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Inland Revenue

Tax Policy

Appendix 2 - Glossary of terms

Family credit income

Used for the purpose of a family’s eligibility to community services card, family credit income is the combination of family scheme income and the amount of working for families tax credits received by the family.

Unlocked PIEs

Portfolio investment entities (PIEs) are a form of collective investment vehicle such as superannuation schemes where a number of investors combine resources to make investments. PIEs have an optional set of tax rules that allows investors to be taxed, usually at their marginal tax rate, as if they had made the investment directly.

PIEs may be “locked in” when the rules for the investment prevent a person from removing their funds before retirement (other than in specific restricted cases such as serious financial hardship or first home deposits). In comparison, unlocked PIEs allow an investor to remove their funds at any time, or before retirement. Some PIEs, known as cash PIEs, can operate similar to term deposits or bank savings accounts.

All KiwiSaver funds that are PIEs are locked-in.

Beneficiary income

Income that vests absolutely in a beneficiary in the income year it is earned or income paid to a beneficiary in the income year or by the later of 6 months after the end of the income year or the date that the trust return is required to be filed. Beneficiary income is taxed to the individual at their marginal rate and is included as part of their taxable income. However, beneficiary income of minors is generally taxed as trustee income.

Economic income

One concept of economic income is that it is income available to an individual or family to use to maintain a standard of living or meet living expenses, and includes money, services and/or goods.

Excluded income

Income that is not subject to income tax because it has been taxed elsewhere. Defined in subpart CX of the Income Tax Act 2007. This includes fringe benefits, which are taxed when provided by the employer.

Exempt income

Income that is not subject to income tax as it has been taxed previously or elsewhere, or the government has decided not to collect tax from this source. Defined in subpart CW of the Income Tax Act 2007. Examples include child support payments received, income declared to be exempt under other Acts of Parliament such as accommodation supplement payments, or reimbursement of relocation expenses when someone is reimbursed by their employer for the costs of shifting to start or continue work.

Family income or family scheme income

Income available to a family to meet their living expenses and defined for the purpose of calculating entitlement for Working for Families tax credits in subpart MB of the Income Tax Act 2007.

Main income equalisation scheme

This scheme enables an eligible person to level out their income from year to year by making income equalisation deposits with the Commissioner of Inland Revenue and allowing an income tax deduction for the amounts deposited. Deposits are included in the person’s income when withdrawn. The persons eligible to use the scheme are those carrying on an agricultural, fishing or forestry business. The main income equalisation scheme is separate from the adverse event income equalisation scheme.

Parental income

Income of the parents of a student applying for Student Allowance, as defined in the Student Allowance Regulations 1998.

Taxable income

Taxable income, as defined in the Income Tax Act 2007, is a person’s net income for a year after deducting losses carried forward. Includes wages and salaries, interest, and dividends among others.

Trustee income

Income of a trust that is not beneficiary income. Trustee income is taxed at the trustee rate of 33%. It can be later distributed to beneficiaries tax-free and is not counted in the beneficiary’s taxable income.

Worldwide income

Income earned in New Zealand or elsewhere in the world. Currently a person applying for WFF and their spouse must declare their worldwide income if they are New Zealand tax residents.