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Inland Revenue

Tax Policy

Eligiblity for the income-sharing tax credit

(Clause 15)

Summary of proposed amendment

The bill defines who is eligible to apply for an income-sharing tax credit, and describes the treatment of the credit when couples have separated or who share care.

Application date

The new provisions will apply from 1 April 2012.

Key features

New subpart MG is being inserted in the Income Tax Act 2007 to deal with the income-sharing tax credit. Section MG 2 defines who is eligible for the credit. A person applying for the credit must be:

  • in a “couple relationship” (that is, they are married, in a civil union or in a de facto relationship) for the whole of the tax year;
  • both partners must be New Zealand tax-residents for the whole of the tax year; and
  • either they or their partner is the principal caregiver of a dependent child. A dependant child must be:
    • aged 18 years or under; and
    • part of the applicant’s family; and
    • financially dependent on the couple; and
    • not married, in a civil union or a de facto relationship; and
    • in school or tertiary education (if 18 years old).

If a couple is caring for a dependent child who is from a previous eligible relationship and there is a shared-care arrangement in place between the former partners, a former partner can still qualify as a principal caregiver if they have exclusive care of the child for at least one-third of the year (section MG 6). This is a simpler test than the one that applies to Working for Families tax credits which can apply the one-third test to four-month periods. If both former partners and their new partners meet the requirements of being in a couple relationship, are tax-resident and have at least one-third shared care of the dependent child, both new couples can apply for the tax credit. The tax credit will not be apportioned to reflect the percentage of time each former partner cares for the child. (See Example 2 later in this commentary.)


The requirements for the income-sharing tax credit are similar to the eligibility requirements for the Working for Families tax credit in that a person must be resident in New Zealand and caring for a dependent child. The key difference is that the person must be in a couple relationship for the whole of the tax year, as the income-sharing tax credit is based on the sharing between partners of income earned during the tax year. The residence test must also be met by both partners for the whole of the tax year, rather than just a portion of it. However, no residence test applies to the child.