NZ Proposes Income-Splitting For Tax Purposes

by Mary Swire, Tax-News.com, Hong kong

17 August 2010

Up to 310,000 New Zealand families will be eligible to share their income for tax purposes through legislation tabled in parliament by the Revenue Minister, Peter Dunne.

The Taxation (Income-sharing Tax Credit) Bill proposes that each partner in a relationship caring for dependent children be taxed on an equal share of their combined income. At the end of the tax year they would be able to apply to the Inland Revenue (IR) for a tax credit based on the difference between the tax they would have paid on an individual basis and what they would pay based on half of their combined income.

"Because income tax rates rise according to the amount earned, many families could ultimately end up paying less tax if, for example, one parent works full time and the other chooses to remain home to care for their children," Dunne said.

Parents would have to be spouses, civil union partners or de facto partners, and New Zealand tax residents for the whole tax year, before they could claim a tax credit. One of the partners would also have to be the principal caregiver for the dependent child or children. The tax credit would also be available to parents who have separated if they have entered a new relationship and are sharing responsibility for caring for their child for at least a third of the tax year.

The credit would be optional so couples who wanted to claim it would have to apply to the Inland Revenue. If the bill passed through all stages, the credit would start from the tax year beginning April 1, 2012.

"This bill will give couples with children the option of having a parent work fewer or more flexible hours, be at home raising their children, and able to increase their combined after-tax income," Dunne added. "This bill will actually put money in the pockets of many families who choose to have a parent more actively involved in raising their children.”

Peter Dunne is leader of the United Future party within the government, and income sharing, a key part of his party’s tax policy, formed part of its agreement with the National party-led government. It has been questioned whether it will become law as it is not supported by the parliamentary opposition, and the government itself has been lukewarm to it.

Recommended