Q&A

Dominic Coyle answers your personal finance queries

Pensions

I saw a report in last week's supplement about a fictional couple and their interest in the forthcoming budget. It read: "Mark has an occupational pension of €27,000 and receives dividends of €8,000 per annum. Alice is in receipt of dividends of €€9,000 per annum. Mark also receives the social welfare old age pension of €167.30 per week. Alice does not qualify for a pension in her own right, but she does satisfy the conditions for a qualified adult. As a result of this, Mark receives an additional €129.20 a week in his pension. The payments add just over €15,000 a year to the couple's income."

I appreciate that the case is fictional, but under what circumstances does someone get the social welfare old age pension if he has an occupational pension? Is everyone entitled to it, or do you have to have paid Irish social welfare contributions in addition to the contributions to the occupational pension? Does this really happen? I have a (public) pension from another member-state of the EU - would that make me eligible?

Mr B.M., Cork

As you say, the example you quote is fictional, and one of several designed to illustrate changes that might have occurred in this week's Budget. However, the point about eligibility of people for a State pension when they are already in receipt of an occupational pension is valid.

Essentially, there are two sorts of social welfare old age pensions. The first, which is more relevant here, is the contributory old age pension. As the name implies, it is payable to people who have contributed to the social welfare system through Pay Related Social Insurance (national insurance).

There are different levels of payment depending on the annual average number of contributions made during the person's working life.

The payment of a contributory old age pension is not influenced by any other income earned by the individual - whether from an occupational pension, work-based earnings, investment or rental income.

The second type of State old age pension is the non-contributory old age pension. This is payable to people who either have not made contributions to the social insurance during their working lives or have made insufficient contributions to access a contributory old age pension payment. There are two key differences between this and the non-contributory old age pension: the payments are lower, and they are means-tested, which means they would be unlikely to be applicable to people in receipt of pension or other income from other sources.

Working abroad

Having been employed in Ireland for 10 years until June 2004, I recently took up one year's employment in Canada (July 2004 - June 2005). I am unlikely to stay abroad for longer than one year.

Am I automatically ordinarily resident in Ireland during this year abroad, or have I the option of altering my residency status? (I have continued my SSIA contributions since I have left.)

Assuming I am ordinarily resident in Ireland, do I ultimately pay Irish tax on my earnings in Canada (with relief against Canadian tax paid)?

If so, can I claim income tax relief for rent paid while in Canada, as I have not rented my house in Ireland during this year away? (I bought my house four years prior to moving away and hence, I believe, would have had to pay clawback stamp duty if I let it.)

Mr M.McK., via email

Residence is a confusing issue, and one that really doesn't impinge on most of us until the time comes to pay tax. The general rule is that once you have been resident in Ireland for tax purposes for three tax years, you are deemed to be ordinarily resident here. In your case, 10 years of working in Ireland would bring you well within that definition.

Having become ordinarily resident, you remain so for three full tax years following your departure from the State. In your case, that would mean the balance of the 2004 tax year and all of 2005-2007. Given that you intend to return sometime in 2005, you fall well within the parameters.

Do you have the option of altering your residency status during the year you are away? I doubt it for such a short period, though you would need to examine the Canadian tax code closely to see if it allows you to elect for residency.

In your situation, I see no advantage to surrendering your current Irish tax status. In the first place, there is your special savings incentive account. If you lose your status as being ordinarily resident in Ireland, you would have to cash in your SSIA before it matures, paying 23 per cent tax on everything in the account, compared to paying that tax only on the interest or growth accruing to the money invested by both you and the State at maturity.

In any case, you do not have to deal with the complications of paying tax in Ireland on your Canadian income. As an ordinary resident, you are entitled to pay tax on income earned through employment wholly practised abroad in the jurisdiction where that work takes place - in your case, Canada. As to your Canadian rent, unless that is deductible in Canada, it is not deductible in Ireland as you have no tax liability here on your work income. You are quite right about the situation with your property here. Given that you were a first-time buyer and that you have owned the house for four years, you would face a clawback of stamp duty if you chose to rent it while away.

Stamp duty

In a piece last week on the implications for stamp duty in the event of a couple leaving the State to work abroad for a period and renting their property here less than five years after they availed of a first-time buyer's stamp duty exemption on it, I said that there would be a clawback by the Revenue in relation to the stamp duty.

However, I incorrectly stated that the amount of the repayment sought by the Revenue would depend on the time outstanding before the passing of the five-year threshold. The Revenue has been quick to remind me that the clawback is not dependent on time remaining before the five-year deadline passes. What will happen is that the couple will have to pay back the difference between the stamp duty that would have applied at the outset if they had not been eligible for first-time buyers' relief and the lower duty they paid as a result of that relief. Sorry for the confusion.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or email a query to dcoyle@ irish- times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries.

All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.