Offering tax relief to families and parents who don’t qualify for other government assistance, leader of the United Future Party, Peter Dunne, has launched an income splitting bill that’s currently before the select committee hearings.
Income sharing benefits two-parent families – potentially assisting 310,000 families nationwide. The Bill is designed to financially assist those who choose to be more active in caring for their children (often sacrificing a full time income) and would inevitably help high income families the most.
The Bill proposes that each partner in a relationship caring for children under 18 can opt to be taxed on an equal share of their combined income. At the end of the tax year they could apply for a tax credit based on the difference between the tax paid on an individual basis and what they would pay based on half of their combined income.
The maximum a couple could get from the tax credit is $9,080 (based on current tax rates and thresholds). This would be a single income household earning up to $140,000. People who have a larger combined income can split it but don’t gain more than the $9080 maximum a year.
Some scenarios… A family with one income of $60,000 would be eligible for an income sharing tax credit of $2,480.
Where one partner earns $80,000 and the other partner earns $40,000 they would be eligible for an income sharing tax credit of $1,300.
A qualifying family where one partner earns $80,000 and the other partner earns $10,000 would be eligible for an income sharing tax credit of $4,580.
Income splitting appears to be a fair financial initiative for high income earning parents. Couples and families are already treated as one for various asset and income testing purposes, although this tax relates to annual combined income only – the number of children you have has no bearing.
The group that will benefit from income splitting generally wouldn’t qualify for government assistance if one parent opted to stop work for a time to provide childcare due to the strength of their annual income.
Government top ups available to low income earners are also based on a combined income calculation. Currently a low income earner may qualify for assistance with childcare, family support and other benefits that increase in value to accommodate the children added to the family unit.
The Labour Party opposes the Bill, claiming United Future’s Peter Dunne of a form of moral blackmail, while revenue spokesman Stuart Nash said it favoured wealthy parents over families that really needed extra support. There have also been smatterings of comment around the definition of “parents”. Decades past when income splitting was available in the 60s the two parent family was easier to decipher.
At this stage parents will have to be spouses, civil union partners or de-facto partners and NZ tax residents for the whole tax year before claiming a tax credit.
Income Sharing Tax Credits would be voluntary, so as with most tax rebates, credits and refunds, you’d get it if you
b) ask for it
If the legislation becomes law and depending on uptake, it could cost around $450 million a year. It would be in effect for the 2012/13 tax year – with tax credits paid after 31 March 2013.
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