The saying that “the only constant in life is change” is particularly due when it comes to tax. Tax legislation is constantly changing, and depending on your perspective, it could be either good or bad. But either way, it will impact on you as a business owner.

There’s been some changes to tax legislation and we have summarised the most important changes which could impact on you.

  1. New top personal income tax rate of 39%
  2. Increase disclosure requirements for trusts
  3. Changes to the Small Business Cashflow Scheme

 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 be contacting those clients affect by this change to discuss your options in the coming months.

It’s also worthwhile to consider topping up your provisional tax payments throughout 2021 to account for the larger year-end tax bill. Alternatively, we can assist you to purchase tax from Tax Management New Zealand if you happen to miss a payment.

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

Applicable 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

 

Increased Disclosure Requirements for Trusts 
In addition to the introduction of the new Trusts Act 2019, which will come into force on 30 January 2021, Inland Revenue will require trusts to provide more information on their annual returns for the 2021-2022 income year onwards, including:

  • Distributions and settlements made in the income year; and
  • Profit and loss statements and balance sheets.

This ensures Inland Revenue has a clear picture of how a trust is being used and whether the usage changes as a result of the personal income tax rate change to avoid paying tax, given that the trustee income tax rate remains at 33% (as opposed to the top marginal tax rate of 39%)

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 non-active trusts, charitable trusts and trusts eligible to be Māori authorities. What this essentially means is that Inland Revenue will pay closer attention to your family trusts to see if you’ve been paying the right amount of tax.

 

The Small Business Cashflow Scheme Changes

 
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 in 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:

  1. When the business was established
  2. The decline in revenue test
  3. Employee number test
  4. Re-borrowing

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.

There are a few more details and if you want to see the full changes, please visit Inland Revenue’s website here. (ird.govt.nz/updates/news-folder/upcoming-changes-to-the-eligibility-criteria-for-the-small-business-cashflow-scheme)

Applications for the scheme will remain open until 31 December 2023.

 

Lastly, we are here to help. If you have any questions regarding the changes or need to have a chat about your tax affairs, please do not hesitate to contact us at info@jzr.co.nz, or call 09-9722236.

Written by Gordon Tian

Tax

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