FAQ’s on the Cost of Living Payment
Tax alert - June 2022
By Robyn Walker and Amy Sexton
Article updated 7 June 2022
The headline-grabbing announcement of Budget 2022 was a $350 “Cost of Living Payment” (CLP) targeted at an estimated 2.1 million low and middle-income earners who are not eligible for the Winter Energy Payment (WEP). The CLP is estimated to cost $814 million. Legislation was rushed under urgency through Parliament on Budget night to enable the Inland Revenue to use its existing tax administration powers to administer the scheme. The Government announced that the intention of the payment is to “help New Zealanders through the peak of the global inflation storm”.
Here are the answers to some Frequently Asked Questions:
When will the payments be made?
There will be three monthly instalment payments of $116 each (a total of $350). The first payment will be made on 1 August 2022 and the subsequent payments made on the first business day of the following two months (so 1 September 2022 and 3 October 2022). The payments are made at a flat rate and will not be paid for part of a month, if you are eligible during a month, you will get the full payment for that month.
What are the eligibility criteria?
These criteria are not set in legislation but are published by Inland Revenue. On 25 May 2022 the Inland Revenue published the following eligibility criteria:
- A net income of $70,000 or less in the period 1 April 2021 – 31 March 2022 (the 2022 income tax year);
- A finalised income tax assessment for the 2022 income tax year;
- Not receiving a qualifying benefit for the WEP* on the date eligibility is assessed;
- Aged 18 or over;
- Both a New Zealand tax resident and present in New Zealand; and
- Not in prison or deceased.
*Qualifying benefits for the WEP are: the sole parent support, supported living payment, jobseeker support, jobseeker support student hardship, emergency benefit, emergency maintenance allowance, youth payment, young parent payment, New Zealand superannuation and the veteran’s pension.
How will the Government know whether I earned under $70,000?
The income eligibility will be based on income recorded in a person’s 2022 income tax year finalised individual income tax assessment. To be a “finalised individual income tax assessment” one of the following must have occurred:
- A person has received their assessment from Inland Revenue; or
- A person has been asked by Inland Revenue to provide further information or to confirm details on their assessment, they have done so and this has been confirmed by Inland Revenue; or
- If a person is required to file an IR3 return, this has been filed and processed by Inland Revenue.
The Inland Revenue has advised that for most people income tax assessments will have been finalised before the first payment on 1 August 2022.
The individual income tax assessments (IITA) for the 2022 income tax year are expected to be automatically issued by Inland Revenue between 28 May 2022 and late July 2022 to individuals whose income* information is held by Inland Revenue. If you use myIR you are likely to receive your assessment electronically between 28 May and 4 June 2022. Individuals who receive an IITA will need to check the assessment and advise Inland Revenue if there is any missing or incorrect information, any income over $200 (before tax) is not recorded, changes to contact information, changes to bank account details and of any expenses that you may be eligible to claim against income.
For individuals who are required to file an IR3 return, returns for the 2022 income tax year are required to be filed by 7 July 2022 for most taxpayers (31 March 2023 for those with tax agents).
*This is “reportable income” and includes; salary or wages, portfolio investment entities (PIE) including KiwiSaver, NZ Superannuation, schedular payments, income-tested benefits, interest or dividends, taxable Māori authority distributions and benefits under an employment share scheme.
What if I haven’t filed my tax return before 1 August 2022?
The final payment approval date is 31 March 2023, which corresponds to the last date for tax agents to file IR3 returns for their clients. Inland Revenue will automatically check eligibility for the CLP for anyone who has filed their tax return by 31 March 2023 or had an IITA generated by this date.
Inland Revenue has estimated that approximately 25% of individuals will not have an IITA or IR3 return filed by August 2022. Any eligible taxpayers will receive a back payment after the tax assessment has been made.
What happens if I don’t currently file an IR3 return or receive an IITA?
A tax assessment is required in order to be eligible. If you have no net income but request an unnecessary nil assessment (a IR3 return or IITA containing no income from any source), Inland Revenue’s website state you will still not be eligible for the CLP.
This is an area where we suggested some further clarity was needed as it has been stated that the CLP has been designed so that there is no minimum level of income required before a person is eligible, however, the Supplementary Analysis Report also states that the Government decided individuals need an income assessment to be eligible.
This will not impact you if you’re required to file an assessment despite having no net income, such as if you are:
- A parent with no net income but are required to file a return or get an assessment for Working for Families purposes; or
- Self-employed and your allowable deductions reduce your net income to zero.
How is the $70,000 income cap measured?
The maximum income to be eligible for the CLP is $70,000 net income for the 2022 income tax year. For individuals who earn employment income, net income is normally the same as gross income, due to the limited expenses that can be claimed. For business owners, net income is gross income for the period, less business expenses for the period, but before any losses from earlier periods.
Does it matter if my partner earns over $70,000?
No. Eligibility is assessed on an individual basis.
My child is turning 18 in September 2022, will they be eligible?
Eligibility for each of the three payments will be assessed by Inland Revenue at the beginning of August, September and October. So if your child turns 18 in September 2022, they will not qualify for the August or September payment but will qualify for the October payment.
If I go overseas for a short holiday between August and October, will I still be eligible?
Inland Revenue advises that a person must be “both a New Zealand tax resident and present here” to be eligible, based on the information Inland Revenue holds, such as tax residency status, address, and bank account information. It’s unclear whether Inland Revenue will be working with New Zealand Customs to see who’s gone on holiday; by way of context, a short trip outside New Zealand does not forfeit eligibility for the WEP.
How do I make sure Inland Revenue knows my bank account number?
Inland Revenue has advised that they only hold bank accounts for 79.4% of potentially eligible people and other recipients of the CLP will need to update their bank account details. Bank account details can be checked and updated by logging into myIR. It may also be worthwhile confirming Inland Revenue has your correct date of birth details. To do this you will either need to send a secure web message in myIR or contact the Inland Revenue call centre.
Will I be taxed on the payment?
No, this is exempt income and also will not be included as income for other social assistance purposes.
How is this being administered?
The CLP is administered by Inland Revenue. Because of the verification checks required for each monthly payment, we should expect a drop in service levels from Inland Revenue in other parts of the tax system. Inland Revenue has estimated that 750 staff will be either hired or diverted from other duties to administer the payments.
What if I receive a payment and it turns out I was not eligible?
It is possible that Inland Revenue may determine eligibility from incorrect information, for example, an incorrect date of birth may record a person as 27 when they are actually 17. Inland Revenue has advised that they will only apply resources to identify such cases and recover payments when there has been fraudulent or wilfully misleading information provided.
It is unclear what happens if there is a death and a payment is subsequently made, however, as per above, if there has been no fraud or wilfully misleading information it is unlikely that Inland Revenue will apply resources to recover the payment.
Are there any other quirks to be aware of?
Before each monthly payment, Inland Revenue will recheck eligibility for the CLP, including whether or not an individual is receiving a qualifying benefit (and therefore receiving a WEP). Changes in circumstances, such as coming on or off a benefit will be taken into account during the August to October payment period.