Income Splitting Paper Released

December 11, 2009 New Zealand Taxation

United Future AnnouncementAn issues paper was released on December 11th with a proposition to allow families with children to split their incomes, for tax purposes.

The issues paper examines the merits of introducing an income splitting system, whereby a family is regarded as one taxable unit, for tax purposes. Under the proposal, a family that is primarily responsible for the day-to-day care of dependent children under 18 will be issued tax credits. The issue paper suggests that the family’s total tax liability should be calculated on an equal split of its cumulative income, not individual earnings, and that tax credits should be issued equal to the difference between the figures.

Explaining the proposal, Peter Dunne, New Zealand Minister of Revenue, said “Because income taxes are progressive, with high incomes attracting a higher rate of tax than low incomes, many families might pay less tax, providing some financial assistance when one parent works full-time and the other chooses to stay at home to care for the children”.

According to the issues paper, the proposal would create a annual tax receipt reduction of NZ$450 million. Along with an initial capital requirement of up to NZ$3 million and annual administration costs of NZ$4 million. If accepted, the proposal will come into effect in April 2010.

The paper is aimed at fostering public debate around the issue, and seeks for submissions on the proposal to be made by June 30th, 2010. The issue paper can be viewed on the IRD’s website.

Photo by nznationalparty