INDEPENDENT NEWS

Taxation (Tax Rate Increase) Bill - Info Sheet

Published: Thu 23 Dec 1999 11:34 AM
Details of the changes are given in the attached technical information
sheet.
Taxation (Tax Rate Increase) Bill - Information Sheet
Increase in the top personal tax rate
The proposed statutory income tax rates for individuals
(including unincorporated bodies) will be:
|-----------------------------------------+------------------|
| | |
| Income not exceeding $38,000 | 19.5 cents |
| | |
|-----------------------------------------+------------------|
| | |
| Income exceeding $38,000 but not | 33 cents |
| exceeding $60,000 | |
| | |
|-----------------------------------------+------------------|
| | |
| Income exceeding $60,000 | 39 cents |
| | |
|-----------------------------------------+------------------|
The effective marginal tax rates (taking into account the Low Income
Rebate) will be:
|-----------------------------------------+------------------|
| | |
| Income not exceeding $9,500 | 15 cents |
| | |
|-----------------------------------------+------------------|
| | |
| Income exceeding $9,500 but not | 21 cents |
| exceeding $38,000 | |
| | |
|-----------------------------------------+------------------|
| | |
| Income exceeding $38,000 but not | 33 cents |
| exceeding $60,000 | |
| | |
|-----------------------------------------+------------------|
| | |
| Income exceeding $60,000 | 39 cents |
| | |
|-----------------------------------------+------------------|
The new tax rates will apply for the 2000-01 and subsequent income years.
Extra emolument rate
The extra emolument rate for lump sum payments such as bonuses, back
pay, redundancy and retirement payments will be increased to 39%.
This higher rate will apply if the sum of the extra emolument and the
annualised value of salary or wages paid to the employee by that
employer in the previous four weeks is more than $60,000.
Employees may elect to have this higher rate of 39% apply to extra
emolument payments. This higher rate will ensure that taxpayers
do not have an end-of-year tax liability because their extra emolument
was under-deducted at source. This under-deduction could arise if a
taxpayer?s annual income is over $60,000 and he or she receives an
extra emolument and has other income not taxed at source.
Extra emolument rates
|---------------------------------------+---------------------------| |
| | |
Income does not exceed $38,000 | 21 cents | |
| |
|---------------------------------------+---------------------------| |
| | |
Income exceeds $38,000 but does | 33 cents (mandatory and | |
exceed $60,000 | elective) | |
| |
|---------------------------------------+---------------------------| |
| | |
Income exceeds $60,000 | 39 cents (mandatory and | |
| elective) | |
| |
|---------------------------------------+---------------------------|
The increased extra emolument rate will apply to extra emolument
payments on or after 1 April 2000.
Secondary employment earnings
Employees who earn secondary employment income will be able to elect a
39% PAYE withholding rate. This rate should be used by taxpayers
whose annual income is more than $60,000 and who also earn secondary
employment income. This will ensure that these taxpayers do not
have an end-of-year tax liability because their secondary employment
earnings were under-deducted at source.
The secondary employment earnings tax deduction codes will be as follows:
|-----------------+----------------+---------------------------| |
| | | | Tax
deduction | Withholding | Who should use this code | | code
| tax rate | | |
| | |
|-----------------+----------------+---------------------------| |
| | | | ?S?
| 21 cents | Taxpayers with secondary | |
| | employment earnings whose | |
| | annual income does not | | |
| exceed $38,000 | | |
| |
|-----------------+----------------+---------------------------| |
| | | | ?SH?
| 33 cents | Taxpayers with secondary | |
| | employment earnings whose | |
| | annual income exceeds | | |
| $38,000 but does not | | |
| exceed $60,000 | | |
| |
|-----------------+----------------+---------------------------| |
| | | | ?ST ?
| 39 cents | Taxpayers with secondary | |
| | employment earnings whose | |
| | annual income exceeds | | |
| $60,000 | | |
| |
|-----------------+----------------+---------------------------|
The increased rate and the new tax deduction codes will apply to tax
deducted from secondary employment earnings for pay periods beginning
on or after 1 April 2000.
Resident withholding tax on interest
Taxpayers who earn interest will be able to elect a 39% resident
withholding rate. It is expected that this rate will be used by
taxpayers with income over $60,000 so they can have the correct tax
deducted at source to prevent end-of-year tax liabilities.
The non-declaration rate will reduce from 45% to 39% from 1 April 2000.
