Income splitting for tax purposes back in the spotlight

New Zealand families may yet get a choice on how they choose to work and pay tax. United Future leader, Hon Peter Dunne MP has announced the release of an issues paper looking at how income splitting might operate through an annual tax credit.

“Under income splitting, each partner in a relationship with children would be taxed on an equal share of their combined income, Revenue Minister and UnitedFuture leader Peter Dunne said today in releasing the issues paper.

The first round of consultation last year sought feedback on what people thought of income splitting, and attracted more than 200 responses, most of them favourable.

“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,” Mr Dunne said.

“The issues paper proposes having income splitting operate through an annual tax credit, and seeks people’s feedback on how well such a system would work for them,” Mr Dunne said.

“Inland Revenue would calculate the end-of-year tax credit, which would be based on any difference between the tax the couple would pay on an individual basis and the tax they would pay by splitting their income for tax purposes.

“To be eligible for the tax credit, couples would have to be married, civil union partners or de facto partners, be New Zealand residents, and be primarily responsible for the day-to-day care of a dependent child under 18.

“Financial considerations often play a large role in parents deciding whether both should continue to work full-time or one stays home to care for the children,” he said.

“Income splitting is one way of enabling parents to have greater choice in their work and caring roles, and also recognises the valuable role played by parents who choose to opt out of the workforce to raise their children.

“I urge all interested parties to have their say on the workability of the tax credit that is set out in the paper.

“Once we have received the public’s feedback on the details of the proposed mechanism for making income splitting a reality, the next step will be to introduce enabling legislation next year, a move that is provided for in the confidence and supply agreement between UnitedFuture and National,” Mr Dunne said.

The issues paper, “An income splitting tax credit for families with children” is available at www.taxpolicy.ird.govt.nz.

Submissions close on 5 February 2010.

http://www.unitedfuture.org.nz/default,1291,dunne_unitedfutures_income_splitting_plans_take_shape.sm