Income Sharing: how it would work
16 August 2010
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.
What is Income Sharing
Income Sharing allows couples with children to combine their income and split it down the middle for tax purposes, giving them more opportunity to spend time raising their children.
Who would qualify for Income Sharing?
It's very simple. Two parents - be they married, in a civil union or a de facto relationship - and with a child or children under 18.
That means about 310,000 New Zealand families could potentially benefit from Income Sharing by anything up to $9000 a year.
Why might you choose Income Sharing?
One of the greatest gists you can give your children is your time and your presence, but the reality is it's often just not possible for families to make that choice.
They simply cannot afford to have one parent not working, or working reduced hours.
Income Sharing could change that for many families. It could be the 'tipping point' that allows spending more time with your children to be a viable financial choice.
Essentially, Income Sharing helps remove the financial penalty that couples face when making that choice.
Table: Income-sharing tax credit per couple (per tax year*)
|
Partner B’s income ($000) |
|||||||||
|
$0 |
$10 |
$20 |
$30 |
$40 |
$50 |
$60 |
$70 |
||
|
Partner A’s income ($000) |
$0 |
0 |
0 |
420 |
980 |
980 |
1,230 |
2,480 |
3,730 |
|
$10 |
0 |
0 |
280 |
280 |
280 |
530 |
1,780 |
3,030 |
|
|
$20 |
420 |
280 |
0 |
0 |
0 |
250 |
1,500 |
2,750 |
|
|
$30 |
980 |
280 |
0 |
0 |
0 |
250 |
1,500 |
2,250 |
|
|
$40 |
980 |
280 |
0 |
0 |
0 |
250 |
1,000 |
1,000 |
|
|
$50 |
1,230 |
530 |
250 |
250 |
250 |
0 |
0 |
0 |
|
|
$60 |
2,480 |
1,780 |
1,500 |
1,500 |
1,000 |
0 |
0 |
0 |
|
|
$70 |
3,730 |
3,030 |
2,750 |
2,250 |
1,000 |
0 |
0 |
0 |
|
|
$80 |
5,280 |
4,580 |
3,800 |
2,550 |
1,300 |
300 |
300 |
0 |
|
|
$90 |
6,830 |
5,630 |
4,100 |
2,850 |
1,600 |
600 |
300 |
0 |
|
|
$100 |
7,880 |
5,930 |
4,400 |
3,150 |
1,900 |
600 |
300 |
0 |
|
|
$110 |
8,180 |
6,230 |
4,700 |
3,450 |
1,900 |
600 |
300 |
0 |
|
|
$120 |
8,480 |
6,530 |
5,000 |
3,450 |
1,900 |
600 |
300 |
0 |
|
|
$130 |
8,780 |
6,830 |
5,000 |
3,450 |
1,900 |
600 |
300 |
0 |
|
|
|
$140 + |
9,080 |
6,830 |
5,000 |
3,450 |
1,900 |
600 |
300 |
0 |
Background:
The topic of income sharing 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.