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Important information from IRD about recent changes
January 28, 2021
Chris Lynch, CA, Managing Director
Some changes to legislation that may impact you or your clients have been brought to our attention by Inland Revenue. They fall into 5 main groups.
1. The new top tax rate
A new top tax rate of 39% will apply on personal income in excess of $180,000 for the 2021-2022 and later tax years. For most taxpayers this begins on 1 April 2021.
Those who are provisional tax payers may need to adjust their provisional tax payments throughout 2021 to account for the larger year-end tax bill.
There are corresponding changes to other tax types to align with the 39% rate. These can be found in the table below.
2. Increased disclosure requirements for trusts
Trusts will be required to provide more information in their annual returns for the 2021-2022 income year onwards, including distributions and settlements made in the income year, profit and loss statements and balance sheets. This ensures Inland Revenue has a clear picture of how a trust is being used and whether the usage changes as a result of the personal income tax rate change.
The Commissioner can also request the information from trusts for prior years back to the 2013-2014 tax year as appropriate. This allows for comparable information to be gathered.
The increased disclosure requirements do not apply to non-active trusts, charitable trusts and trusts eligible to be Māori authorities.
3. Minimum family tax credit
The annual rate minimum family tax credit (MFTC) threshold will increase from $27,768 to $29,432 for the 2020-2021 tax year and subsequent years which is a maximum of $32 per week extra. To get this payment customers must work for salary or wages and not be self-employed.
IRD began paying the higher rate in weekly or fortnightly payments from late December 2020 to customers who receive payments throughout the year. All MFTC customers will have any unpaid increase from 1 April 2020 included as part of their end of year square up. IRD will send a Notice of Assessment after the end of the tax year, around June/July 2021. That Notice of Assessment will indicate if the customer has an overall refund or bill once everything is taken into account.
4. Information gathering measures
The Taxation (Income Tax Rate and Other Amendments) Bill clarifies that the Commissioner of Inland Revenue can require information to be provided to assist with the development of tax policy. As always, IRD take a considered approach to requesting additional information from taxpayers and only do so as appropriate. Any requests for additional information are approached on a case-by-case basis.
5. The Small Business Cashflow Scheme changes
Applications will remain open until 31 December 2023.
The loan will now be interest free for 2 years (up from 1 year), and restrictions on how the loan can be used have eased. As well as spending on core operating costs, businesses will be able to choose to use the loan to invest in their business, helping it to adapt to the impact of COVID-19.
There are also changes to the eligibility criteria in the following 4 areas:
- When the business was established
- The decline in revenue test
- Employee number test
The changes will be in effect from 28 January 2021.
Note that the change in the decline in revenue test will significantly change which businesses are eligible as the time period will no longer include the April 2020 lock down. It is best to view the full changes on the IRD’s website at ird.govt.nz/updates/news-folder/upcoming-changes-to-the-eligibility-criteria-for-the-small-business-cashflow-scheme
To ensure customers are aware of these changes, and how they may be impacted, IRD will be directly contacting those affected.
They will ask you to contact us for advice in the first instance if you have any questions.
Corresponding changes to other tax types to align with the 39% rate
Chris Lynch, CA