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).

Example 1
In 2007, an individual has income of 45,000 from an Irish employment. His spouse, who is non-resident, has foreign investment income of 10,000.

His income tax liability on the basis of separate treatment is -

Earnings	45,000
34,00 @ 20%	6,800
11,000 @ 41%	4,510
	11,310
Tax Credits
Personal Credit	1,760
PAYE Credit	1,760
	3,520
Liability	7,790

The notional tax liability on the total income of the spouses on the basis of aggregation would be -

Earnings (husband)	45,000
Investment Income	10,000
(wife)	55,000
53,000 @ 20%	10,600
2,000 @ 41%	820
	11,420
Tax Credits
Personal Credit	3,520
PAYE Credit	1,760
	5,280
Liability	6,140

The tax attributable to the Irish income is -
6,140 x  

45,000

55,000

 = 5,023

The aggregation relief is -
7,790 - 5,023 = 2,767

The individual's final liability is, therefore, as follows -

• Income tax on the basis of separate treatment     7,790
• Less aggregation relief                                              2,767
• Net liability                                                                    5,023

During the tax year, the estimated aggregation relief may be granted in the individual certificate of tax credits.

Example 2
For 2007, a husband and wife are resident in the United Kingdom. The husband has income of 25,000 from an Irish non-proprietary directorship and 26,000 from a U.K. employment. The wife has no income. The husband's income tax liability on the basis of separate treatment and relief under Section 1032, TCA 1997, is -

Irish Directorship	25,000
25,000 @ 20%	5,000
Personal Credit
1,760*(25,000/51,000)	863
PAYE Credit
1,760*(30,000/62,000)	863          1,726
Total	3,274

The notional tax liability on the total income of the spouses on the basis of aggregation would be

Irish Directorship	25,000
U.K. Employment	26,000
	51,000
43,000 @ 20%	6,400
8,000 @ 41%	3,280
	9,680
Personal Credit	3,520
PAYE Credit	1,760
	5,280
9,680 - 5,280	4,400

The tax attributable to the Irish income is - 4,400 x  

25,000

51,000

 = 2,157
The aggregation relief due is -
3,274 - 2,157 = 1,117

The individual's final liability is, therefore, as follows -

• Income tax on the basis of separate treatment     3,274
• Less aggregation relief                                              1,117
• Net liability                                                                     2,157

In relation to Example 2, it should be noted that the procedures outlined are ancillary to and not in substitution for Section 1032 TCA 1997. Where the normal operation of Section 1032 TCA 1997 (applied on the basis of a single treatment) produces a lower liability, that liability should not be increased by reference to these procedures (e.g. if in Example 2, the tax attributable to the Irish income exceeded the tax on the Irish directorship as shown in the first computation [3,274], the tax due should not be increased by the excess)