Over the last few years leading up to 2008, Government provided a significant level of taxpayer funded financial support for taxpayers with families. The level of assistance, described as either Family Tax Credits, Family Assistance or Working for Families (WFF) depends on the level of family income, the collective number of hours worked and the number of dependent children under the age of 18 that families have. Assistance is also available to families with quite high family income if they have a number of dependent children.
Inland Revenue pays Working for Families Tax Credits if your main income is from working, a student allowance, NZ Super or ACC (in some cases). If you receive an income-tested benefit you can choose to receive your family tax credit from either Work and Income or Inland Revenue. The tax credit can be paid out fortnightly in advance (with the risk of some repayment being required) or paid as a lump sum upon filing a taxation return for the year.
An adjustment family tax credit calculation is made when the taxation return is filed for the year. This can result in the receipt of a top up tax credit or in the need for overpaid credits to be paid back to IRD. The latter can arise when the actual level of income earned in the year is more than was anticipated when the application forms were lodged with IRD.
From 1 April 2011, Government created a new income definition (called Family Scheme Income) to determine eligibility for Working For Families Tax Credits (WfFTC). Up to then, income to be taken into account to determine eligibility was generally limited to taxable income (as described above). However, there are many other means by which families obtain money (other than income) to assist with their day to day living costs and the new definition captures these.
Family Scheme Income now includes the following (in addition to taxable income):
- trust income (including attributed income from trust-controlled companies) that is attributed to a person who is a settlor of the trust;
- fringe benefits that are attributable fringe benefits if received by a company employee who, with their associates, controls the company;
- passive income such as interest and dividends over $500 derived by dependent children;
- income from a portfolio investment entity (PIE) that is not sufficiently locked in until retirement;
- foreign-sourced income of non-resident spouses;
- tax-exempt salary and wages;
- main income equalisation scheme deposits;
- 50% of non-taxable private pensions and annuities; and
- other payments (besides those already included in the definition of family scheme income) used to replace income or to meet a family's living expenses if the total exceeds $5,000 a year per family.
This rather wide definition has been established to move the eligibility criteria away from income per se, to one of available cash to fund for family living costs. Determining just what the new definition means is not easy, and it is likely that many claimants for WFF will need some form of professional advice to clarify just what needs to be included in this new definition.