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Inland Revenue

Tax Policy

ACC: Taxation of personal service rehabilitation payments – drafting clarification


(Matter raised by officials)

Amendments are necessary to correct three deficiencies or ambiguities in changes to the taxation of personal service rehabilitation payments that were made in the Taxation (Business Taxation and Remedial Matters) Act 2007.


The intention of the changes was to tax attendant care payments at the time they were made to claimants – when that person on-pays his or her carer(s) – or to the carer(s) themselves – when ACC pays them directly on behalf of the claimant. In the former situation, no tax was to be deducted when the claimant on-paid his or her carer(s). However, a drafting error occurred at the select committee stage of the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill, which effectively reversed the position – in other words, that ACC is not required to deduct tax, and that claimants who pay their caregivers directly are responsible. This effect negates the whole purpose of the amendments.

One of the criteria for qualifying for the in-work tax credit is that the person has earned income that is a “PAYE income payment”. As personal service rehabilitation payments are excluded from this definition, full-time carers do not currently qualify for this credit.

There is doubt that the provisions apply to personal service rehabilitation payments made under provisions that applied in earlier Acts covering entitlements arising from accidents, which have been carried forward, but “grandparented”, in the Injury Prevention, Rehabilitation, and Compensation Act 2001.


That the submission be accepted, and that the amendments apply from 1 July 2008.