NZ family hit with $4000 debt after tax reassessment shocks relocation plans
A New Zealand family now faces an unexpected debt of $4000 after moving to Australia in early 2021. Kenneth, who earned just under $84,000 that tax year, saw his income reassessed by Inland Revenue—leading to a demand for repayment of Working for Families credits. The case highlights how one-off payments and annualised income calculations can trigger financial setbacks for families relying on these subsidies.
Kenneth and his family relocated to Australia in January 2021, shortly after he received final holiday pay and back pay from his employer. Inland Revenue treated these lump sums as daily wages rather than one-off amounts. His total earnings for the 2021 tax year reached nearly $84,000, but the department 'annualised' his income, adjusting it to an estimated $110,000.
The Working for Families scheme applies an abatement threshold of $42,700, with a 27% reduction for every dollar earned above this limit. Because Kenneth's recalculated income exceeded the threshold, Inland Revenue determined he had received $4000 more in credits than entitled. His wife had used these payments to support their family while caring for their youngest child in Auckland.
Tax expert Terry Baucher notes that this approach stems from concerns about people leaving New Zealand early in a tax year and potentially paying less tax. The abatement rate, originally set at 20 cents per dollar, has not been updated since 2018. Meanwhile, data from the 2022 tax year shows that only 24% of households receiving Working for Families credits had their accounts fully reconciled by Inland Revenue.
Kenneth's case underscores the financial risks for families when income is reassessed after relocation or lump-sum payments. The repayment demand follows Inland Revenue's standard calculations, which treat one-off earnings as regular income. With the abatement threshold unchanged since 2018, similar situations could affect other households relying on these tax credits.
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