Dunne: Income Sharing could benefit up to 310,000 families

Up to 310,000 New Zealand families will be eligible to share their income for tax purposes through legislation tabled in Parliament today by Revenue Minister Peter Dunne under the Confidence and Supply Agreement with the National-led Government.

“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,” Mr Dunne said.

“We constantly hear the term ‘family-friendly’ bandied about, but 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.

“It will empower and help families who see it as important to bring their children up that way, and that is a lot of New Zealand families,” he said.

Income Sharing is a key part of UnitedFuture’s tax policy and formed part of its Confidence and Supply agreement with the National-led Government.
“I am very proud of this Bill both as Revenue Minister and as leader of UnitedFuture – it is a key policy plank for us,” Mr Dunne said.

“Couples who decide to have one parent at home looking after the children have to make a financial sacrifice to do that. It is a decision that really costs them, and we want to do something to ease that cost and recognise the importance of the choice they are making in a practical way,” he said.

Under the Taxation (Income-sharing Tax Credit) Bill, couples with dependent children will be able to choose to be taxed on an equal share of their combined income and apply for a tax credit at the end of the tax year.

The bill proposes that each partner in a relationship caring for children under 18 be taxed on an equal share of their combined income. At the end of the tax year they would be able to apply to Inland Revenue 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 fulltime and the other chooses to remain home to care for their children,” Mr 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, Mr Dunne said.

“This will benefit many couples with children, but it will depend on their personal income situation as a couple, and obviously it would not apply to sole parents who have no one to income share with, and have other mechanisms in place to support them,” he said.

Mr Dunne said he was fully aware that some might view this aspect of income sharing as being contrary to the New Zealand Bill of Rights Act.
“The obvious point is that there is no single benefit that can fit every individual’s circumstances. That is why we have targeted assistance for groups with particular social and financial needs, and sole parents who have an important job to do, have other support mechanisms available to them.

“Income Sharing is one that benefits two-parent families,” he said. “Single parents, for example, have access to the childcare subsidy, the minimum family tax credit, the childcare rebate and the domestic purposes benefit,” he said.

“Income Sharing recognises the financial choices many couples with children often have to make about whether they both work full-time and employ others to care for their children or whether one partner stays home to care for the children, possibly on a part-time basis.

“In this way income sharing would give parents greater choice about their work and caring roles,” he said.

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

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Mark Stewart | Press Secretary | Office of Hon Peter Dunne
Cell +64 21 243 6985

Income Sharing – Questions and Answers

What is Income Sharing?
It is when a couple combine their individual incomes and pay tax as if they had earned half each. The income sharing is only for the purpose of this new tax credit, it will not affect PAYE, student loans, or child support.

How many families could potentially benefit from Income Sharing?
Up to 310,000 families are expected to be eligible to benefit from Income Sharing. Of this number, some families may choose not to apply for the credit, depending on how much they would benefit from it.. This number of families is determined on the basis of couples with a dependent child under 18.

Does the couple have to be caring for a child?
Yes, the tax credit is targeted to couples that are caring for a dependent child. It will not be available for couples without children, or where their children are over 17 years old and have left school (similar to Working for Families tax credit).

When will the income sharing tax credit be available?
If the legislation becomes law next year, it would be in effect for the 2012/13 tax year with tax credits paid after 31 March 2013.

What consultation has happened?
A government discussion document was published in 2008 seeking people’s views on possible income sharing for families. The details of an income sharing proposal were considered in an issues paper in 2009. Most submissions supported the proposal.

What is the most someone could get?
The maximum that a couple could get from the tax credit is $9,080 (based on the tax rates and thresholds that will apply from 1 October 2010). This would be a single income household earning $140,000 or more.

How much will the new income sharing tax credit cost?
Depending on take-up, it could cost around $450 million a year.

Will anyone be worse off?
The tax credit will be voluntary, so if a couple do not believe they would be better off, they do not need to apply. One partner in a couple receiving the Income Sharing tax credit would not be able to receive the independent earner tax credit.

What about sole parents? Or couples that separated during the year?
They would not qualify for the Income Sharing tax credit. The tax credit is based on a couple sharing their income for the whole of the tax year and is targeted at those caring for dependent children. There may be other assistance available to groups who do not qualify for the income sharing tax credit (e.g. independent earner tax credit, domestic purposes benefit etc). It is not possible to design an income sharing tax credit that helps everyone.

Examples

A qualifying family with one income of $60,000 would be eligible for an income sharing tax credit of $2,480.

A qualifying family where one partner earns $80,000 and the other partner earns $40,000 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.

