Seanad Éireann - Volume 177 - 22 June, 2004
Deposit Interest Retention Tax.
Mr. Bannon Mr. Bannon
Mr. Bannon: I thank the Minster of State for coming before the House to take this important Adjournment matter regarding DIRT on court invested awards for injured minors. I am sure the Minister of State will agree that taking money from young children under any guise is reprehensible and doubly so when they are injured, vulnerable and in need of care and long-term medical treatment. The situation that has lead to the imposition of DIRT on the interest of moneys invested by the courts on behalf of minors who have been awarded compensation for injury is, I am sure, an oversight and not the deliberate action of anyone in the Department of Finance. However, as stealth taxes go this has to be one of the most shameful.
The days of cruelly pushing children up chimneys and down mines to make a few pence are long gone but this oversight is leading to a situation in which money is still being made from the suffering of young children. Actions for compensation of minors are taken on their behalf by parents or guardians but those parents have no control over any ensuing compensatory award. These moneys are invested on the child’s behalf under the Trustee (Authorised Investments) Act 1958 and the Trustee (Authorised Investments) Order 1958. Part 4 chapter 4 of the Consolidation Act 1997 provides for the levying of deposit interest retention tax on certain interest paid or credited on deposits held with all financial institutions. The situation vis-à-vis injured minors does not appear to have been considered under exemptions except in cases of total incapacity and it is such an exemption I urge the Minister for Finance to consider.
Parents have no rights as to where or on what terms their child’s money is invested and I am sure that almost 100% of them are unaware that the interest gained is subject to DIRT. It would appear the State, acting on behalf of these children, does not have their best interests at heart. Rather than investing this money where it is liable to DIRT, it could avoid any tax by investing the money entrusted to its care in alternative areas such as An Post savings certificates which are tax-free. However, of course there is no benefit to the Exchequer in this case.
DIRT tax was introduced to close a loophole whereby people failed to disclose interest on deposit accounts where that interest was under 50, spreading their money over several accounts to evade liability. DIRT is now deducted from everyone with a deposit account, including children. At concept stage, I am sure this tax was never intended to cover interest accruing to injured minors but, more importantly, neither was an exemption considered in the case of children relying on court awards and interest gained, to access necessary treatment. These compensatory awards are hard fought for and ensue as a direct consequence of the injury suffered by the child. In the majority of the cases, care is ongoing, sometimes over a lifetime.
Despite the common awareness that interest is currently extremely low, can the Minister of State imagine the shock when families discover that most of this meagre interest gain has been considerably eroded by tax? We do not countenance child labour of any nature, but surely making money on the backs of interest awarded to a young child is open to question. Normally, children would not have a significant deposit interest income and therefore DIRT would not be applied. However, the possibility that injured children could have such income has been overlooked.
It is interesting to note that while in replies to parliamentary questions the Minister for Finance has stated there is no automatic entitlement to minors or a refund of DIRT, even where their income is under the relevant thresholds for income tax purposes, I have a letter from the accounts section of Dublin District Court which states that “if a minor or guardian wishes to reclaim DIRT, they are directed to the Revenue Commissioners.” The letter also states the court, “will provide certificates of interest on request.” It is extraordinary that a court accounts section should be unaware of the requirements, but they too would not believe a Government could inflict such hardship on children. Nonetheless, a reply from the Revenue Commissioners to a request for a refund on a form 54D sets the record straight, saying that to be exempt from tax one must be more than 65 years old. Given that it would be difficult to find a child fitting into this category, it is imperative that this oversight in the existing regulations be amended as a matter of urgency.
Injury to children knows no boundaries. It is spread across a broad social and income spectrum. Whether parents can afford it, they are forced to make up any shortfall to meet the cost of necessary treatment. It is up to the Government to take this opportunity to lessen that burden and, in the interest of fairness and compassion, extend the boundaries of exemption in relation to DIRT to all injured children. I would appreciate a favourable response.
Mr. Callely Mr. Callely
Mr. Callely: I thank Senator Bannon for raising this important and interesting question. I apologise on behalf of my colleague, the Minister of State at the Department of Finance, Deputy Parlon, who attempted to come to the House but was called to the Lower House for a division.
The Minister for Finance has been informed by the Revenue Commissioners that Part 8 chapter 4 of the Taxes Consolidation Act 1997 provides for the levying of deposit interest retention tax on certain interest paid or credited on deposits held with banks, building societies and certain other financial institutions. Subject to certain statutory exceptions, financial institutions are required to deduct the tax from interest paid or credited in respect of the income on deposit. In the case of individuals, entitlement to repayment of DIRT deducted is limited to situations where he or she or his or her spouse is either aged 65 years or over at any time during the tax year or permanently incapacitated by reason of mental or physical infirmity from maintaining himself or herself, or became so incapacitated at any time during the tax year; and the income of the individuals, inclusive of the deposit interest, is below the appropriate income exemption limit for tax purposes.
Partial refund may be due to such individuals whose income, inclusive of the deposit interest, does not greatly exceed the appropriate income exemption limit. There is no automatic entitlement to minors for a refund of DIRT even where their income is under the relevant income thresholds for tax purposes. The Senator raised this issue in a compassionate manner. DIRT does not apply to people who are incapacitated or people over 65 years of age.
In addition to the foregoing as regards awards in respect of personal injuries, section 189 of the Taxes Consolidation Act 1997 provides that certain income arising to individuals including minors, including deposit interest, from the investment of compensation payment awarded by the courts or under an out of court settlement in respect of a personal injuries claim is exempt from tax. However, the following conditions apply to this exemption. As a result of personal injuries the individual must be permanently and totally incapacitated by reason of mental or physical injury from maintaining himself or herself and the income from the investment of the compensation award must be the sole or main income of the individual.
Accordingly, a minor who as a result of personal injuries is permanently and totally incapacitated by reason of mental and physical injury from maintaining himself or herself has a statutory entitlement to repayment of deposit interest retention tax deducted from the investment of compensation awarded where his or her income is below the income threshold for tax purposes. However, a minor who as a result of personal injuries is not permanently and totally incapacitated by reason of mental and physical injury from maintaining himself or herself does not have a statutory entitlement to repayment of DIRT from the investment of compensation awarded, even where his or her income is below the income threshold for tax purposes. My understanding is that DIRT is applied on a wide basis and there are very few repayments. I understand the Minister for Finance has no plans at present to extend the present DIRT repayment rules to cover the cases referred to by the Senator. I am sorry the news is not more favourable. Perhaps Senator Bannon would look at the qualifying criteria and if somebody has received a compensation award due to personal injury and is permanently and totally incapacitated he or she should qualify. I hope this is helpful.
The Seanad adjourned at 5.25 p.m. until 10.30 a.m. on Wednesday, 23 June 2004.
Seanad Éireann 177 Deposit Interest Retention Tax.