Foster care allowances and family scheme income “other payments” category

(Clause 62)

Summary of proposed amendment

The bill amends the “other payments” category in the definition of “family scheme income” so that foster care allowances made under the Children, Young Persons and Their Families Act 1989 are excluded from family scheme income. This definition of income is used for Working for Families (WFF) tax credits and some community services card purposes, and will be used for the parental income test for student allowance purposes from next year.

Application date

The amendment will apply from 1 April 2011.

Key features

Foster care allowances made under the Children, Young Persons and Their Families Act 1989 will be excluded from the “other payments” category in the family scheme income definition. Excluding foster care allowances from family scheme income is consistent with the treatment of orphans and unsupported child benefits, and reflects current policy.

Background

Caregivers who receive orphans and unsupported child benefits and foster care allowances are not entitled to claim the family tax credit relating to the child for whom the benefit is received, but are eligible for the in-work tax credit relating to that child. Both benefits and allowances are exempt from income tax.

Foster care allowances from Child, Youth and Family help to reimburse caregivers for the day-to-day costs of fostering a child. These allowances are intended to cover the costs of board, personal items such as clothes and pocket money. The amounts vary according to the child’s age and specific special needs. Foster care allowances are made under the Children, Young Persons and Their Families Act 1989 and fall under the “other payments” definition, as a payment to the caregiver used to meet usual family living expenses.

In contrast, orphans and unsupported child benefits from Work and Income, which are similar to the foster care allowances, are specifically excluded from the “other payments” category, as these payments are made under the Social Security Act 1964.