NZ family hit with $4,000 debt after tax credit miscalculation
A New Zealand family is facing an unexpected debt of $4,000 after Inland Revenue recalculated their Working for Families tax credits. Kenneth, who moved to Australia in 2021, was told his earnings had been incorrectly assessed for the 2020-21 tax year. The issue highlights wider concerns about the accuracy of payments in the welfare system.
Kenneth worked in New Zealand until January 2021, earning just under $84,000 for the 2020-21 tax year. His wife relied on Working for Families credits to support their family while caring for their youngest child in Auckland. However, Inland Revenue later 'annualised' his income, treating it as if he had earned closer to $110,000 over a full year.
The problem stems from how one-off payments, such as final holiday pay and back pay, were handled. Instead of being recognised as lump sums, they were treated as daily wages, inflating Kenneth's assessed income. Tax expert Terry Baucher suggests this approach may be driven by concerns that people leaving early in a tax year could end up paying less tax.
The abatement threshold for Working for Families credits has remained at $42,700 since 2018. Above this level, entitlements are cut by 27 cents for every dollar earned. The abatement rate was originally set at 20 cents per dollar, but the increase has left some families worse off. In 2022, only 24% of households receiving weekly or fortnightly payments got the correct amount of credits.
No specific data exists on how many households paying monthly or biweekly received accurate payments after reconciliation. Kenneth's case is one of many where families have faced unexpected repayments due to the system's calculations.
Inland Revenue's demand for Kenneth to repay $4,000 comes after its recalculation of his income. The case raises questions about the fairness of the current abatement rules and the accuracy of Working for Families payments. Families relying on these credits may continue to face financial uncertainty until the system is reviewed.
