Income splitting for families with children

A government discussion document released today seeks people’s views on the idea of allowing families with children to split their income for tax purposes, to reduce the amount of income tax they pay.

“The discussion document looks at the merits of introducing income splitting as a way of providing additional support to families with children,” Revenue Minister Peter Dunne said today.

“Its publication is a result of a commitment made in the confidence and supply agreement between Labour and UnitedFuture.

“A number of government measures to help families with children are already in place – including Working for Families, childcare subsidies and paid parental leave.

“The discussion document looks at the advantages and disadvantages of income splitting and asks readers whether they think it would be the best way of providing additional support to families with children.

“If they favour income splitting, readers are asked to comment on the form they think it should take – whether, for example, it should be on a 50/50 basis, what age limits should be set for the children involved, and what would constitute a ‘family’ for purposes of splitting income.

“New Zealand’s income tax system works on an individual basis, meaning that individuals are taxed on the income they earn. Income splitting, on the other hand, would treat the family as the taxable unit.

“Those who would gain most would be families in which one parent earned $120,000 or more a year and the other had no income. If its income were split on a 50/50 basis, that family could reduce its annual income tax by nearly $9000.

“When one parent had an income of $60,000 a year and the other had none, the tax saving to the family would be just over $3,000, assuming the same 50/50 split. Similarly, if one parent earned $60,000 and the other parent earned $30,000 the family would have a tax saving of about $960.

“Fairness is the main criterion against which income splitting should be judged, and what seems fair to one may not seem fair to another.

“Income splitting may enhance the choices available to parents by making it easier for one parent in a family to stay at home to care for dependant children if she or he wishes to.

“On the other hand, the greatest benefit would go to families on higher incomes, and they may not necessarily be the families who most need government assistance.

“The discussion document looks at these and a number of other considerations relating to the idea of allowing families with children to split their income for tax purposes. Its purpose is to foster debate on the issues

”I look forward to the public response,” Mr Dunne said.

The discussion document, “Income splitting for families with children”, is available at www.taxpolicy.ird.govt.nz. Submissions close on 30 June.

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