Bill aims to let couples split income and cut tax

Revenue Minister and United Future leader Peter Dunne will today release a Government bill to introduce income-splitting. Photo / Sarah Ivey

Legislation allowing parents to split their incomes for tax purposes will favour wealthy families with one working parent, but also provide an incentive for a parent to stay at home and look after the children, Government documents show.

Revenue Minister and United Future leader Peter Dunne will today release a Government bill to introduce income-splitting, which will go to a select committee for public scrutiny.

But it is uncertain if the bill will progress further, as Labour opposes it and Finance Minister Bill English has previously questioned its merits.

The legislation would allow families - defined as married, or couples in a civil union or de facto marriage - with children up to 18 years old to combine their incomes and split them evenly for income tax purposes.

At present incomes are taxed individually.

The benefits of income-splitting are greater the more the parents earn, and the greater the difference between their incomes.

A couple with only one working parent earning $140,000 a year could save $8800 in taxes by splitting them into two $70,000 incomes on a lower tax bracket (under the new tax brackets that come into force in October).

The Government agreed to support the bill to a select committee under its confidence and supply agreement with United Future.

Last month Mr English, when questioned at the finance and expenditure select committee, said income-splitting suited some groups but not others.

"It hasn't been part of our manifesto, and the reason for that has been that it's just not well targeted."

He declined to comment further yesterday.

Mr Dunne said if public support was strong enough, the Government would have little option but to support it into law.

"If any party wants to oppose it, they are saying that they don't favour families in New Zealand getting a fair deal. It's as simple as that.

"If you're running a family business, you can do this anyway right now. You just can't do this if you're running a family. That is the fundamental inequity."

Income-splitting would cost about $500 million year, assuming a 100 per cent take-up.

Labour has yet to form an official stance on income-splitting, but revenue spokesman Stuart Nash said the party was unlikely to support it and he agreed that it was not well targeted.

"It certainly doesn't help those most in need."

BRACKET DROP

What is income-splitting?

* A bill to introduce income-splitting will be released today by United Future leader Peter Dunne.
* Under the bill, families with children up to 18 years old can combine their incomes and split them evenly for tax purposes, potentially moving them into lower tax brackets.

Potential savings (using tax brackets that come into effect in October):

* One parent earning $140,000 and one parent not working: $8800
* One earning $50,000 and one earning $25,000: $250
* Parents earning the same: no savings

What now?

* Under its confidence and supply agreement with United Future, National will support the bill to select committee.
* Labour says income-splitting favours the wealthy and will do little to benefit those most in need.
* Finance Minister Bill English has previously said it is not well targeted.