KEY POINTS:
These days, they will tax anything - even a mother's love.
While most of us are waiting to hear about tax cuts, one group of New Zealanders are struggling with the implications of having attracted the unwelcome attentions of the tax man.
They are the people who take
care of injured family members, often permanently disabled, at home. Some 14,000 people are in this category.
Eve Wharepapa is such a caregiver. She looks after her 15-year-old son, who was badly hurt through medical misadventure when he was a toddler.
ACC pays the caregivers, either directly or via the claimant.
But it doesn't pay them much.
Even after a 22.5 per cent increase announced this month, they are paid either $13.82 or $16.59 an hour. That compares with the statutory minimum wage of $12 and the average wage of $22.
From ACC's point of view, it is a bargain.
If the claimant's care is contracted to a commercial agency, as it is for another 15,000 people, it costs ACC $10 to $11 an hour more.
Modest as it may be this is, in the eyes of the Inland Revenue, taxable income and always has been.
It wants its pound of flesh and a law change in last year's tax bill is designed to ensure it gets it.
But for some caregivers at least, it is liable to end up being two pounds of flesh. From July 1, ACC will deduct a 15 per cent withholding tax from these payments.
For many caregivers, that will be too low a rate. It would leave them with an income tax bill to pay at the end of the year.
And if that is above $2500, they will have to make provisional tax payments the following year.
To avoid that, they would need to apply for a special (higher) withholding tax rate.
Fair enough, you might think. We all have to pay income tax. Mrs Wharepapa certainly accepts that.
And it is a well known feature of the tax system that pay increases like the one ACC has just announced can be significantly clawed back by reducing entitlements to family support tax credits under the Working for Families scheme.
But there is another twist of the knife for Mrs Wharepapa and other caregivers in her position.
They will be treated as self-employed independent contractors by the tax system.
They are regarded as having gone into business, the attendant care business, and if they earn more than $40,000 from "selling" those services they will have to account for goods and services tax. Even at the rates ACC pays, a seven-day-a-week commitment can push a caregiver over the $40,000 threshold.
But they are not in the same position as a self-employed plumber, say, who can charge what the market will bear and slap GST on top.
Their "customer" is a monopoly which dictates what it will pay. How do they recover GST from it?
If they cannot, it is simply a tax which takes another ninth of their income.
On top of all of that, and ironically in the circumstances, they become liable for ACC levies.
Mrs Wharepapa reckons that in her case the combined effect of income tax, GST, reduced family tax credits and ACC levies will eat up 42 per cent of what ACC pays her, and out of what is left she will have to pay an accountant.
At least she thinks it will. One of the maddening things about this, she says, is the inability to get straight and consistent answers out of the two agencies involved, ACC and IRD.
ACC says caregivers have a way out of this mess. They can become employees of one of the 70 or so agencies which provide attendant care.
The agency will pay them to do what they are already doing. It will deduct income tax in the normal PAYE way and there would be no need to register for GST.
But from the point of view of the ACC, this is a more expensive way of doing things and it admits it is not always going to be a practical option.
Mrs Wharepapa wonders why caregivers in her position cannot simply be employees of ACC itself.
ACC chairman Ross Wilson says that option is not under consideration.
It is clearly not an employment relationship, he says. Never has been.
"We are concerned to ensure that people who have made the choice to to take care of one of their own family members are able to continue to do that."
The ACC board did not regard making caregivers become employees of an agency provider as a satisfactory option, he said.
"The intention is to ensure that no one is worse off. We have had to make representations to that effect and there are issues which are still to be resolved," he said.
He would not elaborate.
ACC Minister Maryan Street, when asked about the matter in the House last week by Maori MP Tariana Turia, said the previous tax situation was inequitable and uncertain.
This administrative change would ensure all carers were treated equally, while at the same time making it easier for them to fulfil their tax obligations.
"Informal carers have always been obliged to, as is everyone, to pay tax on their income. However, at the same time, this Government has seen fit - quite separately - to increase the rate of pay to carers," she said.
Revenue Minister Peter Dunne said: "Whatever the status of these people, they are income earners and have to meet their tax obligations. There was a strong sense that for a variety of reasons that wasn't happening."
It had not been clear what the arrangements were.
"Some people haven't paid any tax whatsoever. Others thought someone else was paying the tax. So we have have sought to clarify that," he said.
"If there are anomalies that need further discussion with Inland Revenue, [we're] happy to look at those."
The underlying problem is of course that the rates of pay are just too low. As a society, we undervalue this work and a lot of other quasi-voluntary work like it.
ACC, for all its $4 billion revenues, is happy to pocket an effective subsidy from family caregivers.
And if National gets in and privatises the scheme that is unlikely to improve.
I recall hearing Sir Owen Woodhouse, the architect of ACC nearly 40 years ago, address a conference in 1999.
The kind of social responsibilities embodied in the scheme should not be brushed aside by economic dogma, he said. They depended in the end on "decent fellow feeling".
It may have been the only time that phrase was uttered in New Zealand in the 1990s.
It hung in the air, a rebuke from a more civilised time.
