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Inland Revenue

Tax Policy

Remedial amendment to tax exemption


(Matter raised by officials)

Section CW 55BB of the Income Tax Act 2007 should be amended so that the limited tax exemption for children effectively covers children’s income that is not taxed at source.


As part of Budget 2012, a limited tax exemption for children replaced an out-dated tax credit for the active income of children. Section CW 55BB exempts up to $2,340 of income earned by a school child from tax if the income is not taxed at source.

Income from casual domestic work that is not taxed at source may not be exempt. This is because such income is covered by the PAYE income payment definition that is used in current section CW 55BB to identify income that is not tax-exempt. It means that a child who earns income from their casual domestic work (such as babysitting or mowing lawns) does not get the benefit of the exemption. This is inconsistent with the policy of introducing the limited tax exemption.

To correct this error, section CW 55BB should be amended to refer to an amount for which there is a withholding requirement by the payer under the PAYE rules. This would ensure that a child’s casual domestic work is covered by the limited exemption.

The proposed change should apply from the 2012–13 tax year, which is the date when the limited tax exemption came into force.


That the submission be accepted.