Income Tax Amendment Act (No 2) 1983, Supplement 1
Archived legislative commentary on the Income Tax Amendment Act (No 2) 1983, Supplement 1 from PIB vol 126, suppl 1 Sep 1984.
This commentary item was published in Public Information Bulletin Volume 126,Supplement 1, September 1984
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Section 1 - Short Title
This provides for the Amendment Act to be read with and form part of the Income Tax Act 1976.
Section 2 - Application
The provisions of this Amendment Act apply to tax on income derived in the income year which commenced on the 1st day of April 1983, unless otherwise stated in the Amendment Act.
Sections 3, 4 and 5 - Definition of "Spouse"
Sections 3, 4 and 5 make amendments to sections 48A, 48B and 50B of the principal Act respectively.
The sections insert into he respective sections of the principal Act a definition of the expression "spouse". The definition includes within the meaning of the term "spouse" a man or a woman who has entered into a relationship in the nature of marriage (commonly known as a de facto relationship). The partners in such a relationship will now be treated for the purposes of sections 48A (Rates Rebate), 48B (First Home Mortgage Interest Rebate) and 50B (Principal Income Earner Rebate), in the same manner as a legally married couple.
The effect that the introduction of the definition of "spouse" will have in respect of each of the above rebates is as follows:
Section 3 - Rates and Chatham Islands Dues Rebate
This section inserts into section 48A of the principal Act the definition of the term "spouse".
The effect of this amendment is that the provision which limits entitlement to the rates rebate to the principal income earner will now apply in relation to both de facto and de jure (legal) marriages. Previously in a de facto relationship the rebate could be apportioned between the partners as they were treated as co-owners.
The new provisions apply from 1 April 1984.
Section 4 - First Home Mortgage Interest Rebate
This section inserts a definition of "spouse" into section 48B of the principal Act.
There are three situations in which the new definition will affect claims from couples who are living in a relationship in the nature of marriage. These are:
- Where a couple are legally married and one partner of the marriage had previously held an interest in a home, both partners are precluded from claiming the rebate. On the other hand, in a de factor relationship, if one partner had previously held an interest in a home, the other partner was entitled to claim the rebate.
- The definition of "spouse" will mean that from the application date, 1 April 1984, the couple living in a de facto relationship will now be treated as if they were legally married. Therefore, if one of the partners has had a previous interest in a home then both partners will, from 1 April 1984, be precluded from claiming the rebate.
- A legally married couple cannot claim the rebate for more than 5 years. It was however possible in a de factor relationship where neither partner had held a prior interest in a home for one partner to claim the rebate for five years, then sell the property to the other partner who would then claim the rebate for a further 5 years.
- The new definition will deem the couple to be married, therefore as one partner has held a prior interest in a home, the other partner is prevented from claiming the rebate for the additional 5 years.
- Section 48B provides that in de jure marriages the principal income earner must claim the rebate. This restriction has not applied in de facto marriages and such couples could elect to apportion the rebate entitlement between the 2 partners.
- The new definition of spouse will mean that only the principal income earner may claim the rebate.
Application date
As with section 3 the application date for the amendment will be 1 April 1984.
Section 5 - Principal Income Earner Rebate
This section amends section 50B of the principal Act by repealing the definition of spouse and replacing it with a new definition, which is similar to that inserted in sections 48A and 48B by sections 3 and 4 of this Amendment Act.
At present the principal income earner rebate is available to single adults without children and the principal income earner in a married or de facto household without children. It is also available to single adults or a principal income earner in a de jure marriage or a de facto marriage where there are children and the rebate exceeds the amount of the family rebate otherwise available under section 53C of the Act.
The new definition of spouse will prevent the situation arising where the principle income earner in a de facto relationship could claim either the Principal Income Earner Rebate or the Family Rebate (whichever is appropriate), while the other partner could also claim the Principal Income Earner Rebate. Of course, in a de jure marriage the secondary earning spouse is not permitted to claim the Principal Income Earner Rebate. The definition will mean that only the principal income earner in either a de jure or a de facto marriage may claim the Principal Income Earner Rebate.
The new provisions will apply from 1 April 1984.
Section 6 - Family Rebate
This section gives effect to the changes in the family rebate announced in this year's Budget. These changes affect only the rebate maximum and abatement rates and ranges.
All other features of the family rebate (such as qualifying criteria, determination of the rebate where there is permanent exit/entry from New Zealand, or where a taxpayer dies, during the income year) remain unchanged.
Full Year Amount of Rebate: 1984/85 Year
From the 1984/85 income year the amount of the rebate for qualifying taxpayers will be as follows:
- Where "family income" is up to (and including) $9,800, the rebate will be $1,924;
- Where "family income" is over $9,800 and up to (and including) $14,000, the rebate will abate by 15 cents for each $1 in excess of $9,800;
- Where "family income" is over $14,000, the rebate will further abate by 20 cents for each $1 in excess of $14,000;
- Where "family income" is over $20,470, no rebate is allowable.
