ALIMONY RECEIVED BY SPOUSES (Exemption from tax)

[Mr Speaker in the Chair]

Mr Chng Hee Kok asked the Minister for Finance if he will exempt from tax alimony received by spouses.

The Minister of State for Finance (Cdre Teo Chee Hean) (for the Minister for Finance): Mr Speaker, Sir, alimony is maintenance payment made by a husband to his ex-wife under a deed of separation or by court order. The ex-wife can take legal action against the husband to recover the sums due if he defaults in payment. Alimony is therefore a stream of payments legally provided, and is income liable to tax under section 10(1)(e) of the Income Tax Act. Other countries, including Malaysia, the United Kingdom and Canada, also subject alimony to tax.

Some have argued that the current tax treatment for alimonies amounts to their being taxed twice. Let me point out that the taxability of a receipt is independent of whether or not it comes from after-tax income. This is a fundamental tax principle. For example, doctor's fees are income to the doctor, notwithstanding that the fees came from the patient's after-tax income. This is the same for alimony.

Alimony should also not be exempted from tax. By its nature, it is no different from other types of "unearned income" like interest, annuities and rentals.

Finally, I wish to point out that, as a concession, maintenance payments to support children are not deemed to be income under section 10(8) of the Income Tax Act. The court usually awards maintenance payments to support children separately from alimony payments to maintain an ex-wife. If, however, both payments have been lumped together, the tax authority will request the taxpayer to have them separated.

Mr Chng Hee Kok (Tampines GRC): Sir, is the Minister equating the maintenance for an ex-wife similar to employment service? He mentioned the fact that it is just like a taxpayer having to pay for the services of a doctor, ie, maintenance for the wife is equated to employing the ex-wife as such.

Cdre Teo Chee Hean: Sir, I assume the Member is asking whether or not such a treatment is reasonable. But there are other forms of unearned income which are subject to tax, for example, interest, annuities, rentals and so forth. These are also subject to tax.

Mr Chng Hee Kok: If that is the case, will the Minister of State say that such payment to the ex-spouse should also attract Central Provident Fund contribution as well?

Cdre Teo Chee Hean: Sir, I think that is quite a separate question. If the Member feels that this is a subject which he wants to raise, perhaps he can raise it with the Ministry of Labour.

Mr Heng Chiang Meng (Cheng San GRC): Sir, may I ask the Minister the same point that Mr Chng brought up, but in another way? Income is taxed when it is revenue received for providing a service or for a sale of goods. But alimony is a transfer payment. Does this mean that the equation is the same? The Minister is now saying that tax is liable on a transfer payment too. There is no service involved.

Cdre Teo Chee Hean: Mr Speaker, Sir, the tax is based on the fact that alimony is a form of income, and not whether it is a transfer payment or not, and it is a form of income in the same way as other unearned income, such as interest, annuities, rentals and so forth.

Mr Chng Hee Kok: Sir, I just want to establish a matter of principle for the Government to consider. My next question really is very simple. If the couple had remained married and the husband gives a regular transfer payment to the wife, should this not also attract tax in that case? After all, you need to pay your wife to maintain herself and the children.

Cdre Teo Chee Hean: Sir, alimony is different in that it is a stream of payments that is legally provided and there is recourse for the wife if the husband does not make such payment.

At this point, I might also want to point out to the Member that with the latest income tax changes, a non-working ex-wife will only need to pay income tax if her alimony exceeds $17,000 per year. This is already quite generous.