Adapting Our Tax Laws To Diversity

Malta’s Income Tax Act is struggling to adapt to society’s changing approach to sexual diversity. It is a conservative Act; speaking of married couples, ‘spouses’, ‘ecclesiastical and allied income’ and other notions which betray a quaint and outdated grasp of today’s reality. The hasty introduction of divorce resulted in a number of quick fixes to our tax laws and provisions of the Income Tax Act are still being tweaked to provide for the recognition of settlements awarded by foreign courts.

Now our tax laws will be taken by another storm because the same sex union is a reality which will change the very fabric of our personal tax system. In this article I will propose a methodology for a number of amendments implementing the political decision providing that a civil union, once registered, will have the corresponding effects and consequences in law of civil marriage (the principle of equation).1


Article 2 of the Income Tax Act creates the notion of a ‘married couple’2 and that of a ‘married individual’, two concepts which are used in articles which lay down computational rules.3 Both definitions are irreconcilable with the rationale behind Civil Unions law. I cannot see how a computational regime based solely on marital status can be retained. The will of Civil Unions law is crystal clear. A civil union must have corresponding effects to marriage which suggests that definitions of ‘married couple’ and’married individual’ should vanish.

From now on, references in the law to ‘married couple’ should simply read ‘couple’, a notion embracing both marriages contracted in accordance with local legal provisions of the country where it was registered as well as civil unions formed in accordance with the provisions of this Civil Unions Act. References to ‘married individual’ and ‘spouse’ should be removed too and replaced with a reference to an ad hoc term which encapsulates both parties to marriages and parties to civil unions.4

The Tax Exemption on Donations to Spouses5

The current version of the Income Tax Act provides for a capital gains tax exemption for transfers made by persons to their spouses and the latter’s descendants and ascendants. Clearly, the remit of the exemption should be extended to include transfers made by persons to their partners in a civil union.

The ‘Own Residence’6 Exemption

The most popular capital gains exemption in the Income Tax Act does not equate married couples to partners in a civil union. The exemption applies to the principal residence owned by the taxpayer or his spouse. The reference to ‘spouse’ clearly breaches the value of equation and the exemption should refer both to spouses and to partners in a civil union.

The Separation / Divorce Exemption7

The most unpopular capital gains exemption in the Income Tax Act is undoubtedly the exemption which applies in the context of a transfer of assets between spouses as a result either of a separation, a divorce or dissolution of the community. The Civil Unions law provides that the sections of our Civil Code dealing with these unpleasantries should apply to civil unions too. Clearly, this exemption should be extended to provide for dissolutions of civil unions.

The Liquidation Exemption

Recent budget amendments8 introduced a new property transfers tax exemption applicable to the transfer of property made in the context of a liquidation. As it stands, the exemption applies to transfers made to an individual or his spouse who owns no less than 95% of the company’s share capital. Clearly, references to a ‘spouse’ should be replaced by references to transfers made by a person to his spouse and transfers made by a person to his partner in a civil union.

Alimony Payments.9

The current version of the Income Tax Act provides for a tax exemption on financial assistance paid for the maintenance of a child and a tax deduction on alimony payments paid to an estranged spouse. Since the Civil Unions Bill equates civil unions to marriages, tax law needs to provide for the tax treatment of payments made pursuant to a breakdown of the civil union. References to ‘estranged spouses’ should be substituted by a neutral term.

Computational Rules10

Tweaking definitions and extending exemptions will be an easy enough task. But computational rules pose a challenge. Our computational system for individuals is based on their tax status. A person’s married or single status determines their tax liability. For income tax purposes, spouses report their income in a particular way. The law provides for joint computations and a joint tax return. Will this joint tax return system apply to partners in a civil union ushering in major administrative changes? By being treated like spouses, some partners in a civil union could end up paying more tax than they are doing. Yet another simple, and perhaps more poignant, question arises. Is it time to abolish the joint tax return and have all taxpayers file their returns separately?

Rights and duties in Tax Controversy11

In tax controversies, spouses are not compellable witnesses. A taxpayer’s spouse cannot be forced to testify in a case involving his or her spouse. Introducing the same benefit for partners in a civil union is absolutely fundamental. But equation in tax controversy is a double-edged sword. A partner in a civil union could be a target of a request for information.

Lobbying for rights and obligations

Lobbying for equation in tax law will give access to ‘new’ tax exemptions. But there will be cases when equation will give rise to an increase in the effective tax burden. Implementing such equation will involve a mammoth exercise leading to an overhaul of our entire income tax legislation. In this article I have focused on salient points in main legal provisions. Subsidiary legislation running into hundreds of legislative instruments will need to be examined with a fine toothcomb.


  • Article 4 of the Civil Unions Bill.
  • Defined as meaning ‘two spouses who contracted marriage in accordance with the legal provisions of the country where the marriage was executed’.
  • Articles 49 and 56. It is used in Article 90A dealing with the right to apply the Part-time rules.
  • Which could be that of ‘partners to a union’. The term ‘union’ would be defined as meaning either a marriage or a civil union.
  • Article 5 (2) (e) Income Tax Act.
  • Article 5 (5) (c) Income Tax Act and 5A (4) Income Tax Act.
  • Article 5 (5) (e) and (f) Income Tax Act and 5A (4) Income Tax Act
  • 2012 and 2013 amendments.
  • Article 12 (1) (t) Income Tax Act and 14a Income Tax Act.
  • 10 Articles 49, 50 and 56 of the Income Tax Act.
  • 11 Articles 14 and 33 of the Income Tax Act.
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