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29TACD2026: TAC confirms pension arrears are taxed in the year paid, not in the year earned
The Tax Appeals Commission (“TAC”) decision in case 29TACD2026 confirms that prior year arrears of pension (in this case related to years 2018 through 2022) which are paid to a taxpayer in a later year (in this case 2024) were correctly subjected to tax as income of the year in which they were paid (in this case 2024) and were not taxable income of the years to which the pension arrears related.
The appellant suffered an accident in 2018 and he became unfit for work. He retired on ill-health grounds in 2023 with his retirement backdated to 2018. In April 2024, the appellant received arrears of pension for years 2018 through 2022 from his employer totalling €96,624.82. This lump sum was subjected to income tax of €34,103.37 which was processed through the appellant’s employer’s payroll system. The appellant contended that, had the pension amounts been paid annually as they fell due, his tax liability would have been materially lower and the appellant sought some means of remediating what he considered an unfair outcome.
Section 112 of the Taxes Consolidation Act 1997 (“TCA“) charges income tax on pensions and similar income for the year in which it is paid, not the year it relates to.
The Commissioner dismissed the appellant’s appeal finding that the legislation is clear and unambiguous in providing that all income is to be charged in the year in which it was paid, which in this case was 2024.
Notwithstanding evident sympathy for the appellant’s circumstances, the Commissioner noted that she was restricted to considering and interpreting the provisions of the TCA as they apply to the Appellant’s appeal and was not permitted to allow considerations of equity to influence her determination. In this regard, the Appeal Commissioner noted that the use of the word “shall” in section 112(1) TCA indicated that she did not have discretion in the application of the provision and that she couldn’t allow considerations of equity or fairness to override the imposition of a tax where clearly imposed by statute.
The case is a reminder that the TAC has no discretion to allow equity or fairness to override a tax liability that is clearly imposed by statute.
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