Are you concerned about the increase in tax rates to 39%?
From 1 April this year, New Zealand’s top tax rate will increase to 39%. That doesn’t necessarily mean you’ll pay the top rate, it only applies to income over $180,000 per annum.
From 1 April, New Zealand’s individual tax rates will be:
10.5% on earnings up to $14,000
17.5% on earnings between $14,001 and $48,000
30.0% on earnings between between $48,001 and $70,000
33.0% on earnings between between $70,001 and $180,000
39.0% on earnings over $180,000
So what might it mean for you? Your OneTeam accountant can help you to work that out, but here’s a quick example:
Peter earns $200,000 per year (gross). Based on current individual tax rates as above Peter would pay $56,920 in tax. With the introduction of the 39% top tax rate, Peter would pay $58,120 in tax, that's $1,200 more.
Our Comments Are:
We do not recommend you make major changes to your business structures to “avoid” the increase in tax as this could be termed tax avoidance.
We recommend that you make any structural changes as part of legal protection and estate planning.
The IRD will be looking closely at trusts and they could increase the tax rate of trustees’ income from 33% to 39% if they see trusts being used to avoid the higher tax rate.
Our Recommendations Are:
Immediately review your company's retained earnings if you hold shares in your personal name. Tax will have been paid on these at 28% and they could be taxed at 39% after 31 March 2021 when you distribute them.
Accelerate the payment of accrued bonuses or other salary entitlements.
Consider the right level of shareholder salaries – they should be set at market levels for the type of work being undertaken – the 2021 Financial Year should be the benchmark for future years.
Make sure that current and future investments are held in the most appropriate entity for your financial and legal purposes (e.g. PIEs or investment companies or trusts).