assessed on the basis of separate assessment.
2. Voluntary Maintenance Payments
These are payments made without a legal agreement.
For the Payer:
– Voluntary maintenance payments are not tax-deductible.
For the Recipient:
– Voluntary maintenance payments are not taxable for the recipient.
– However, if the total amount of voluntary payments exceeds certain thresholds, the recipient may be liable for Capital Acquisitions Tax (CAT).
Key Points for Maintenance Payments for Children:
– Payments made for the benefit of children are not taxable for the recipient.
– The payer cannot claim tax relief for these payments.
How to Declare Maintenance Payments:
– Payers can claim tax relief through Revenue’s PAYE Services or under self-assessment if they have no PAYE income.
– Recipients must declare taxable maintenance payments under Case IV, Schedule D.
