Court rules qualified adult, not pensioner spouse, is beneficially entitled to increased pension payments under SWCA.

[2018] IEHC 388

THE HIGH COURT

REVENUE

[2017 294 R]

BETWEEN

MICHAEL O’NEILL

APPELLANT

AND

THE REVENUE COMMISSIONERS

RESPONDENT

JUDGMENT of Ms. Justice Costello delivered on the 29th day of June, 2018

1. Who is liable to pay the income tax chargeable on the increased pension payable in respect of a qualified adult pursuant to the

Social Welfare Consolidation Act, 2005? This is the central issue raised by the Tax Appeal Commission in a case stated dated the 20th

December, 2017.

Material legislative provisions

2. Pursuant to the provisions of s. 108 of the Social Welfare Consolidation Act, 2005 (SWCA) a person becomes entitled to an old age

(contributory) pension where he or she has attained pensionable age and satisfies the contribution conditions prescribed by SWCA in

s. 109. Section 112 of the SWCA provides:

“(1) Subject to this Part, the weekly rate of old age (contributory) pension shall be increased by the amount set out in

column (3) of Part 1 of Schedule 2 for any period during which the beneficiary has a qualified adult, subject to the

restriction that a beneficiary shall not be entitled for the same period to an increase of pension under this subsection in

respect of more than one person.

(1A) The amount of the increase of pension referred to in subsection (1), in respect of any claim for State pension

(contributory) made after 24 September 2007, shall be paid—

(a) directly to the qualified adult concerned, or

(b) to such other person as may be nominated by the qualified adult for the purpose of receiving the increase of

pension referred to in subsection (1) on behalf of the qualified adult.

(1B) Where a beneficiary ceases to be entitled to State pension (contributory) the payment to a qualified adult of the

increase of pension referred to in subsection (1) shall also cease.”

3. Subsections (1A) and (1B) were inserted into s. 112 by the Social Welfare and Pensions Act, 2007 s. 14.

4. Section 2 of the SWCA provides that a “qualified adult” means in relation to a person (a) a spouse who is wholly or mainly

maintained by that person (with certain specified exceptions which do not arise in this case), or “(b) a person over the age of 16

years being wholly or mainly maintained by that person and having the care of one or more than one qualified child who normally

resides with that person” subject to certain qualifications. The financial means of the potential qualified adult are relevant in

determining the entitlement to the increase of pension.

5. Section 126 (2) of the Taxes Consolidation Act, 1997 provides that the payment of old age (contributory) pension is deemed to be

emoluments chargeable to income tax under Chapter 4 of Part 42.

6. Section 126 was amended by the Finance (No. 2) Act, 2013 s. 12 by the insertion of a new subs. after subs. (2A) as follows:

““(2B) Notwithstanding the provisions of section 112(1), where an increase in the amount of a pension to which section

112, 113, 117 or 157, as the case may be, of the Social Welfare Consolidation Act 2005 applies is paid in respect of a

qualified adult (within the meaning of the Acts), that increase shall be treated for all the purposes of the Income Tax

Acts as if it arises to and is payable to the beneficiary referred to in those sections of that Act.”.

Material facts

7. The appellant satisfied the conditions prescribed by the SWCA and thereupon became entitled to the old age (contributory)

pension amounting to €11,975 per annum (the principal pension). The appellant was married and his wife was a qualified adult as

defined by s. 2 of the SWCA as she was a spouse who was “wholly or mainly maintained” by the appellant and did not fall within any

of the exclusions in the Act. During the years 2012 and 2013 the appellant qualified for an increase in pension in the sum of €10,728

as he had a qualified adult within the meaning of the SWCA.

8. The old age (contributory) pension was paid to the applicant and the amount of the increase in pension was paid directly to the

qualified adult, the appellant’s spouse, for the years under appeal.

9. By letter dated 23rd August, 2013 the respondent refused to apply the standard rate of tax to the increase in pension and also

denied the entitlement to the employee tax credit on the grounds that the emoluments did not arise to the appellant’s spouse. The

appellant appealed the determination. The Appeal Commissioner found in favour of the appellant and the respondent requested the

Tax Appeal Commission to state a case to the High Court.

