Working for Families tax credits provisions

Section GC 28, subpart KD and section MD 1 of the Income Tax Act 2004; sections GB 44, LA 7, LB 4 and subparts MA to MF and MZ of the Income Tax Act 2007; sections 80E, 80KD, 80KK, 80KN to 80KR, 80KU, 80KW, 84 and 85G of the Tax Administration Act 1994

The re-naming of family assistance to Working for Families Tax Credits and name changes for some of the component credits has required a large number of remedial amendments in the Revenue Acts, as well as consequential amendments in other legislation not administered by Inland Revenue.

Three other remedial amendments were necessary to:

• introduce modifications to the formula for calculating the parental tax credit - to be used in specific circumstances;
• clarify the meaning of "net family scheme income" in the Income Tax Act 2007, to ensure that the minimum family tax credit is calculated from a base of after-tax income in all cases; and
• ensure that the end-of-year calculation formula when there have been 53 weekly or 27 fortnightly interim instalments applies, regardless of whether those interim instalments have been paid by Inland Revenue or by the Ministry of Social Development.

Name change for Tax Credits for Families

Key features

The name changes to the tax credits for families are as set out in the following table:

The grouping of the credits as "family support" and "family plus" has been removed.

The names have been replaced as shown in the table whenever they occur in subpart KD of the Income TaxAct 2004 and in subparts MA to MF and MZ of theIncome Tax Act 2007, and elsewhere as cross-references in:

• the Income Tax Act 2004;
• the Tax Administration Act 1994;
• the Housing Restructuring and Tenancy Matters Act1992;
• the Rates Rebate Act 1973;
• the Social Security Act 1964;
• the Health Entitlement Cards Regulations 1993;
• the Social Security (Temporary Additional Support) Regulations 2005; and
• the Student Allowances Regulations 1998.

The amendments to the Income Tax Act 2004, other than the amendments to subpart KD, are in Part 1 while the amendments to the Tax Administration Act 1994 are in Part 2. The amendments to other Acts, including the Income Tax Act 2007 and Regulations are in Part 3 and Schedule 2, and the amendments to subpart KD of the Income Tax Act 2004 are in Schedule 1.

Application date

The amendments to the Income Tax Act 2004 apply from the tax year beginning 1 April 2007.

The amendments to the Income Tax Act 2007 apply from 1 April 2008 when that Act comes into force.

Parental tax credit

The parental tax credit is paid for a maximum of 56 days immediately following the birth of a child. Parents can choose to receive it as a lump sum. However, when a child is born in the last 56 days of the tax year and parents choose to receive a lump sum, the calculation formula, because it spans two tax years, formerly conceded entitlement at levels of income that should extinguish entitlement.

Key feature

New section MD 16 of the Income Tax Act 2007 introduces the formula to be used when parents choose a lump sum payment of the parental tax credit for a birth that has occurred within the last 56 days of the tax year.

Application date

The new section applies from the tax year beginning 1April 2008.

Net family scheme income

The minimum family tax credit tops up after-tax income to an annually specified amount. Former provisions had the effect of assuming that tax had been paid for certain types of income when it had not and vice versa for certain other items of income.

The new provision for "net family scheme income" ensures that the minimum family tax credit is calculated from a base of after-tax income in all cases.

Key features

New section ME 3 in the Income Tax Act 2007 provides a definition of "net family scheme income" that applies for the purpose of subpart ME, which contains the rules for the minimum family tax credit.

Application date

The new section applies from the tax year beginning 1April 2008.

Write-off of additional instalment in some years

Because a year cannot be divided evenly into weeks or fortnights, there are some years in which more than 26 fortnightly or 52 weekly instalments fall within the tax year.

The Income Tax Act already provides for the automatic write-off of a 27th fortnightly instalment paid by Inland Revenue or a 53rd weekly instalment paid by the Ministry of Social Development. The amendments provide for the automatic write-off of a 53rd interim weekly instalment paid by Inland Revenue or a 27th interim fortnightly instalment paid by the Ministry of Social Development in the years in which those events occur, to ensure no-one is disadvantaged.

Key features

The amendments to sections 80KW(2)(b) and 80KW(4)(a)(ii) of the Tax Administration Act 1994 will ensure that the end-of-year calculation formula when there have been 53 weekly or 27 fortnightly interim instalments applies regardless of whether those interim instalments have been paid by Inland Revenue or by the Ministry of Social Development.

Application date

The amendments apply from the tax year beginning 1 April 2008.