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Inland Revenue

Tax Policy


Couples with children often face a choice between both parents working full-time, employing others to care for their children, and one parent working full-time and the other staying home to care for the children, possibly on a part-time basis. For most people, financial considerations play a large role in the decision. Introducing an income-sharing tax credit is a way of enabling parents to have greater choice in their work and caring roles and more choice around their work and home-life balance.

The Taxation (Income-sharing Tax Credit) Bill introduces a new tax credit for couples with dependent children, based on sharing their incomes equally and paying tax based on half of the shared income.

The tax credit will provide additional financial support for couples where one partner is on a higher tax rate than the other. Different couples on the same level of combined income will effectively pay the same combined amount of personal income tax, regardless of how much each partner earns. The changes proposed in the bill will also mean some couples have greater choices to work fewer or more flexible hours of paid work in order to care for children, by increasing their combined after-tax income.

Eligible couples with dependent children will be able to apply for the tax credit, if they want, at the end of each tax year. The amount they receive will depend on the relative amounts of tax payable by each partner on their individual income. The tax credit will be the difference between the tax that is payable by each partner on their own incomes, and the amount of tax they would have paid if they each had an equal share in the couple’s combined income. The tax credit could be used to meet any tax owing or be refunded to the couple.

The income-sharing tax credit is similar to the Working for Families tax credit and has been designed to share many of the same rules and requirements to help keep administration and compliance costs down. The bill sets out who is eligible, how the tax credit is calculated, and rules around application and payment.


The topic of income sharing [1] was canvassed in April 2008 in a discussion document, Income splitting for families with children. Options on how to deliver the policy were discussed in an issues paper, An income splitting tax credit for families with children released in December 2009.

The tax credit proposed in the bill closely follows the description of the tax credit in the issues paper. Some changes have been made to reflect concerns people raised in submissions, and to simplify administration of the tax credit.

Income sharing is a key part of UnitedFuture’s tax policy and formed part of the Confidence and Supply agreement with the National-led Government. The objectives of the income-sharing tax credit, as stated in UnitedFuture’s policy are to:

  • give parents greater choice in their work and caring roles;
  • acknowledge the contributions of those who forego paid work to care for children; and
  • give families with children additional financial support.

1 Originally referred to as “income splitting” in published documents.