Point of law

10. The question of law for the opinion of the High Court is whether “on the basis of the evidence given and the facts proved or

admitted in the submissions of the parties and the law the beneficial interest in the increased pension is vested in the appellant, as

opposed to his spouse, the “qualified adult” the recipient of the pension?”

Discussion

11. Consideration of the decision of the Supreme Court in Ó’Síocháin (Inspector of Taxes) v. Neenan [1999] 1 I.R. 533 is central to

determining the issue raised in the case stated. In that case the respondent received a widow’s (contributory) social welfare pension

totalling £6,482.10 from the Department of Social Welfare. The pension of £6,482.10 consisted of an amount of £2,704.50 in respect

of the respondent and £3,777.60 by way of increase to the pension for her five dependent children. The appellant assessed the

respondent to income tax on the full amount of the pension. The respondent appealed the assessment on the ground that the

widow’s (contributory) social welfare pension was over stated by £3,777.60 in the assessment. In that case the widow’s contributory

pension was payable pursuant to s. 92 of the Social Welfare (Consolidation) Act, 1981. Section 95 of the Act provided for three cases

in which the sum payable under s. 92 was increased. The section provided:

" 95(1) The weekly rate of widow's (contributory) pension shall be increased by the amount set out in column (4) or (5)

of Part I of the Second Schedule in respect of each qualified child who normally resides with the beneficiary. "

(2) The weekly rate of widow's (contributory) pension, in the case of a person who has obtained pensionable age, shall

be increased by the amount set out in column (6) of Part I of the Second Schedule for any period during which-

(I) the beneficiary is so incapacitated as to require full time care and attention.

(II) there is residing with the beneficiary for the purpose of providing that care and attention a prescribed relative

of the beneficiary, and

(III) such conditions as may be prescribed are fulfilled.

(3) The weekly rate of widow's (contributory) pension shall be increased by the amount set out in column (7) of Part I of

the Second Schedule where the person entitled to the pension has attained a pensionable age and is living alone."

12. It was agreed that the entire annual social welfare payment was taxable and the argument between the parties was the identity

of the persons on whom the burden of taxation fell. It was agreed that the burden, irrespective of the person to whom the

assessment might be made, is on the person or persons beneficially entitled to the increased amounts. The court held that it was the

respondent who was entitled to the full amount of the payment of £6,482. Murphy J. giving the decision of the court, held as follows:

“Section 92(1) of the Act of 1981 expressly provides that it is the widow who is "entitled" to the widow's pension. It is

that same pension which is "increased" by reference to all or any of the contingencies identified in section 95. No

children's benefit is identified in sub-s. (1) of that section nor is a prescribed relatives benefit referred to in sub-section

(2). Section 95(1) and (2) describe particular circumstances which clearly impose financial burdens on the pensioner and

sub-s. (3) recognises the special needs of a pensioner living alone and of pensionable age. It seems to me to be clear

beyond debate that the scheme of the legislation was to "increase", and that is the word used, the pension of the widow

to meet those particular circumstances. No doubt a widow or any other parent would be expected to make provision for

his or her children and the Oireachtas in enacting the Act of 1981 was satisfied to rely on the moral obligations which

that relationship imposes. The legislation contains no words of trust in favour of all or any of the children nor is there

any specific indication that any part of the increase should be applied for their benefit. In my view the increases to the

basic pension which may be made under s. 95 of the Act of 1981, and in this case made by reference to the number of

qualified children residing with the widow, are no more than that: increases in the pension to which the pensioner is

herself entitled.”

13. The judgment went on to distinguish the facts in the Ó’Síocháin case from those in Ó’Coindealbháin (Inspector of Taxes) v.

O’Carroll [1989] I.R. 229. On p. 546 of the report Murphy J. said:

“It follows, therefore, that the Garda Síochána Pensions Order expressly identified "a children's contributory pension" and

not merely an increase in the pension to which the widow was entitled. Again having provided that the children's

contributory pension should be paid to the widow the Order expressly provided that that pension was "to be applied for

the benefit of the children for whom it is granted". Again there is express provision that in certain circumstances the

children's contributory pension might be paid to the child itself.