Click on the link below to see Peter Dunne's interview with Sean Plunket on TV3's The Nation

http://www.3news.co.nz/Peter-Dunne-interviewed-by-Sean-Plunket-280810/tabid/1356/articleID/173014/Default.aspx

Income Sharing

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Income Sharing: how it would work

Couples with children often face a choice between both parents working full-time, employing others to care for their children, and one parent working full-time and the other staying home to care for the children, possibly on a part-time basis.

For most people, financial considerations play a large role in the decision. Introducing an income-sharing tax credit is a way of enabling parents to have greater choice in their work and caring roles and more choice around their work and home-life balance.

The Taxation (Income-sharing Tax Credit) Bill introduces a new tax credit for couples with dependent children, based on sharing their incomes equally and paying tax based on half of the shared income.

The tax credit will provide additional financial support for couples where one partner is on a higher tax rate than the other.

Couples where both partners are on the same level of combined income will effectively pay the same combined amount of personal income tax, regardless of how much each partner earns.

The changes proposed in the bill will also mean some couples have greater choices to work fewer or more flexible hours of paid work in order to care for children, by increasing their combined after-tax income.

Eligible couples with dependent children will be able to apply for the tax credit, if they want, at the end of each tax year. The amount they receive will depend on the relative amounts of tax payable by each partner on their individual income.

The tax credit will be the difference between the tax that is payable by each partner on their own incomes, and the amount of tax they would have paid if they each had an equal share in the couple’s combined income. The tax credit could be used to meet any tax owing or be refunded to the couple.

The income-sharing tax credit is similar to the Working for Families tax credit and has been designed to share many of the same rules and requirements to help keep administration and compliance costs down. The bill sets out who is eligible, how the tax credit is calculated, and rules around application and payment.

Background:

The topic of income sharing[1] was canvassed in April 2008 in a discussion document, Income splitting for families with children. Options on how to deliver the policy were discussed in an issues paper, an income splitting tax credit for families with children, released in December 2009.

The tax credit proposed in the bill closely follows the description of the tax credit in the issues paper. Some changes have been made to reflect concerns people raised in submissions, and to simplify administration of the tax credit.

Income sharing is a key part of UnitedFuture’s tax policy and formed part of the Confidence and Supply agreement with the National-led Government. The objectives of the income-sharing tax credit, as stated in UnitedFuture’s policy are to:

• give parents greater choice in their work and caring roles;
• acknowledge the contributions of those who forego paid work to care for children; and
• give families with children additional financial support.

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Mark Stewart | Press Secretary | Office of Hon Peter Dunne
Cell +64 21 243 6985

United Future Releases Family Policy

UnitedFuture leader Peter Dunne has released the party's Family policy.

Speaking this afternoon at the Forum on the Family conference, Mr Dunne reiterated UnitedFuture's strong commitment to the family as the core of New Zealand society.

"We salute New Zealand families for the awesome task they perform, and we congratulate our parents for their dedication, and their commitment to being the best they can be.

"When families function well, the country functions well – and you cannot go beyond that.

"We have long believed that the primary role of any government is to promote policies which are good for families.

"At the same time, we recognise that families come in many shapes and sizes, and a one size fits all approach will not work.

"Every family deserves our respect, support and encouragement to become more resilient, to get on with their lives the way they want to.

"We need to devote more attention to family function, and to supporting families to provide a loving and nurturing environment for their children, whatever their circumstances.

"We must never lose our focus on the children, nor ever forget that children do not choose either their parents or circumstances, but have the inalienable right to the best possible start in life.

"While politicians and others pontificate, children continue to suffer, and that simply angers me," he said.

Against that background, Mr Dunne said UnitedFuture's policy approach was a positive one to strengthening families, supporting parents in their relationships and enabling them to be the best they can be, and to provide opportunities for their children.

UnitedFuture's main commitments are:

A strong emphasis on strengthening personal relationships, including more support for Relationship Services and marriage preparation courses, and improved access to parenting education programmes.

Income splitting for tax purposes for parents with dependent children.

A simplified personal tax system (10% on income up to $12,000; 20% on income between $12,000 and $38,000; and 30% on income above $38,000.)

One-stop shop family service centres for parents and children.

Character education programmes in schools.

More support for children with disabilities through a Caregivers Allowance.

Introduce shared care for children of separated families, DNA paternity testing where necessary.

Review the operation of the Family Court and the Child Support system.

Retain the Families Commission.

"This policy is all about addressing the diverse needs of New Zealand families today.

