Parents' income - Student Allowance definition from 1 January 2012
The Student Allowance definition for parents' income. This is any income your parents receive for the tax year you started studying in. Including any income that your parents may have directly or indirectly deprived themselves of. This could be money from:
On this page:
Work and Income Benefit
Any taxable income from a main benefit that you receive from Work and Income.
Wages or salary
Wages or salary includes paid parental leave, weekly accident insurance payments and overseas wages and salaries (whether taxable or not).
Business income
Business income is any income that is received as a result of business activity. It is income earned from goods and services you sell, less the business expenses.
The gross amount of any business income is parental income for Student Allowance purposes.
For income tax purposes, an individual may offset their business losses against their other taxable income. But, for Student Allowance parental income purposes, where a business loss occurs, it is ignored and therefore cannot be offset against other forms of income.
Shareholders drawings may be included as parental income. In particular, if they meet the definition of 'Other payments where the total exceeds $5000 a year' and are not already included in another category of parental income.
Dividends
Dividends are part of a company's profits that it passes on to its shareholders.
Company profits are paid to shareholders according to the proportion of the company they own.
Income from boarders
Parental income includes income received from boarders.
For Student Allowance parental income purposes the amount to be included is the taxable income figure and will depend on the amount of costs the parent(s) incur and the amount of boarding payments the parent(s) receive.
For assistance to work out the taxable income go to Inland Revenue's website www.ird.govt.nz.
View Business income for the parental income definition for rent.
Tax exempt income
This includes salary and wages that are exempt from income tax under specific international agreements in New Zealand.
It includes employees of international organisations such as the United Nations or the Organisation for Economic Co-operation and Development (OECD), or under the Diplomatic Privileges and Immunities Act 1968, who reside in New Zealand.
It also includes salary and wages a parent receives in countries that do not impose personal income tax (for example the United Arab Emirates).
Pensions and Annuities
There are four different types of pensions and annuities that are included as parental income:
- Overseas pensions that are exempt from New Zealand Tax. The amount included as parental income is the full amount received.
- Distributions from superannuation schemes that relate to contributions made by a person's employer within the last two years, when the person has not retired. The amount included as parental income is the amount of the employer contributions received. The amount received is divided by the amount of years that the contributions were made and allocated to those years.
- Distributions from a retirement savings scheme when the person has retired early. The amount assessable is the full amount received.
- Income from a life insurance policy and private superannuation fund. Any payment received in the form of a pension from a private superannuation fund or a pension/annuity under a life insurance policy will have half of the amount of the payments received included as parental income.
Note: NZ superannuation is not a private superannuation scheme and therefore all of the income received from NZ super is included as parental income.
Attributable trustee income
Attributable trustee income is all income for the year of a trust that hasn't been distributed as beneficiary income.
Attributable Trustee Income includes the net income from trading and investment activities of a trust and the net income of a company controlled by the trust.
Trustee income will be attributed only to settlors of a trust unless:
- the trustee of the parent's trust is registered as a charitable entity under the Charities Act 2005
- the parent's trust is solely for the benefit of a local authority
- the interest and dividends derived is for funeral costs
- the trust is a superannuation fund
- the parent is not permitted to benefit from the trust except under an order of a court.
Common terms for trust income:
Settlor- the person (or persons) who settles the trust, appoints the trustees and names the beneficiaries. It also includes anyone who transfers assets, income or money to the trust. For the full definition of "settlor" please refer to sections HC 27 and HC 28 of the Income Tax Act 2007.
Beneficiary- A beneficiary of the trust is a person for whom a trust was created, and who receives the benefits of that trust.
Trustee- An individual or organisation appointed to administer the assets and income of the trust for the benefit of the beneficiaries.
Property -Something which is capable of being owned i.e such as land or shares.
Attributable fringe benefits
Employee benefits also called fringe benefits or perks are various non-wage compensations provided to employees in addition to their normal wages or salaries.
For fringe benefits to be taken into account parents are required to hold voting interest of 50% or more in a company.
Some attributed benefits are:
- motor vehicles, other than pooled vehicles,
- low-interest loans, other than those provided by life insurance companies,
- where the parent hold a voting interest of 50% or more in public transport business (bus company) and received subsidised transport of $1,000 or more per year,
- where the parent's employer contributes to an insurance scheme, namely any life insurance, pension insurance or personal accident or sickness insurance policy or insurance fund of a friendly society, if the annual taxable value of all contributions is $1,000,
- where the parent's employer has contributed $1,000 or more to any superannuation scheme where the employer superannuation contribution tax (ESCT) does not apply,
- where the employer contributions to a sick, accident or death fund, if the annual taxable value of all contributions is $1,000 or more,
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benefits of any other kind (for example, gifts, prizes, subsidised or discounted goods and services) if the annual taxable value of all these benefits is $2,000 or more.
For more information on Attributable Fringe Benefits please visit the Inland Revenue website www.ird.govt.nz
Portfolio Investment Entity (PIE) Income
A portfolio investment entity (PIE) is a type of entity, such as a managed fund that invests the contributions from investors in different types of investments.
Income includes an amount of income attributed by a portfolio investment entity (PIE) to the principal caregiver or their spouse or partner, except if the PIE is a superannuation fund or a retirement savings scheme (eg KiwiSaver).
Income equalisation scheme deposits
The income equalisation scheme allows farmers, fishers and foresters who are eligible taxpayers to deposit income into an agricultural, fishing or forestry business income equalisation scheme account at Inland Revenue. Income equalisation scheme deposits excludes 'adverse events' deposits.
Income includes any deposits made by:
- the parent
- a company controlled by parent or
- the parent's trust
Income held in a closely held company
Close company is defined to mean a company where at any time there are 5 or fewer natural persons whose voting interests in the company is more than 50%.
Income attributed to major shareholders in a close company should be included as Parental income.
Other payments that exceed $5,000 a year
These are payments from any other person or entities that are used for the family's day-to-day living expenses.
- If the total amount is more than $5,000 for the tax year, then the total amount must be included as family income.
- If the total amount for the year is less than or equal to $5,000 it does not need to be included.
A payment is considered to be used to meet day-to-day living expenses if it is:
- replacing lost or reduced income, or
- used to pay regular liabilities, or
- used to meet the family's usual living expenses.
Note: This can also include shareholders drawings, soft loans or money paid directly by another person on behalf of the principal caregiver, or their family members, for regular expenses.
Example
Sam's parents have a combined income of $80,000 a year. Sam's parents get $100 a week from Sam's uncle to help with their mortgage payments. The total amount they receive in a year is $5,200. As this amount is over $5,000 it needs to be declared as parental income.