Amount of Rebate: 1983/84
The revised structure of the family rebate applies from 1 October 1983. For the 1983/84income year, therefore, a composite rebate will be allowed as follows:
- Where "family income" is up to (and including) $9,800, the rebate will be $1,664;
- Where "family income" is over $9,800 and up to (and including) $14,000, the rebate will abate by 15 cents for each $1 in excess of $9,800;
- Where "family income" is over $14,000 and up to (and including) $19,160, the rebate will further abate by 17.5 cents for each $1 in excess of $14,000;
- Where "family income" is over $19,160, the rebate will further abate by 10 cents for each $1 in excess of $19,160;
- Where "family income" is over $20,470, no rebate is allowable.
PAYE
The new family rebate structure has been incorporated into the PAYE tables (namely codes "B" to "F") issued for use in pay periods ending on or after 1 October 1983. Those taxpayers currently eligible for the family rebate and operating any one of tax codes "B" to "F" will not need to alter their tax code as a result of the Budget announcement.
Note that, as a result of the increase in the upper income limit of the rebate from $19,160 to $20,470, some taxpayers with "family income" in that range will be able to claim some portion of the rebate whereas previously they had been excluded on income-grounds.
Section 7 - Housekeeper Rebate
This section amends section 54 of the principal Act. The amendment makes it clear that the rebate applies only where a payment is made to a woman or a man who tends the home of the taxpayer where the services are necessary by reason of any mental or physical infirmity or disability of the taxpayer.
Amendments made to section 54 in 1977 in accordance with the Human Rights Commission Act, changed the reference in the section from "a woman who tends the home" to that of a "a person who tends the home". The definition of "person" in section 2 of the principal Act includes a company and an unincorporated body of persons. It had been argued that payments to institutions such as private hospitals and rest homes therefore qualify for the rebate.
As it was not Government's intention that such payments qualify for the rebate, the section has been amended by defining home in such a way as to exclude institutions. The following definitions have been introduced:
- "Communal home" - this includes a hotel, motel, boarding house, guest house, convalescent home, nursing home, rest home, hospital, hospice or other similar establishments butexcludes any part of an establishment that is occupied by a person or the spouse of the person who is engaged in operating the establishment.
- "Home" - this is the dwelling which is the residence which is resided in during the income year by the taxpayer but does not include a communal home as defined.
Section 8 - Application of Tax Codes Specified in Tax Code Declarations or Tax Code Certificates
Section 8 makes the necessary amendments to section 344 of the principal Act to incorporate the revised family rebate. (Refer to section 6).
Subsection (2) amends section 344 of the principal Act by repealing subsection 4. This subsection allowed the issue of a special tax code where the taxpayer chose not to specify in his tax code the presence of dependants.
As a result of the tax changes made in 1982 this subsection has become redundant.
Section 9 - Provisional Taxpayers
This section amends section 377 of the principal Act. It increases from $500 to $1,000 the amount that any person not in business may earn from interest, dividends and rents in any income year before being required to pay provisional tax.
The section also consequentially amends section 17 (Due date for furnishing returns) to allow such taxpayers to furnish IR 5 returns of income.
Both changes will apply from the income year commencing 1 April 1984. This will mean that such taxpayers are not required to pay 1985 provisional tax, and will for the 1984/85 income year become IR 5 taxpayers.
Section 10 - Payment of Provisional Tax by Instalments
This section removes the incorrect reference in section 385(3) of the principal Act to section 384(3), and replaces it with the correct reference which is 384(1).
Section 11-14 - Basic Rates of Income Tax
Section 11 inserts into the First Schedule of the principal Act the following composite tax rate scale which applies for the 1984income year:
| Income Range | Tax (Cents per $1) Rate |
|---|---|
| $ | |
| 0 - 6,000 | 20.00 |
| 6,001 - 24,000 | 31.25 |
| 24,001 - 30,000 | 41.10 |
| 30,001-38,000 | 56.10 |
| 38,001 and over | 66.00 |
This composite rate scale is a combination of the tax rates applying for the half-year from 1 April 1983 to 30 September 1983 and the new rates, including the surtax, applying from 1 October 1983 to 31 March 1984. This composite tax rate applies only for the 1983/84 income year.
Sections 12 and 13 insert into the First Schedule of the principal Act, the following two tax rate scales, either of which, subject to confirmation by the Income Tax (Annual) Act 1984, will apply for the 1985 and subsequent income years. The two rate scales result from the continuation of the surtax of 10 percent of the marginal rates applying to income over $24,000.
Although both the tax rate scales have been inserted in the principal Act neither can be used for any assessments until it has been confirmed by an Income Tax (Annual) Act.
