The Revenue Commissioners have questioned whether child benefit can be taxed if children are found to be the legal owners of the payment.
Cutting or taxing child benefit has become a major political issue due to pressure on the Government to cut welfare spending.
The report of a group established by the Department of Social Protection to look at child benefit and other social welfare issues suggested two models: a taxation on child benefit or two-tier payments.
Internal Revenue documents suggest that while there is no problem taxing the benefit using its computer systems, key legal and policy questions need to be addressed first.
“Who actually owns the child benefit payment, the parent/guardian or the child?” asks one internal document. “Linked to the ownership question, if the child is the owner of the payment, they are unlikely to have to pay tax on it.”
Records also state any changes to child benefit payments would need to ensure married couples with children are not financially disadvantaged compared to unmarried, co-habiting couples with children.
This is believed to be a reference to the constitutional protection afforded to the marital family. In addition, records state entitlement to PAYE and home carer’s tax credits would need to be reviewed in the context of taxing the child benefit.
“The former [PAYE] could substantially affect the tax-take from child benefit and the latter could result in a double-hit for certain households,” the document states. Officials said these issues would need to be resolved and legislated for to allow for taxation of the payment.
If this was done, records show there are well-established data exchange measures in place that could be extended to allow for taxing the benefit.
Against the backdrop of pressure, Minister for Social Protection Joan Burton has said proposals to tax child benefit or introduce two-tier payments are likely to be shelved. She said many middle-income families are using it for mortgage repayments.
