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Inland Revenue

Tax Policy

Definition of "income" for child support purposes

(Clause 11)

Summary of proposed amendment

The bill makes changes to the definition of “income” for child support purposes. These changes will closely align the definition with the definition of “family scheme income” for Working for Families purposes.

Application date

The amendment will apply from 1 April 2014.

Key features

At present, only a person’s taxable income is taken into account when determining “income” for child support formula purposes.

Clause 11 introduces new section 33, which defines “adjusted taxable income” for the purposes of the child support formula. The bill replicates the definition of “family scheme income” in section MA 8 of the Income Tax Act 2007, except for certain types of income that are not relevant in the child support context.

The net effect is that, in addition to taxable income, the following will be included as “income” for child support purposes:

  • business and other losses that have been offset against taxable income;
  • income from a trust and companies owned by trusts where the parent is the settlor;
  • overseas pensions that are exempt from New Zealand tax;
  • distributions from superannuation schemes that relate to contributions made by a person’s employer within the last two years, when the person has retired early;
  • income kept in a closely held company;
  • fringe benefits received by shareholder-employees who control the company;
  • PIE income that is not “locked in”;
  • tax-exempt salaries and wages;
  • 50 percent of the value of private pensions/superannuation payments/annuities;
  • main income equalisation scheme deposits; and
  • other payments if the total exceeds $5,000 a year (this captures, for example, income received from a trust where the parent is not the settlor).


Changes were signalled by the Government in 2010 relating to the way that “income” should be defined for the purposes of Working for Families tax credits and other social policy programmes. For example, from 1 April 2011, losses, including losses from rental properties, are added back so that these losses cannot be used to reduce income when assessing eligibility for Working for Families Tax Credits. Changes were also made to ensure that certain trustee income is counted as part of a family’s total income.

Such rules were implemented to counter families structuring their affairs to inflate entitlements to social assistance (or reduce their liabilities). Adopting these rules for the child support scheme will also help to maintain the scheme’s integrity and ensure parents are assessed on their true financial capacity to pay.