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Higher tax credits for lower income families

From April next year, low-income working families who are eligible for the minimum family tax credit will receive an increase.

Currently, the minimum family tax credit ensures that families who work the minimum number of hours and those not receiving a benefit will have an after-tax income of $22,724 a year.

This figure will rise to $22,776 a year from April 1, 2014.

The minimum family tax credit provides a guaranteed minimum family income to families who are in work and ensures that they are not worse off moving from a benefit into paid employment.

The increase, which reflects small inflation rises, was approved by ‘Order in Council’ on October 21, 2013.

Income sources

There have also been changes to the types of income that you must tell us when applying for and receiving Working for Families Tax Credits.

We need to know if you receive income from the following sources:

Attributable Trustee Income: This is the income for the year of a Trust that has not been distributed as beneficiary income. It includes income from trading and investment activities and the net income of any company controlled by the trust.

Trustee income will be attributed only to settlors of a trust. Settlors are individuals who establish or contribute funds to the trust. In the case of multiple settlors, the trustee income is distributed evenly to all settlors. However, if a settlor arranges for friends or relatives to be settlors so as to artificially dilute the attribution rule, the original settlor will be treated as the sole settlor of the trust.

Attributable fringe benefits: The value of any attributable fringe benefits is required to be declared by all shareholder employees if they, or their associates, hold voting interests of 50% or more in a company.

Attributable fringe benefits are defined in the tax rules in sections RD 47 to 49 of the Income Tax Act 2007 as motor vehicles for private use; low/nil-interest employee loans; subsidised transport (when the employer is in the business of transporting the public) in excess of $1000 in value; contributions to insurance schemes in excess of $1000 in value; contributions to sickness, accident or death funds in excess of $1000 in value; any other benefits received in excess of $2000 in value.

If you receive fringe benefits but you or your associates (the family trust for example) are not shareholder-employees of the company you work for, then you need not include the fringe benefits in your family income.

The value of the fringe benefit is the tax-inclusive value of the benefit – the tax payable under the fringe benefit rules is to be added to the value of the benefit to give a tax-inclusive (gross) amount.

PIE Income: This includes income attributed by a portfolio investment entity (PIE) to the principal caregiver or their spouse or partner, except if the PIE is a superannuation fund or a retirement savings scheme (such as KiwiSaver).

Minors’ income

Passive income of children: If your child receives any of the following types of income totalling over $500 a year (per child), you must include the amount over $500 (per child) as part of your family income: resident passive income – this includes interest, dividends, a taxable Māori Authority distribution (other than a retirement scheme contribution) and a replacement payment under a share-lending arrangement; royalties; rent; beneficiary income – however, beneficiary income that is excluded under the minor beneficiary rule is not included in family income (for example, income from a testamentary trust); distributions from a listed PIE; attributed income from a PIE that is not a superannuation fund or retirement savings scheme.

Income of non-resident spouse: If your spouse or partner, who is not a tax resident, is earning an income overseas, you must include their worldwide income as part of your family income for Working for Families Tax Credits. This is effective from April 1, 2011. We may require you to provide evidence of their income.

Tax exempt salary or wages: This includes salaries and wages that are exempt from income tax under specific international agreements in New Zealand. It includes employees of international organisations such as the UN or the Organisation for Economic Cooperation and Development (OECD), or under the Diplomatic Privileges and Immunities Act 1968.

Pensions and Annuities: This includes 50% of the amount of pension or annuity payments from life insurance policies or a superannuation fund, (excluding New Zealand Super).

Other Payments: These are payments from any other person or entities that are used for the family’s day-to-day living expenses. If the total amount is more than $5000 for the tax year, then the total amount must be included as family income.

Income Equalisation Scheme Deposits (excludes ‘adverse events’ deposits)

The above income types should be included in the ‘Other Income’ box of the Working for Families Tax Credits application form (FS1) along with income from interest, dividends, rents, royalties, estates, trusts and Māori authorities.

If you are already receiving Working for Families Tax Credits and want to check if you are receiving the correct amount please call us in 0800-227773 or visit www.ird.govt.nz

Free Workshops

If you are in business, you may like to attend one of our free tax seminars or workshops held in various parts of the country. Please visit our website for details.

Abdul Rafik is Inland Revenue’s Community Compliance Officer based in Auckland. He will answer your queries emailed to venkat@indiannewslink.co.nz

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