In-work tax credit and ACC survivor spouse payments

(Clauses 59 and 65(1))

Summary of proposed amendment

This remedial amendment removes the requirement for a person to be receiving income from a work activity from the requirements of a full-time earner in section MD 9 of the Income Tax Act 2007. This amendment will clarify that a person who is receiving ACC payments as a surviving spouse or partner of a deceased claimant is entitled to receive the in-work tax credit if the deceased claimant would have qualified before the accident causing death.

Application date

The amendment will apply from 1 April 2008.

Key features

Section MA 7, which defines “a full-time earner”, is being amended to provide that a person receiving ACC weekly compensation as a surviving spouse or partner of a deceased claimant is treated as being employed, during the week in which compensation is paid, for the number of hours that the deceased claimant would have been employed previously but for their accident causing death.

Section MD 9, which contains the full-time earner requirements to qualify for an in-work tax credit, is being amended to remove the requirement for the full-time earner to be receiving income directly from a “work activity”. This will allow a surviving spouse to meet the requirements of the section if they derive income as set out in section MD 9(2), which includes ACC weekly compensation payments.

These changes are consistent with the intended policy outcome. The regulation on this issue was clearer before the Income Tax Act 2007, which is why the clarifying amendment applies from 1 April 2008, being the commencement date of that Act. A person receiving ACC weekly compensation, including a surviving spouse of a deceased claimant, should continue to receive the in-work tax credit the family previously qualified for, when the person or their spouse is no longer able to work due to incapacity.

Background

A person can receive weekly compensation as a surviving spouse or partner of a deceased claimant under clause 66 of schedule 1 of the Accident Compensation Act 2001. While there is a provision in section MA 7(2)(b) for a person who is incapacitated to be deemed to still be employed, it is not clear that it applies when a person is a surviving spouse.

Furthermore, the wording in section MD 9 requires a person to be receiving income from a work activity and deriving income or compensation as set out in section MD 9(2), (3) and (4). While an injured person receiving weekly compensation would meet this requirement, it is unclear that a surviving spouse would qualify as the weekly compensation they receive is not from their work activity but from the deceased spouse’s work activity.