In broad terms the Garda Síochána Pensions Order and the Social Welfare Act both achieved the purpose of making

additional resources available in circumstances where there were increased needs. But this purpose was met by

different procedures in the two schemes. The Garda pension scheme provided what was described as a contributory

pension for the children whereas the Social Welfare scheme merely increased the widow's pension.”

14. The judgment concluded on p. 547 as follows:

“The absence of any comparable terminology in the social welfare code and the express provisions entitling the widow to

the pension and the failure to draw any distinction between the entitlement to the pension and the increases thereon

are coercive evidence of an intention that the beneficial entitlement to the entire of the social welfare payment should

vest in the widow.”

15. A comparison between the regime in Ó’Síocháin’s and the regime with which this judgment is concerned reveals the following:

(1) In Ó’Síocháin there were no words of trust in favour of the children, while in this case, s. 112 (1A) provides that the

amount of the increase of pension shall be paid directly to the qualified adult or to another person nominated by the

qualified adult on behalf of the qualified adult.

(2) In Ó’Síocháin there was an express provision entitling the widow to the pension. Similarly, by virtue of s. 108 of SWCA

the appellant is entitled to the old age (contributory) pension.

(3) In Ó’Síocháin there was no specific indication that any part of the increase should be applied for the benefit of the

children. It is different in this case. The amount of the increase of pension is ring fenced. Section 109 subsections (9) and

(10) provides:

“(9) Regulations under subsection (8) shall provide, subject to subsection (10), that old age (contributory) pension

payable by virtue of those regulations shall be payable at a rate less than that specified in Schedule 2 , and the rate

specified by the regulations may vary by reference to the yearly average so calculated, but any increase of that pension

payable under section 112 (2) shall be the same as if the claimant had a yearly average of not less than 48.

(10) In the case of person who, on 5 April 2001, is entitled to or in receipt of a pension by virtue of regulations under

subsection (8) which includes an increase under section 112 (1), subsection (9) shall not operate so as to reduce the

rate of the increase payable under section 112 (1) below the rate that may be prescribed.”

This shows that the increase in the amount payable by reference to the qualified adult is protected and not to be

reduced even if the provisions of subs. 9 would otherwise prescribe that a lower rate should be payable. Further, the

2007 amendment mandates that all of the monies referable to the increase of pension “shall be paid” directly to the

qualified adult concerned or to such other person as may be nominated by the qualified adult for the purpose of receiving

the increase of pension on behalf of the qualified adult. To my mind this is a specific indication that the increase of

pension referable to the qualified adult should be applied for the benefit of the qualified adult. This conclusion is

underscored by the contrast in the treatment of the payment of increase of pension in respect of a qualified child

pursuant to SWCA to that in respect of a qualified adult. The amount of increase of pension in respect of a qualified child

is paid to the beneficiary of the pension, as occurred in Ó’Síocháin, but the increase in respect of the qualified adult is

either paid to the qualified adult concerned or to a person nominated by the qualified adult concerned. The qualified adult

has full discretion as to how the monies are expended. Further, if the amount of the increase of pension is not paid

directly to the qualified adult concerned or in accordance with the qualified adult’s direction, the qualified adult would be

entitled to require the department to discharge the sums to her (or him) and not to pay the monies to the beneficiary. In

effect the beneficiary is not entitled to receive the amount of the increase of pension payable in respect of a qualified

adult.

(4) In Ó’Síocháin the Oireachtas was relying upon the moral obligation which the relationship imposes upon the recipient of

the pension with the children in respect of whom the increase of pension is payable to use the money for the benefit of

the children. In contrast, since the amendment in 2007, the increase in pension in respect of a qualified adult is to be paid

directly to the qualified adult concerned. The Oireachtas is not relying upon any moral obligation of the pensioner to use

the money for the benefit of the qualified adult.

(5) In Ó’Síocháin the Supreme Court referred to the failure to draw a distinction between the entitlement to the pension

and the increase thereon. In this case the distinction is clearly drawn. The beneficiary of the pension has no right to

receive the amount of the increase of pension following the amendment of 2007.