"We do not seek to stifle their uniqueness, nor limit their opportunities

"After all, it is the mix and flavour of families that makes our country the great melting pot it is today and, as a party committed to a modern, dynamic and open society, we strongly support that.

"That is entirely consistent with UnitedFuture's core commitment that every New Zealander, no matter how young or how old, whatever their background, race or creed, should have an equal opportunity to enjoy all that is good in our country," Mr Dunne said.

UnitedFuture pushing to reform family law

UnitedFuture has announced plans to reform New Zealand family law, in a three-pronged approach designed to keep both parents closely involved in the day-to-day lives of their children following family breakdown.

“UnitedFuture will introduce ‘shared parenting’ as a default position for child custody arrangements in the family court,” announced family spokesperson Judy Turner.

“Shared parenting is currently granted in only one in nine judgements by the Family Court, with sole custody given to only one parent in eight out of ten cases, which is an extremely unsatisfactory situation.

“Shared parenting would mean that when both parents want custody, there will be a presumption that day-to-day care will be shared unless there are good reasons why it should not be.

“Academic studies as well as common-sense tell us that children are better off when they continue to have significant relationships with both parents after parental separation,” says Mrs Turner.

UnitedFuture today announced a new Member’s Bill, that will amend the Care of Children Act, to legislate for shared parenting.

The second change would be to enact Mrs Turner’s Family Proceeding (Paternity Orders and Parentage Tests) Amendment Bill that currently awaits a first reading. It would enable the Family Court to order DNA testing to confirm whether a man is the biological father of a child.

“It is a disgrace that the Government has not bothered to allow for DNA testing to create certainty for families, where currently none exists.

“The fact that these men are forced to pay hundreds of thousands of dollars in child support for children they are not sure are even their own is a breach of natural justice.

“For the children it is a human rights issue – they are entitled to know who their father is, or in some cases is not,” says Mrs Turner.

The third plank of the reforms proposed by UnitedFuture involves a review of the child support system, to look at ways in which the system can be made fairer.

UnitedFuture leader and Minister of Revenue Peter Dunne has ordered a review of the child support scheme to make it more responsive to factors such as shared care, the income levels of both parents and the costs of raising children.

“It is timely to reassess the formula, to ensure that it is flexible enough to reflect the complexities of raising children when the parents are separated and both parents contribute to the care of their children,” said Mr Dunne.

“I have asked my policy officials to examine a number of options for updating the child support system to deal with these and related concerns.”

“Family law is failing thousands of families in New Zealand and is long overdue for reform, and the effect of fatherlessness is well known and a prime indicator for crime and antisocial behaviour,” says Mrs Turner.

She refers to figures from Massey University economist Stuart Birks who found that children from fatherless homes are:

• 5 times more likely to commit suicide.
• 32 times more likely to run away.
• 20 times more likely to have behavioural disorders.
• 14 times more likely to commit rape
• 9 times more likely to drop out of high school.
• 10 times more likely to abuse chemical substances.
• 9 times more likely to end up in a state-operated institution.
• 20 times more likely to end up in prison.

“Family law reform is well overdue in this country. The effects of our current system cannot be underestimated and have wide-ranging consequences,” says Mrs Turner.

“UnitedFuture is the only party working to make sure children continue to enjoy the support and care of their entire family after parental separation, and we are taking the necessary steps to achieve this.

“Our new shared parenting bill is another significant step to supporting New Zealand families,” says Mrs Turner.

Progress on poverty –micro-managing option needed

UnitedFuture welcomes new figures indicating a reduction in the number of New Zealand children living poverty, according to UnitedFuture deputy leader Judy Turner.

“We also welcome extending emergency relief for families reliant on income support, particularly for those struggling with the rising cost of feeding their family.

“The new ‘core benefit’ coupled with the promise of more intensive and integrated case management sounds promising.

“However the new system is reliant for its success on more highly skilled case managers and more collaborative relationships between government and non-government service providers” says Mrs Turner.

“The nine month timeframe seems a small amount of time to roll out some fairly major changes. We will also be holding the government to their earlier promise that changes to the income support system would not see any person worse off.

“What really needs addressing now are the minority of beneficiaries that cannot manage themselves or their families no matter how much money they were given,” says Mrs Turner.

“UnitedFuture is concerned about the lack of strategies available to case managers to micro-manage beneficiaries who appear to lack the necessary skills to prioritise their children's needs before their own behavioural, gambling or substance addictions.

“Until this minority of the most incapable beneficiaries are able to be micro-managed – given food vouchers and have their power bills paid for directly out of their benefit, for example – then these families will still struggle and their children will continue to live in poverty,” says Mrs Turner.