On 1 December 2020, the government introduced the Taxation (Income Tax Rate and Other Amendments) Bill (2-1) into Parliament. The policy proposals in the Bill are aimed at implementing the commitment in the New Zealand Labour Party’s manifesto for the 2020 general election to introduce a new top personal income tax rate of 39% on annual income that exceeds $180,000.
The proposed new top personal income tax rate of 39% will apply for the 2021–22 and later income years. For most taxpayers, the 2021–22 income year starts on 1 April 2021.
It is also proposed to amend several tax rules to incorporate the proposed new top 39% personal income tax rate, including:
- PAYE rules
- fringe benefit tax (FBT)
- resident withholding tax (RWT) on interest
- employer’s superannuation contribution tax (ESCT)
- residential land withholding tax (RLWT)
- retirement savings contribution tax (RSCT), and
- the taxable Maori authority distributions non-declaration rate.
The consequential changes to the PAYE rules, FBT, ESCT, RLWT, RSCT, and the taxable Māori authority distributions non-declaration rate will apply from 1 April 2021. An exception is the new proposed RWT rate on interest which will apply from 1 October 2021 to ensure that interest payers are able to implement the required systems changes.
Although not included in current legislation, the Government has also indicated a potential move of the Trust tax rate to 39% to align with the top tax rate.
For the majority of New Zealand’s salary and wage earners this will make little difference. However, if you earn more than $180,000 personally and/or own a business that has retained earnings this will impact you. For the unwary who do not get ahead of the 1 April 2021 changes, an extra 6% tax on dividends/distributions may arise.
You are not alone, PKF can help to mitigate the impact of this tax rate change. If you feel the rate change will impact you, we strongly suggest:
- We undertake a thorough review of the company ownership structure and financial position.
- We formulate a dividend/distribution plan to minimise any tax imposition.
- We provide a timeline of dividend/distribution dates and tax payments prior to the 1 April 2021 change.
The PKF team are here to help. Call us on the office numbers or get in touch by email.