The Inland Revenue Department ("IRD") has released its report to the Minister from November 2011. It notes that Working for Families ("WFF") is an important source of income for families with children.

In the 2010–11 year, WFF payments were on average $6,643 per recipient household. These payments can make up a large portion of a household's income. For example, for 81,500 non-beneficiary households, WFF payments made up 20 percent or more of their disposable income in 2010–11.

WFF payments fully abate at $92,000 of income, at which point such a household is paying tax of about $24,500 and has disposable income of about $67,500.
WFF has two significant effects on work incentives. First, a large portion of the payments are only available to those in work for a reasonable number of hours a week. For households where neither parent works, this provides a strong incentive to seek employment. Secondly, however, the abatement of payments as family incomes increase can raise effective marginal tax rates (EMTRs) in so far as for every extra dollar earned, a large portion is lost due to tax or reduced entitlements to WFF. For example, a one-earner couple with one child earning $55,000 faces an EMTR of 53%. A $1 pay rise will therefore provide a $0.47 increase in disposable income. High EMTRs can significantly reduce incentives to work harder or engage in additional training, as large increases in before-tax earnings translate into only small increases in disposable income. This limits the ability of households to take initiatives to change their circumstances.

There are no easy solutions to this problem. Reducing high EMTR rates either requires providing less assistance or involves abating social benefits more slowly, which could be costly. Therefore, there is a trade-off between keeping costs to a minimum in providing assistance to low income families and work incentives.

Although some taxpayers do face high EMTRs, they are apparently few in number. At present there are 3.38 million individual taxpayers in total. Of these, about 120,000 (3.4 percent) face EMTRs of over 60%, 120,000 (3.4 percent) face EMTRs of between 50% and 60%, and 160,000 (4.5 percent) face EMTRs of between 40% and 50%. Slightly more than 88 percent of taxpayers face EMTRs of below 40%.

How it affects you

There have been a number of changes to WFF in recent years. The report suggests that further changes may be required but a focus will be on balancing work incentives with the need for assistance to low income families.



From the start of the 2011/2012 tax year the company tax rate reduced to 28% and the corresponding imputation ratio has become 28:72. There is a transitional period to allow companies to pay dividends and attach imputation credits at 30:70 which ends on 31 March 2013. Any dividends paid after that date can only be imputed at 28:72.

It is important to note that the remaining imputation credits are not extinguished. They continue as credits to the imputation credit account of the company but can only be attached to dividends at the ratio of 28:72.

If therefore a company has a "tainted" capital gain, or other unimputed reserves, and declares a dividend from these reserves, any "excess" imputation credits can be attached to the dividend so declared, and this would reduce the ultimate taxation liability of the shareholders.

Another thing to bear in mind is that the RWT rate for dividends remains at 33%. Therefore any dividends that are declared with imputation credits attaching at 30:70 or 28:72, must have RWT deducted and paid to the IRD by the 20th of the month following the payment of the dividend.

Overall therefore, depending on the nature of the shareholder, the declaration of a dividend from a company may bring forward a tax liability for the shareholder to the extent of 3 to 5% of the dividend declared.

Finally, we note for a dividend to be attributable to an income year it must be declared on or before the last day of that income year. For example, companies with a standard balance date, that want a dividend to be attributable to the current income year, must pass a board resolution to declare the dividend on or before 31 March 2012.

How it affects you

Although 31 March 2013 may seem like a long time off, if you are preparing 2012 accounts for clients over the next few months we recommend that you consider the position in relation to use of imputation credits, and perhaps even look to have resolutions to declare dividends for that period passed now, with a view to determining the exact amount of the dividend after 31 March 2013.

Also, if you have a qualifying company it will be important to carefully manage the payment of any dividends and any "transition" from the qualifying company regime.

Finally, remember that dividends declared are counted as part of a person's family scheme income for WFF purposes and this can have a negative effect on the level of assistance available.


The National Standard Costs for Specified Livestock Determination 2012 has been released. It applies to any specified livestock on hand at the end of the 2011/12 income year.

A Supplementary Order Paper to the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill has been issued. It contains some significant changes to the basis calculation of look-through owners and limited partners. We will discuss these changes in a future issue.

If you hold an interest in a Foreign Superannuation Scheme contact your taxation advisor for an update on the latest taxation treatment.


"If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man."

- Mark Twain

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