16. In addition to these similarities and differences between the instant case and Ó’Síocháin’s case, two further points are worth

noting. In 2007 s. 112 was amended by the insertion of subs. (1B) which states that when a beneficiary ceases to be entitled to the

state pension (contributory) the payment to the qualified adult of the increase of pension shall also cease. This underscores the fact

that the entitlement to receive an increase to pension is inextricably linked to the entitlement to receive an old age (contributory)

pension pursuant to s. 108.

17. Secondly, s. 126 of the Taxes Consolidation Act, 1997 was amended by the Finance (No. 2) Act, 2013 by the insertion after subs.

(2A) of the following:

“(2B) Notwithstanding the provisions of s. 112 (1), where an increase in the amount of a pension to which s. 112, 113,

117 or 157, as the case may be, of the Social Welfare Consolidation Act, 2005 applies is paid in respect of a qualified

adult (within the meaning of the Acts), that increase shall be treated for all the purposes of the Income Tax Acts as if it

arises to and is payable to the beneficiary referred to in those sections in that Act.”

18. Counsel for the appellant argued that this was a deeming provision and it was only necessary to have such a deeming provision if

the increase of pension was not the income of the beneficiary. He said that it therefore constituted recognition of the fact that the

increase of pension is not the income of the beneficiary, the appellant in this case, but was the income of the qualified adult. Counsel

for the respondent argued that the amendment of 2013 should not influence the interpretation of s. 112 prior to the enactment of the

2013 Act. He referred to Revenue Commissioners v. Droog [2016] IESC 55 where Clarke J. said at para. 5.1:

“However, the trial judge noted that this Court had, in Cronin (Inspector of Taxes) v. Cork and County Property

Company Limited [1986] I.R. 559, held that a subsequent amendment can at best be neutral in the context of the

interpretation of the relevant legislation in its pre-amendment form and cannot be used to construe the statute as it

was before the amendment in question.”

In light of these two decisions it is not appropriate to refer to the amendment from 2013 when construing the legislation enacted prior

to that amendment.

19. The respondent argued that the SWCA used the word beneficiary by reference to the person entitled to the old age

(contributory) pension and referred to the increase of pension. A qualified adult has no independent entitlement to a separate

pension. The pension is inextricably linked to the old age (contributory) pension. This is statutory architecture, as it was described,

was not altered by the amendment in 2007.

20. While there are undoubtedly many similarities to the scheme construed by the Supreme Court in Ó’Síocháin, there are, in my

opinion, marked differences between that scheme and the scheme under the SWCA providing an old age (contributory) pension and

increases to pension which are paid to the qualified adult. Once the beneficiary applies for the increase to pension the right to receive

it is conferred by statute on the qualified adult concerned. He or she only loses that right if the beneficiary ceases to be entitled to

the old age (contributory) pension. In essence, this is a qualifying provision in the sense that the pensioner must have reached a

certain age or the qualified adult must not be in receipt of certain level of income. It should not distract from the fact that the right

to receive the increase to pension is conferred by statute on the qualified adult. The amendment effected in 2007 makes clear the

fact that the Oireachtas intended that the beneficiary of the old age (contributory) pension should remain beneficially entitled to any

increases of pension referable to qualified children but not to those which were referable to qualified adults. The beneficiary of the old

age (contributory) pension has no entitlement to receive the payment of the increase to pension in respect of a qualified adult. This

is not a statutory dedication of income to which the beneficiary of the old age (contributory) pension is entitled. If the money must

be paid to somebody else and that other person has full power of disposal of those monies, it is difficult to see how, in any meaningful

sense, the beneficiary could be said to be entitled to those monies.

Conclusion

21. For the reasons set out above the qualified adult is beneficially entitled to the amount of the increase of pension payable

pursuant to s. 112 (1) of the SWCA as the person to whom the monies are to be paid either directly or to such other person as the

qualified adult may nominate to receive the increase of pension on his or her behalf.

22. Accordingly the answer to the question “ whether on the basis of the evidence given and the facts proved or admitted in the

submissions of the parties and the law the beneficial interest in the increased pension is vested in the appellant, as opposed to his

spouse, the “qualified adult” the recipient of the pension ?” is “No”.