Working for Families

OVERVIEW

Four remedial amendments to the Working for Families (WFF) scheme are proposed.  Two amendments correct drafting oversights that occurred when the definition of “family scheme income”, used to calculate WFF recipients’ entitlements was broadened on 1 April 2011, while the remaining two amendments aim to reduce compliance costs for recipients of the scheme.

MAIN INCOME EQUALISATION SCHEME

(Clause 188)

Summary of proposed amendment

The proposed amendment to section MB 1(5D) will ensure that when a WFF recipient draws on funds deposited by associated entities into their main income equalisation account it does not reduce their WFF tax credit entitlement.

Application date

The amendment will apply from the beginning of the 2011–12 tax year.

Key features

The proposed amendment will extend section MB 1(5D) so that it includes “the person” and all their associated entities listed in section MB 9(b) to (d).

Background

The definition of “family scheme income” was broadened on 1 April 2011 in order to improve the fairness and integrity of the WFF system.  As a result section MB 9 was created to ensure deposits made by persons and their associated companies and trusts into the main income equalisation scheme are included as family scheme income.  Its inclusion prevents people from making deposits to the scheme to artificially reduce their income and therefore increase their WFF entitlements.

However, section MB 1(5D), which prevents these main income equalisation scheme deposits from being included in a person’s family scheme income again when they draw on their funds, only refers to “a person”.  It does not list the person’s associated entities.  Therefore, arguably when people draw on income equalisation funds deposited into their account by an associated entity, the funds could be included in their family scheme income a second time.  This does not align with the policy intention as it overstates the income available to a person over a set period.

SCHOLARSHIPS AND BURSARIES

(Clause 189)

Summary of proposed amendment

The proposed amendment to section MB 13(2) clarifies that educational bursaries are not included as income for WFF purposes.

Application date

The amendment will apply from the beginning of the 2011–12 tax year.

Key features

The proposed amendment to section MB 13(2)(f) in the Income Tax Act 2007 will extend the list of payments excluded from the definition of “family scheme income” from “an educational scholarship” to “ an educational scholarship or educational bursary”.  This will ensure that bursaries are treated the same as scholarships for WFF purposes so receiving a bursary will not reduce WFF recipient entitlements.

Background

A number of payments that are treated as exempt from income tax are also not intended to affect Inland Revenue social policy entitlements.  Two of these payments are scholarships and bursaries for attendance at educational institutions.  Although these payments are similar, the current wording of the exemption of scholarships and bursaries from income tax in section CW 36 suggests they are different.

On 1 April 2011, “scholarship” but not “bursary” was added to the list of payments in section MB 13 that are excluded from “family scheme income” which is used to calculate WFF recipient entitlements.  It was intended that scholarships and bursaries would be treated as being excluded from family scheme income.

FAMILY ASSISTANCE CREDIT DETAILS NOT NEEDED

(Clause 227)

Summary of proposed amendment

The proposed amendment to section 41(4)(a) of the Tax Administration Act 1994 will remove the requirement for taxpayers to provide Inland Revenue with details of every family assistance credit paid to them as this is unnecessary.

Application date

The amendment will come into force on the date of enactment.

Key features

The proposed amendment repeals section 41(4)(a) of the Tax Administration Act 1994.

Background

Section 41(4)(a) of the Tax Administration Act 1994 requires WFF recipients to furnish details to Inland Revenue of each family assistance credit paid to them in the tax year.  However, Inland Revenue does not request or require this information from recipients.

FAMILY SCHEME INCOME STATEMENTS

(Clause 232)

Summary of proposed amendment

The proposed amendment to section 80KV of the Tax Administration Act 1994 will enable WFF recipients and their spouse, civil union partner or de facto partner to submit separate family scheme income declaration forms.

Application date

The amendment will come into force on the date of enactment.

Key features

The proposed amendment will change subsections (1) and (2) and add subsections (3) and (4) of section 80KV in the Tax Administration Act 1994 to ensure people who have been given a notice of entitlement (NOE) from the Commissioner are not always required to provide in their statement of family scheme income for the tax year, the income of their spouse, civil union partner or de facto partner.

Instead, it will also enable the person’s spouse, civil union partner or de facto partner to submit a separate family scheme income form to confirm or correct the information contained in the NOE.

 Background

Inland Revenue sends out NOEs in order to confirm a person’s social policy entitlements and obligations.  Section 80KV(2) of the Tax Administration Act 1994 then requires the person to give the Commissioner a statement that confirms or adds to the information in the NOE, including the family scheme income of their spouse, civil union partner or de facto partner.  This requirement generally works for most households.  However, for some (especially those with child support arrangements), it can be difficult to identify each spouse’s portion of family scheme income.  In these situations it would be better for each person to submit their income separately.