There have been changes to the types of income you must tell us about when applying for and receiving Working for Families Tax Credits.
For the year starting 1 April 2011, we need to know if you receive income from the following sources:
- Attributable trustee income
- Attributable fringe benefits
- PIE income
- Passive income of children
- Income of non-resident spouse
- Tax exempt salary or wages
- Pensions and Annuities
- Other payments
- Income equalisation scheme deposits (excludes "adverse events" deposits)
The above income types will need to 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 you receive any of the above income types, you’ll need to tell us about them before 1 April 2011 so that we can make sure you receive your correct entitlement. You can do this by phoning us on 0800 227 773.
Attributable trustee income is all income for the year of a trust that hasn't 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. The settlors are individuals who establish or contribute funds to the trust. The relevant definition of a settlor is contained in sections HC 27 - 28 of the Income Tax Act 2007.
The definition of settlor, in conjunction with the nominee look-through rule in section YB 21 of the Income Tax Act 2007, doesn't include professional advisors acting on behalf of clients and other persons, such as friends and family members, who simply allow their name to be listed as the settlor on a trust deed.
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. This complies with the existing settlor definition (including the nominee look-through rule) and the anti-avoidance rule
Exclusions to this attribution rule include:
- if the trustee of a person’s trusts is registered as a charitable entity under the Charities Act 2005
- any settlements for the benefit of local authorities
- superannuation schemes registered with the Financial Markets Authority that are trusts
- any trust which requires a court order to enable a distribution to a settlor or any member of the settlors family.
A company controlled by a trust is defined as a company in which the trustees and their associates hold 50% or more of the voting interests or market value interests (if there is a market value circumstance).
The attribution of a company's net income is restricted to controlled companies only.
The amount of net income of a controlled company included as trustee income is calculated according to the proportion of voting interests in the company held by the trust:
|Trustee income||=||trust's voting interests||x||
|total voting interests|
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 - 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 $1,000 in value
- contributions to insurance schemes in excess of $1,000 in value
- contributions to sickness, accident or death funds in excess of $1,000 in value
- any other benefits received in excess of $2,000 in value.
If you receive fringe benefits but you or your associates (eg the family trust) are not shareholder-employees of the company you work for, then you don’t need to include the fringe benefits in your family income.
The value of the fringe benefit is the tax-inclusive value of the benefit, ie, 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.
This includes an amount of 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 (eg KiwiSaver).
If your child(ren) receive(s) any of the following types of income totalling over $500 a year (per child), you’ll need to 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.
- beneficiary income. However, beneficiary income that is excluded under the minor beneficiary rule is not included in family income (eg, 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.
Read our examples below for income of children:
If your spouse or partner, who is not a tax resident, is earning an income overseas, from 1 April 2011 you will need to include their worldwide income as part of your family income for Working for Families Tax Credits. We may require you to provide evidence of their income.
This includes salary and wages that are exempt from income tax under specific international agreements in New Zealand. It includes employees of international organisations such as the United Nations or the Organisation for Economic Co-operation and Development (OECD), or under the Diplomatic Privileges and Immunities Act 1968.
This includes 50% of the amount of pension or annuity payments from life insurance policies or a superannuation fund, (excluding NZ Super).
Read our examples below for pensions and annuities:
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 $5,000 for the tax year, then the total amount must be included as family income. However if the total amount for the year is less than or equal to $5,000 you do not need to tell us about it.
A payment is considered to be used to meet day-to-day living expenses if it is:
- replacing lost or reduced income (eg; payments from an insurance policy that covers loss of earnings/employment)
- used to pay regular liabilities (for example, car payments, hire purchases, mortgage, loans)
- used to meet the family’s usual living expenses (eg; monthly phone bill or power bill)
- paid directly by another person on behalf of the principal caregiver, or their family members, for regular expenses (eg; paying the power, phone, gas bills directly).
Payments can include soft loans. A soft loan is a loan made available to a person on favourable terms, such as no or little interest payable and no set repayment date.
The following are excluded:
- any one-off capital payments, such as payment from the sale of a house
- any payments that have specific purposes other than income-related purposes, such as funeral grants, educational scholarships, lump sum ACC compensation payments, non-taxable payments under the Social Security Act 1964, charitable distributions or compensation based payments
- any student loan payments, including the living costs component
- any specified item or amount of income, or income from a specified source, that's declared not to be income for the purposes of the Social Security Act 1964 by regulations made under section 132 of that Act, such as payments to victims of crime
- periodic payments received from the repayment of loan principal or when the recipient of the sale of an asset is paid in instalments
- one-off gifts such as gift vouchers for a persons birthday
- payments that are already included under another family income provision
- payments that are received as a result of being adversely affected by an event declared to be an emergency event by the Commissioner.
Read our examples below for other payments:
This includes any deposits made by:
- a company controlled by you or your trust, or
- your trust
to an agricultural, fishing or forestry business income equalisation scheme account at Inland Revenue.
Subsequent refunds from these accounts (excluding interest) shouldn't be included as income for WfFTC.
Date published: 26 May 2011
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