Income Sharing Bill introduced to Parliament

Up to 310,000 New Zealand families will be eligible to share their income for tax purposes through legislation tabled in Parliament 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.

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.

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.

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.

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.

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.

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

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.

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.