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COVID19 Response Taxation and Other Regulatory Urgent Measures Bill

Ministerial welfare programme

COVID-19 NEW ZEALANDERS STRANDED OVERSEAS SUPPORT MINISTERIAL WELFARE PROGRAMME

(Clauses 4, 10, 13, 17 and 21–25)

Summary of proposed amendment

Amendments are proposed to the Income Tax Act 2007 and Tax Administration Act 1994 to ensure that payments made under the COVID-19 New Zealanders Stranded Overseas Support (NZSOS) Ministerial welfare programme in lieu of another payment normally payable under the Social Security Act 2018, New Zealand Superannuation and Retirement Income Act 2001, or Veteran’s Support Act 2014 are subject to the same tax treatment as those payments.

Proposed amendments to the Child Support Act 1991 would also ensure that when such payments are made and the person is a receiving carer for child support the usual child support rules would apply.

Application date

The proposed amendments would apply from 20 April 2020.

Key features

The proposals would amend the definitions of income-tested benefit, New Zealand superannuation and veteran’s pension in section YA 1 of the Income Tax Act 2007 to include the equivalent payments made under the COVID-19 NZSOS programme, by introducing new defined terms “main benefit equivalent assistance”, “New Zealand superannuation equivalent assistance”, “veteran’s pension equivalent assistance”, and “COVID-19 New Zealanders Stranded Overseas Support Programme”.

These proposals would ensure that:

  • individuals in receipt of these COVID-19 NZSOS payments are subject to the same income tax rules as if they had received their income-tested benefit, New Zealand superannuation or veteran’s pension directly
  • the Ministry of Social Development (MSD) is required to deduct and pay the relevant PAYE to Inland Revenue as is currently required with income-tested benefits, New Zealand superannuation and veteran’s pension
  • an individual’s entitlement to Working for Families tax credits is not impacted and MSD can continue to pay the family tax credit and Best Start credit to COVID-19 NZSOS recipients who would otherwise be eligible; and
  • student loan repayment obligations remain the same.

Other payments made under the COVID-19 NZSOS programme are made in lieu of payments and benefits that are exempt from tax. These will remain exempt from tax under section CW 33 of the Income Tax Act 2007.

While orphan’s benefit and unsupported child’s benefit remain exempt from income tax, the proposals would add definitions of these terms to section YA 1 to ensure that their equivalent COVID-19 NZSOS payments are appropriately considered for Working for Families purposes.

The proposed amendments to the Child Support Act 1991 would ensure that:

  • child support payments made to receiving carers who receive NZSOS payments equivalent to the sole parent rate of benefit or the unsupported child’s benefit, would continue to be retained to offset the cost of that benefit to the Crown; and
  • the correct living allowance is applied to those receiving the equivalent of a supported living payment.

Background

On 17 April 2020, the Minister for Social Development made a Ministerial welfare programme under section 101 of the Social Security Act 2018 for beneficiaries and superannuitants stranded overseas as a result of COVID-19 (COVID-19 NZSOS programme).[2] Payments under the COVID-19 NZSOS programme began on 20 April 2020.

The COVID-19 NZSOS programme allows the Ministry of Social Development to make payments to individuals who cannot otherwise receive their standard payment because they are stranded overseas as a consequence of COVID-19. These payments are equivalent to what the individual would otherwise receive had they been able to return to New Zealand and the intention is that there should be no difference for the recipient in terms of the tax treatment and associated obligations.

The COVID-19 NZSOS programme covers the following payments:

  • main benefits payable under the Social Security Act 2018;
  • orphan’s benefit and unsupported child’s benefit payable under the Social Security Act 2018
  • New Zealand superannuation payable under the New Zealand Superannuation and Retirement Income Act 2001
  • veteran’s pension payable under the Veteran’s Support Act 2014; and
  • supplementary assistance.[3]

Under section CF 1 of the Income Tax Act 2007, income-tested benefits (defined term that covers the same payments as the term main benefit), New Zealand superannuation and veteran’s pension are currently subject to income tax. All other monetary benefits payable under the Social Security Act 2018 (excluding income-tested benefits) are exempt from income tax under section CW 33.

Detailed analysis

The intent of the proposals is to ensure that an individual in receipt of a COVID-19 NZSOS payment is subject to the same tax treatment, Working for Families entitlements, and student loan and child support obligations that apply for their normal benefit, pension or supplementary assistance payment.

Changes to definitions

The Bill proposes to add several new defined terms to section YA 1 of the Income Tax Act 2007 and would amend existing definitions to achieve this.

The proposed new defined term “COVID-19 New Zealanders Stranded Overseas Support Programme” in section YA 1 is a reference to the COVID-19 NZSOS programme made under section 101 of the Social Security Act 2018 and forms the basis of the proposed new defined terms:

  • main benefit equivalent assistance
  • New Zealand superannuation equivalent assistance
  • veteran’s pension equivalent assistance
  • orphan’s benefit equivalent assistance; and
  • unsupported child’s benefit equivalent assistance.

