Income Tax Rate Increase
A new top personal income tax rate of 39% comes into effect from 1 April 2021. The new rate applies to all income earned by individuals over $180,000 gross.
While it is anticipated this increase will not affect many people (it is only expected to apply to 2% of New Zealanders), there are some things that should be considered around the tax rate increase if it does apply:
- The maximum Fringe Benefit Tax (FBT) rate will increase from 49.25% to 63.93%. If you use the single rate option to calculate FBT the new 63.93% rate will apply to all fringe benefits you provide. If any of your employees earn less than $180,000 you may want to look at using an alternative rate for calculating FBT, or one of the other options available for reducing FBT costs. If you would like to discuss any of the options available, please give us a call.
- The Resident Withholding Tax top rate will increase to 39%, but this will not take effect until 1 October 2021. This means you need to notify banks etc. to increase your RWT rate to 39% if this applies to you.
- The ESCT rate (for employer KiwiSaver/Superannuation contributions) will increase to 39%, but only if your ESCT rate threshold exceeds $216,000 (i.e. basically an employee’s gross salary plus the Kiwisaver/superannuation contribution made in the prior year).
- For provisional tax payers there could be use of money interest consequences if your 2022 Residual Income Tax is $60,000 or more and the provisional tax you have paid for the 2022 year, is not enough due to the tax rate increase. We will discuss this with you if we think it applies.