A family whose company was making more than $700,000 a year used loopholes in the Working for Families tax credit system to claim $12,000 in government payouts.
Revenue Minister Peter Dunne revealed details yesterday of the lengths some well-off people went to to get the tax credits after he announced the Government was looking to tighten up access to the entitlement.
Mr Dunne said one family, whose trust-owned company made more than $700,000 a year in taxable income, were able to claim $12,000 a year in Working for Families tax credits.
In another case, investments were listed under children's names. While the parents were shown to earn $36,000 annually, and therefore qualified for $13,000 in tax credits, their children had a combined investment income of nearly $90,000 a year.
"Another family's children earned over $150,000 a year in investment income, yet that family was still able to claim more than $4000 in Working for Families tax credits," Mr Dunne told Parliament.
Under proposed new rules the definition of income for Working for Families, student allowances and Community Services Cards would be broadened and loopholes around loss-attributing qualifying companies, or LAQCs, closed to prevent people claiming losses against their personal income.
The changes were expected to save $32 million a year in Working for Families payouts alone.
Finance Minister Bill English said it would prevent well-off people from restructuring their affairs for tax purposes. "Sheltering income to inflate Working for Families or student allowance payments is unfair to people in genuine need and to the taxpaying public which foots the bill for these assistance programmes."
Mr Dunne said the definition of income would now include that from family trusts, from a spouse living overseas and from a cash PIE [portfolio investment entities] that was not locked in.
Changes to LAQCs would ensure people could not claim a tax deduction at a higher rate than they paid on profits.
Labour leader Phil Goff said he supported any changes that would prevent people rorting the Working for Families scheme, but he wanted to see more detail. "It's important to clamp down on those who may be abusing the system."
Changes to the Working For Families and Community Service Card income requirements would be effective from April 1.
- © Fairfax NZ News
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