BASIC TAX SCALE (NO SURTAX): SECTION 12
| Income Range | Tax (Cents per $1) Rate |
|---|---|
| $ | |
| 0 - 6,000 | 20.0 |
| 6,001 - 24,000 | 31.5 |
| 24,001 - 30,000 | 41.1 |
| 30,001-38,000 | 51.0 |
| 38,001 and over | 60.0 |
BASIC TAX SCALE (INCLUDING SURTAX): SECTION 13
| Income Range | Tax (Cents per $1) Rate |
|---|---|
| $ | |
| 0 - 6,000 | 20.00 |
| 6,000 - 24,000 | 31.5 |
| 24,001 - 30,000 | 45.1 |
| 30,001 - 38,000 | 56.1 |
| 38,001 and over | 66.0 |
Section 14 - Basic Tax Deductions
This section makes the amendment necessary to incorporate the new tax rate scale, including the surtax into the PAYE tax tables for use from 1 October 1983. It also changes the rates of tax in respect of secondary employment income and extra emolument payments.
Subsection (1) - amends clause 3 of the Second Schedule which sets the "no declaration" rate of tax deduction and specifies the income at which "no declaration" rate transfers to the "G" tax code. The income has been amended from "$672" to "$664". Note that the "no declaration" rate is still 35 cents in the dollar on income not exceeding $664. On incomes over $664 the "G" code deduction is to apply.
Subsection (2) amends clause 6 of the Second Schedule to change the rate of tax deduction for payment of secondary employment income from 31 cents in the dollar to 31.5cents in the dollar.
Subsection (3) amends clause 9 of the Second Schedule to change the rate of tax deduction for payments of extra emoluments from 31 cents in the dollar to 31.5cents in the dollar.
Subsection (4) inserts the new weekly PAYE tables into Appendix A of the Second Schedule to the principal Act.
Subsection (5) is consequential to the previous amendment.
Subsection (6) provides that subsections (1), (2) and (4) of this section apply from the 1st day of October 1983.
Subsection (7) provides that subsection (3) of this section applies from the 1st day of October 1983.
Section 15 - "Fourth Schedule" Expenses
This section:
- Increases the monetary limits specified in the Fourth Schedule in relation to books, tools of trade, and education; and
- Variously amends the clause covering education expenditure to:
- ensure that claims for educational books, etc., are subject to the same limit as other books, and
- allow a deduction in respect of expenditure incurred in undertaking research as a condition of employment, and
- ensure that expenditure incurred on books or travel in connection with education can only be deducted under clause 5 of the Fourth Schedule.
Increase in Monetary limits
With effect from the income year which commenced on 1 April 1983, the monetary limits applicable in respect of expenditure on books, tools of trade, and education are increased as follows:
- Clause 2: books, journals, periodicals, etc. $50 per volume or issue (formerly $20);
- Clause 4: hand-tools, equipment, technical aids, $250 per item (formerly $100);
- Clause 5: various education expenses, $1,000 per annum (formerly $400).
Clause 5: Education Expenses
The amendments to clause 5 of the Fourth Schedule (deductions for educational expenditure), apart from the increase in the annual limit, arise from recent Taxation Review Authority decisions which highlighted certain areas where the legislation lacked clarity - in particular, those which gave rise to outcomes other than those originally intended when the legislation was introduced. The amendments are as follows:
- Travel and Accommodation
- Subsection 3 amends the Fourth Schedule by repealing the original clause 5 and substituting a new clause 5.
- The maximum allowable deduction for costs of travel, accommodation and study under this clause has been increased from $400 to $1,000 but there is also an important change in the effect of the clause. Under the original clause the situation could arise where a taxpayer could claim expenses which, although related to obtaining a degree or other qualifications, were also argued to be in the nature of a refresher course.
- This enabled a taxpayer to claim travel and accommodation expenses relating to obtaining a degree or other qualification under paragraph (b) which relates to attending refresher courses.
- The new clause 5 clarifies the situation by excluding "expenditure incurred for the purpose, in whole or in part, of obtaining a degree or any other qualification of whatever kind" from a deduction for travel or accommodation.
- Another problem with the interpretation of the original clause 5 was with the treatment of travel and accommodation expenses incurred by university lecturers, and others, on sabbatical leave. The argument advanced was that research undertaken on sabbatical leave was "original research" and thus, could not be categorised as a refresher course or as developing the lecturers' capacity to perform their existing duties. This meant that the travel costs were deductible in terms of clause 6 and, as such, were not restricted to a maximum deduction. This problem has been rectified by:
- Adding a new clause 5(c) which includes in the $1,000 maximum deduction any expenditure "in undertaking as a condition of his employment research for the purposes of his employment" and
- Excluding from clause 6 any "travel in connection with any matters referred to in clause 5 of this Schedule".
- The effect is to ensure any travel expenses in excess of $1,000 in connection with "study" or "research" cannot be claimed under clause 6.
- Books
- Clause 2 of the Schedule governs expenditure on books and limits the deduction to a maximum of $50 in respect of any volume, issue or instalment. As the cost of books can also be deducted pursuant to clause 5 where they are related to study it was necessary to similarly limit the deduction.