From 1 April 2021, a new personal tax rate of 39% will apply to income above $180,000.
As you might expect, a number of other employment related taxes have also been increased to align with the new tax rate. These include:
- A new tax code (SA) for secondary employment earnings for an employee whose total PAYE income payments are more than $180,000.A new Fringe Benefit Tax (FBT) rate of 63.93% for all-inclusive pay above $129,681 and the single rate and pooling of non-attributed fringe benefit calculations.
- A new top FBT rate will apply to all-inclusive pay exceeding $129,680.
- A new RWT rate that mirrors the new top personal rate.
- 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.
- 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.
- For Māori authority distributions, the standard rate remains unchanged at 17.5%, however 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%).
With the exception of the RWT rate on interest, all other changes apply from 1 April 2020.
There is no change to PIE tax rates for individual investors, nor to RWT on dividends. That being the case, if dividends push your income above the $180,000 threshold then you will need to top up the additional 6% tax due and it may affect your provisional tax for the following year.
The company and trust tax rates remain unchanged.
Next steps
Over the next few months, we will be undertaking a review of all our clients to manage the impact of the new tax rate. This includes a review of provisional tax and company retained earnings for any companies we look after. We will be in touch if these changes are likely to affect you.
The change in tax rates suddenly make Trust's look a whole lot more appealing again, however bear in mind the impact of the Trust Act 2019 which you can read all about here. It is also likely that the Inland Revenue will be closely watching Trusts very closely.
If you have questions about your situation, then give us a call. We'd love to chat.