Working For Families Tax Credits: Not Just a Complex Name
Working out your income for Working for Families Tax Credits (WFFTC) purposes has always been complicated, so much so that many big firms of accountants refuse to get involved in calculating their clients’ WFFTC entitlement.
Well as from the 2012 Tax Return season getting their clients’ income correct for WFFTC purposes is going to get even more complicated as:
- From 1 April 2011 clients will no longer be able to use investment losses such as from rental properties to reduce their income for WFFTC purposes (prior to that only those in the business of renting property couldn’t deduct losses).
- The definition of WFFTC income will also include an extra nine types of income:
- Attributable trustee income e.g. trust income which hasn’t been allocated to beneficiarie
- Attributable fringe benefits e.g. a car
- PIE income other than registered superannuation schemes such as Kiwisaver and retirement benefit schemes
- Passive income earned by children (includes interest, dividends and rent). Amounts over $500 per child will be included as family income, as per this IRD example: Johnny is gifted $15,000 from his parents in April 2011. This money is invested in term deposits. At the end of the year (31 March 2012) Johnny receives a letter from the bank showing he earned $600 interest. As the total interest earned by Johnny is over $500 his parents will need to include the amount over $500 (ie; $100) as part of their family income for the year 1 April 2011 to 31 March 2012.
- Worldwide income received by a non-resident spouse
- Tax exempt salary or wages under specific international agreements
- Income equalisation deposits made by you, your trust, or a company controlled by you or your trust
- Certain pensions and annuities – includes 50% of payments from life insurance policies or a superannuation fund (excludes NZ super)
- Other payments received from any sources that are used for your family’s day-to-day living expenses (but only if the total amount from those sources is more than $5,000). An example of this might be board received, income from parents, or “soft-loans” from friends or family.
This last point is particularly grey and many accountants think totally impractical.
Having worked in tax for 30 years I suppose I shouldn’t be surprised but making tax this complicated is just downright crazy. The more you make tax law difficult to comply with, the less chance you have of taxpayers being able to follow the rules and the whole system falling into disrepute, especially given the IRD’s woeful lack of resources available to be able to police the system.
If you need help with your WFFTC, contact Nick on 0800 ASK NICK or email firstname.lastname@example.org.