The new top tax rate
A new top tax rate of 39% will apply on personal income in excess of $180,000 for the 2021-2022 and later tax years. For most taxpayers this begins on 1 April 2021.
We will monitor any taxpayers with this level of income as we may need to adjust your provisional tax payments throughout the year.
There are corresponding changes to other tax types to align with the 39% rate. These can be found in the table below.
|Impacted Area||Detail||New rate||From|
|Secondary tax codes||A new tax code (SA) for secondary employment earnings for an employee whose total PAYE income payments are more than $180,000.||39%||1 April 2021|
|Extra pays||For extra pays for employees with taxable income exceeding $180,000.||39%||1 April 2021|
|Fringe benefit tax (FBT)||A new top FBT rate will apply to all-inclusive pay exceeding $129,680.||63.93%||1 April 2021|
|Resident withholding tax (RWT)||The Bill introduces a new RWT rate that mirrors the new top personal rate.||39%||1 October 2021|
|Employer superannuation contribution tax (ESCT)||A new rate threshold will apply on superannuation contributions made for employees whose ESCT rate threshold amount exceeds $216,000. The ESCT rate threshold amount comprises an employee’s pay as well as gross employer contributions made in the preceding tax year. If the person was not an employee of the employer for the full preceding tax year, then it is an estimate of the employee’s pay and gross employer contributions for the tax year in which the contribution is made.||39%||2021-2022 and later income years|
|Retirement savings contribution tax (RSCT)||A new 39% rate will apply on RSCT where a saver’s taxable income in either of the two previous income years exceeded $180,000. Certain eligible contributing entities are required to deduct RSCT from contributions made to approved retirement schemes for their shareholders or members.||39%||1 April 2021|
|Māori authority distribution||The standard rate remains unchanged at 17.5%. A taxable Māori authority distribution that is more than $200 where the Māori authority does not have a record of the IRD number of the member to whom the distribution will be subject to tax at a rate of 39% (currently the existing top rate of 33%).||39%||1 April 2021|
Increased disclosure requirements for trusts
Trusts will be required to provide more information on their annual returns for the 2021-2022 income year onwards, including distributions and settlements made in the income year, profit and loss statements and balance sheets. This ensures Inland Revenue has a clear picture of how a trust is being used and whether usage changes as a result of the personal income tax rate change.
The commissioner can also request the information from trusts for prior years back to the 2013-2014 tax year as appropriate. This allows for comparable information to be gathered.
The increased disclosure requirements do not apply to nonactive trusts, charitable trusts and trusts eligible to be Maori authorities.
Minimum family tax credit
The annual rate minimum family tax credit (MFTC) threshold will increase from $27,768 to $29,432 for the 2020-2021 tax year and subsequent years which is a maximum of $32 per week extra. To get this payment customers must work for salary or wages and not be self-employed.
IRD began paying the higher rate in weekly or fortnightly payments from late December 2020 to customers who receive payments throughout the year. All MFTC customers will have any unpaid increase from 1 April 2020 included as part of their end of year square up. IRD will send a Notice of Assessment after the end of the tax year, around June/July 2021. That Notice of Assessment will indicate if the customer has an overall refund or bill once everything is taken into account.
The Small Business Cashflow Scheme changes
Applications will remain open until 31 December 2023.
The loan will now be interest free for 2 years (up from 1 year), and restrictions on how the loan can be used have eased. As well as spending on core operating costs, businesses will be able to choose to use the loan to invest into their business, helping it to adapt to the impact of COVID-19.
There are also changes to the eligibility criteria in the following 4 areas:
- When the business was established
- The decline in revenue test
- Employee number test
The changes will be in effect from 28 January 2021. Note that the change in the decline in revenue test will significantly change which businesses are eligible as the time period will no longer include the April 2020 lock down. For more information visit the IRD website at ird.govt.nz/updates/news-folder/upcoming-changes-to-the-eligibility-criteria-for-the-small-business-cashflow-scheme
Discounted tax for your first year in business
If you’re new to business, you may be eligible for a discount for paying your income tax early. This applies to sole traders, contractors and partnerships.
In your first year of business, you don’t have to pay income tax until months after the tax year ends – usually 7 February of the following year, or 7 April if you have a tax agent.
This may mean you must pay income tax for your first year in business at the same time as paying provisional tax for your second year in business. We always work with our clients to make sure if it is the right situation for them that provisional tax is paid in the first year of trading.
You can choose to maker voluntary payments of tax during your first year of business to help spread the cost. If you make voluntary payments you may be able to get an early payment discount.
Early payment discount
You may be able to get an early payment discount of 6.7% if you:
- are self employed or a partner in a partnership
- have started a new business
- get most of your income from the business
- make a voluntary income tax payment before the end of the income year
- elect to receive the discount before the income year’s tax return is due
- do not have to pay provisional tax in the income year, or in the past 4 years
- have not received an early payment discount, any self employed income, or any partnership income in the past 4 years.
Contact us if you think this may apply to you.