Changes to Tax Legislation: 39% tax rate introduced
New top tax rate of 39%
A new top personal tax rate of 39% on annual income exceeding $180,000 has been introduced and will apply from 1 April 2021. This new tax rate is for individual income; if a couple earns more than $180,000 annually but individually earns less than that amount, then there is no change to their tax rate.
New top fringe benefit tax (FBT) rate of 63.93%
To account for the proposed top personal tax rate of 39%, a FBT rate of 63.93% will be introduced from 1 April 2021. The existing FBT rates remain for anyone earning less than $180,000.
Introduction of a new 39% rate for:
- Employer’s superannuation contribution tax (ESCT)
- Residential land withholding tax (RLWT)
- Retirement savings contribution tax (RSCT)
- The taxable Māori authority distributions non-declaration rate
These amendments apply from the start of the 2021/2022 tax year.
New resident withholding tax (RWT) of 39%
This 39% RWT rate applies to individuals who receive interest income and are expected to earn more than $180k annually; this RWT rate will apply from 1 October 2021. There are no proposed changes to the RWT rate for dividends and it remains at 33%.
New information-gathering power for the Commissioner
Currently, the Commissioner of Inland Revenue has the ability to request information where required under the Inland Revenues Act or for any other function granted by the Commissioner; this is found in section 17B of the Tax Administration Act 1994.
This power has been extended, and will allow the Commissioner to request information from taxpayers solely for the development of policy to improve or reform the tax system.
Significant increased disclosure by trustees to IRD
More information is to be provided by trustees to IRD in the annual Trust tax return, including financial information for the trust and information on settlements and distributions (including capital distributions) relating to the trust.
This increased disclosure is aimed to support the Commissioner’s ability to assess compliance with the new 39% personal income tax rate, and assist the Commissioner in understanding and monitoring the use of structures and entities by trustees.
This applies for trust tax returns filed for 2021/2022 year onwards, however the Commissioner also now has power to request the same information from trustees in relation to the prior seven years.
The increased disclosure requirements will not apply to the following types of trusts:
- Non-active trusts that are not required to file pursuant to section 43B of the Tax Administration Act 1994
- Charitable trusts incorporated under the Charitable Trusts Act 1957
- Trusts eligible to be a Māori authority, or
- Resident trustees of foreign trusts.
If you are unsure as to whether these legislation changes affect you, or you would like to discuss the finer details around topics within this article, please contact your PKF team member on 03 474 0475.