Early this month the Government introduced new legislation which shifts the top personal tax rate up to 39% on income over $180,000 (from 33%). This change is effective 1st April 2021.
The Bill also contains a number of other changes:
- A 39% Resident Withholding Tax (RWT) rate option added for individuals on interest income
- A new 39% non-declaration rate for taxable Maori Authority distributions, where a member has not provided an IRD number
- 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
- An Employer Superannuation Contribution Tax (ESCT) rate of 39% on superannuation contributions for employees whose ESCT rate threshold amount exceeds $216,000. (The ESCT rate for contributions in respect of past employees and contributions to defined benefit schemes will also be 39%)
- A 39% Residential Land Withholding Tax (RLWT) Rate (on residential land sales by offshore persons within the bright-line period), except where the vendor is a company
- Family tax credit changes, raising the minimum family tax credit to $566 per week for families who work full-time and do not otherwise receive a benefit
These changes all come into effect 1st April 2021, with the exception of the RWT rate change.
At this stage both the company and trust tax rates remain unchanged, at 28% and 33% respectively and there is no change to PIE tax rates for individual investors or to RWT on dividends.
What can we do to minimise the impact?
Whenever tax rate changes occur, it is a good opportunity to review your business and investment structure to consider whether there are any actions that should be taken in advance of the rate increase. In this situation, we may want to consider distributing retained earnings and associated imputation credits from companies prior to the rate change, and/or accelerating the payment of accrued bonuses or other salary entitlements. It is also prudent to review shareholder salaries to assess whether any market adjustments should be made.
Equally, it will be worthwhile to assess whether current and future investments are held in the most appropriate entity for your circumstances (e.g. PIEs or investment companies or trusts).
The Government in this instance however has acknowledged that these changes may trigger some restructuring activity ahead of the changes. While it’s often technically feasible to do some restructuring, the Government has also made clear that it will be monitoring this activity and may respond. Therefore any restructuring needs to be carefully considered, taking into account the reasons why it should be done – which as a rule of thumb shouldn’t solely be for tax purposes.
If you wish to discuss any of these potential changes, and consider your own position, please do not hesitate to contact one of the Directors to discuss further.