Commission recommends taxing payment but credit also proposed

CHILD BENEFIT:THE COMMISSION on Taxation has recommended taxing child benefit. However, it said this should be accompanied by a child tax credit to minimise the impact of the proposal on the lower paid.

Commission chairman Frank Daly accepted that taxing child benefit was not a straight-forward issue. There were legal and policy issues which needed to be addressed, such as the legal ownership of the child benefit payment, he said.

Establishing who should be taxed would be complicated in cases where couples had separated or families had non-traditional living arrangements.

The report referred to legal advice obtained by the Tax and Welfare Integration Group in the early 1990s which suggested that taxing child benefit could be “problematic” within the present social welfare legislation.

Mr Daly said there would have to be changes to legislation to facilitate the taxing of child benefit.

He also pointed out that the tax system did not take account of the number of children in the family, so the impact was greater for larger families.

The report noted that taxing of child benefit should be benchmarked against alternatives. These would include means testing, to establish the most effective method of achieving the aims of the child-benefit programme.

Mr Daly said there was no ambiguity in the commission’s stance on child benefit. It believed it should be taxed, but it was also important to point out the implications. “I think it would have been irresponsible of us just to say go and tax it and not point out those difficulties.”

Examining the benefits of means testing fell outside the commission’s terms of reference.

In explaining its decision to recommend taxing the benefit, the commission said that not taxing it meant the payment could be of greater benefit to people on the higher rate of tax. “An efficiency question also arises about the payment of child benefit to families in the higher income ranges regardless of need.”

Last year, the benefit was paid to 580,000 families in respect of 1.1 million children at an estimated cost of €2.5 billion.

Of those families in the tax net, 20 per cent had incomes below €40,000, 65 per cent had incomes between €40,000 and €100,000 and 15 per cent had incomes of more than €100,000.

The commission also recommended discontinuing the income tax exemption for childminders.

In a bid to take childminding out of the black economy, the Government raised the income tax exemption from €10,000 to €15,000 in recent years. However, the report noted that the relief was only taken up in 230 cases in 2006. It also noted that the tax relief was not related to the provision of a minimum standard of care and said it should be discontinued.

The report said capital allowances for childcare facilities should be discontinued, and employees who use free or subsidised childcare provided by their employer should have to pay benefit-in-kind charge.

The commission also recommended that foster care payments continue to be exempt from income tax. It said the one-parent family tax credit, the home carer tax credit and the widowed parent tax credit should all continue.