If you've made a deposit into the main income equalisation scheme account and claim a deduction it will reduce your taxable income. However, the amount of the deduction is treated as income for calculating your Working for Families Tax Credits entitlements and student loan repayment obligation.
This also applies to deposits made by a:
- company you are a major shareholder in
- trust you are the settlor of (except for some types of trust)
- company controlled by a trust you are the settlor of (the trust controls the company if the trust and associated persons hold a voting interest of 50% or more in the company).
Deposits to the adverse event income equalisation scheme and thinning operations income equalisation scheme are not included.
Working for Families customers
If you have a spouse/partner then the above rules apply equally to them and to any companies they are a major shareholder in or trusts they are the settlor of.
They'll need to complete their own Adjust your income - IR215 to account for an adjustment.
Deposits that you made
Complete box 21 of the IR215 for any deposits you made into your own individual main income equalisation scheme.
Deposits made by a company or a trust
If a company or trust that you're associated with makes a deposit into their main income equalisation account, then this deposit will need to be added back into the company or trust's:
- net income
- trustee income
- company's income
so your Working for Families and student loans can be correctly calculated. (Student loans only if the deposit was made after 1 April 2014).
These adjustments are included in the calculations for attributable trustee income or major shareholder in a close company income.
Example - individual deposit
Sarah and Kevin receive Working for Families payments for their 2 children and Kevin has a student loan.
Kevin makes a deposit of $50,000 into the main income equalisation scheme account on 1 June 2014. He can claim a deduction in his income tax return for the period 1 April 2014 to 31 March 2015 of the amount of the deposit.
For the 2015 tax year Kevin earns $80,000. His deduction from the income equalisation deposit of $50,000 makes his taxable income $30,000.
Kevin is required to add back into his income the $50,000 for Working for Families and student loans.
Example - company deposit
Jasmine receives Working for Families payments for her 2 children and she also has a student loan. She is a major shareholder in a company which owns a farm.
For the 2015 tax year the company has a net income of $90,000 and they made a deposit of $50,000 into the company’s main income equalisation scheme account on 1 July 2014. At the end of the tax year this made the company’s taxable income $40,000 for the year.
However when Jasmine goes to calculate her attributed company income for box 24 of the IR215 she will use the original net income of $90,000 ($40,000 + $50,000).