New 39% Personal Tax Rate For NZ’s Highest Income Earners
IMPORTANT: This post is specific to New Zealand. If you are not a New Zealand business/taxpayer then it is probably not applicable to you.
In December 2020, the NZ Government passed legislation to implement a new personal tax rate of 39% for those with personal incomes above $180,000. This new rate comes into effect from 1 April 2021 (the 2021-2022 income year).
What You Should Know
As with any changes in tax, there are knock-on effects that you should know about. These include:
- New Fringe Benefit Tax rate of 63.93% for all-inclusive pay of more than $129,681
- Employer Superannuation Contribution Tax rate of 39% on superannuation contributions for employees whose income from employment and from employer Kiwisaver contributions exceed $216,000 per annum.
- 39% Resident Withholding Tax rate for individuals on interest income
- 39% Residential Land Withholding Tax Rate on residential land sales by offshore persons within the bright-line period
- 39% non-declaration rate of taxable Māori authority distribution, where a member has not provided an IRD number
Meanwhile, there are no changes to PIE tax rates for individual investors or to Resident Withholding Tax on dividends.
Actions You Should Take
You should consider the following actions before 31 March 2021:
- Employment income is taxed at the date the cash is paid or credited to an account. Bonuses accrued at 31 March that are not usually paid until shortly after could be paid before 1 April and be taxed at 33% instead of 39%.
- Dividends could be paid before 1 April so the additional tax payable would just be 5% instead of 11% that will be in effect starting 1 April 2021.
- Review how motor vehicles are provided to high-earning staff and see if there’s scope to take vehicles off the balance sheet and minimise the Fringe Benefit Tax bill by paying a vehicle allowance instead.
Need guidance on these changes or help with your tax? Get in touch with us today and let our advisors help you navigate these upcoming changes.