These proposed new definitions refer to the specific clauses in the COVID-19 NZSOS programme under which the relevant equivalent payments are made:

  • payments equivalent to veteran’s pension and New Zealand superannuation are provided for in clause 10 of the programme
  • payments equivalent main benefits/income-tested benefits are in clause 11; and
  • payments equivalent to supplementary assistance (including orphan’s benefit and unsupported child’s benefit) are in clause 12.

As some individuals may have already lost their entitlement to their benefit or pension prior to 20 April 2020, clause 9 of the COVID-19 NZSOS programme enables MSD to make a lump-sum payment to the individual for this period.

The proposed new equivalent assistance definitions therefore refer to both clause 9 and either clause 10, 11 or 12.

The Bill proposes to amend the definition of income-tested benefit to include main benefit equivalent assistance, the definition of New Zealand superannuation to include New Zealand superannuation equivalent assistance, and the definition of veteran’s pension.

Orphan’s benefit and unsupported child’s benefit are currently undefined terms but appear in section MD 6, the definition of dependent child in section YA 1 and in section 80KK of the Tax Administration Act 1994. The Bill proposes to remove these in-text section references and insert new definitions of orphan’s benefit and unsupported child’s benefit, which would include orphan’s benefit equivalent assistance and unsupported child’s benefit assistance, respectively.

An amendment to the definition of financially independent in section YA 1 is proposed to ensure all payments made under the COVID-19 NZSOS programme are covered.

Impact of definitional changes and other changes

One result of these proposed definitional changes would be that main benefit equivalent assistance, New Zealand superannuation equivalent assistance, and veteran’s pension equivalent assistance are taxed as income under section CF 1(1) and are subject to the PAYE rules under section RD 5(6). This means that when MSD makes a COVID-19 NZSOS payment that is paid instead of an income-tested benefit, New Zealand superannuation or veteran’s pension, they are required to account for PAYE on the payment as they normally would with a pension or benefit.

Monetary benefits payable under the Social Security Act 2018 are exempt income under section CW 33(1), including amounts payable under a section 101 Ministerial welfare programme. There is an existing exclusion for income-tested benefits, which would include the proposed new main benefit equivalent assistance. The Bill proposes two additional exclusions to cover New Zealand superannuation equivalent assistance and veteran’s pension assistance. This would ensure that these payments would be taxable under section CF 1.

This would mean that for an individual normally in receipt of a benefit or pension, there would be no difference in treatment when they receive a COVID-19 NZSOS payment instead.

For the purposes of the Working for Families rules, the term “social assistance payment” is defined in section MA 8 as meaning income-tested benefits, New Zealand superannuation and veteran’s pension. Through the proposed amendments to these three definitions, an individual in receipt of the equivalent payments under the COVID-19 NZSOS programme would be entitled to the same Working for Families tax credits as if they had received their normal benefit or pension instead.

As the definitions used in the Income Tax Act 2007 flow through into the Tax Administration Act 1994, MSD would be able to continue paying the Best Start and family tax credits to eligible individuals.

As the Student Loan Scheme Act 2011 also uses the definitions from the Income Tax Act 2007, the amendments would ensure there is no difference in student loan obligations.

The proposed changes to the Child Support Act 1991 would ensure that when MSD makes a COVID-19 NZSOS payment that is paid to a sole parent beneficiary or recipient of an unsupported child’s benefit, the child support rules apply as they would normally.

Specifically, the proposed amendments would ensure that:

  • Child support payments made to receiving carers who receive NZSOS payments equivalent to the sole parent rate of benefit or the unsupported child’s benefit, would continue to be retained to offset the cost of that benefit to the Crown.
  • Recipients of NZSOS payments that are equivalent to a supported living payment would continue to receive the higher rate of living allowance.
  • Recipient of NZSOS payments equivalent to a unsupported child’s benefit would still be required to apply for child support only for the child(ren) for whom they receive the unsupported child’s benefit, unless they receive any other social security benefit.
  • Recipients of NZSOS payments equivalent to benefits paid at sole parent rate or unsupported child’s benefit would not be able withdraw from child support.
  • Child support payments for child(ren) for whom an unsupported child’s benefit is paid would continue to be distributed separately to child support payments made for any other children for whom the carer receives a social security benefit.
 

2 The Ministerial welfare programme is available at https://www.msd.govt.nz/documents/about-msd-and-our-work/about-msd/legislation/notice-of-change/2020/new-zealanders-stranded-overseas-programme.pdf

3 Defined in clause 2 of the COVID-19 NZSOS programme as:
(a) Accommodation Supplement;
(b) Child Disability Allowance;
(c) Disability Allowance;
(d) Orphan’s Benefit;
(e) Special Benefit;
(f) Special Disability Allowance;
(g) Temporary Additional Support;
(h) Unsupported Child’s Benefit;
(i) Winter Energy Payment; and
Temporary Accommodation Assistance, Transitional Assistance Payment and Transitional Subsidy paid under the Ministerial Welfare Programme of those names