The non-declaration rate applies to those who do not give the
interest payer (such as a bank) their IRD number.
The rate will be 19.5% for taxpayers who provide the interest payer their
IRD number but do not elect a resident withholding tax rate.
|------------------+-----------------------------------------|
| | |
| Resident | Who should elect to use this rate |
| withholding tax | |
| rate on interest | |
| | |
|------------------+-----------------------------------------|
| | |
| 19.5% | Taxpayers whose annual income does not |
| | exceed $38,000 |
| | |
|------------------+-----------------------------------------|
| | |
| 33% | Taxpayers whose annual income exceeds |
| | $38,000 but does not exceed $60,000 |
| | |
|------------------+-----------------------------------------|
| | |
| 39% | Taxpayers whose annual income exceeds |
| | $60,000 |
| | |
|------------------+-----------------------------------------|
| | |
| 39% | Taxpayers who do not provide their IRD |
| | number |
| | |
|------------------+-----------------------------------------|
The higher resident withholding tax rate and reduced non-declaration
rate apply to interest paid on or after 1 April 2000.
The rules allowing taxpayers to elect a higher resident withholding rate
will be amended to cater for the election of the 39% rate. This change
will apply from date of enactment so that interest payers (such as
banks) can put in place systems allowing taxpayers to make elections
before 1 April 2000.
The rules setting out the information to be shown on resident withholding
tax deduction certificates will be amended to reflect the
introduction of the elective 39% resident withholding tax rate.
Provisional tax
Rules for calculating provisional tax during the 2000-01 and 2001-02
income years are being introduced to ensure that provisional tax
payments for these years reflect the increased tax rate. These rules
will apply to individuals and other persons to whom the individual
tax rates apply, such as unincorporated bodies, who use the
?uplift factor? to calculate their provisional tax for the 2000-01
and 2001-02 income years. These new rules will apply to such taxpayers
whose annual income for 1999-2000 (or 1998-99 if a 1999-2000 tax return
was not filed) is over $60,000.
These rules will require taxpayers to calculate their residual income tax
for the their 1990-2000 tax return (or if their 1999-2000 tax return has
not been filed, their 1998-99 tax return) as if the new tax
rates applied in calculating their residual income tax. In calculating
residual income tax, a credit is allowed for the tax withheld at
source or paid on that income. These tax credits should be adjusted to
take into account the higher tax rate if the income for which the credit
is allowed would have been subject to the higher tax rate. The ?uplift
factor? is then applied to the residual income tax calculated taking into
account the new tax rates.
The following example shows the calculation that will be
required to calculate the 2000-01 provisional tax using the ?uplift
factor?. A taxpayer has filed her 1999-00 tax return, which shows an
annual salary of $80,000 (PAYE $21,270) plus business profits of $20,000.
|-----------------------------------------+------------------|
| | |
| Taxable income | $100,000 |
| | |
|-----------------------------------------+------------------|
| | |
| Income tax liability using 2000-01 tax | $30,270 |
| rates ($27,870 as per tax return plus | |
| $2,400 ($40,000 * 0.06) | |
| | |
|-----------------------------------------+------------------|
| | |
| Less tax credits for PAYE ($21,270 as | $22,470 |
| per tax deduction certificate plus | |
| $1,200 ($20,000 * 0.06) | |
| | |
|-----------------------------------------+------------------|
| | |
| Residual income tax based on 2000/01 | $7,800 |
| tax rates | |
| | |
|-----------------------------------------+------------------|
| | |
| 2000/01 provisional tax is 105% of | $8190 |
| $7,800 | |
| | |
|-----------------------------------------+------------------|
These rules will apply for the 2001-02 income year for taxpayers who
have calculated their provisional tax on the basis of their 1999-00
residual income tax because they have not filed their 2000-01 tax return.
For those taxpayers that use the estimation option to calculate their
2000-01 provisional tax, it is recommended that they use the new rates in
calculating their provisional tax, to minimise their exposure to use
of money interest that may be payable on any under-payment of provisional
tax.
These provisional tax changes may have implications for trustees of
trusts in respect of the calculation of 2000-01 and 2001-02
provisional tax for beneficiaries whose income from the trust is
more than $60,000 and Maori authorities with less than 20 beneficiaries.
These changes apply to the payment of provisional tax for the 2000-01
and 2001-02 income years.
Fringe benefit tax
Fringe benefit tax rate will increase from 49% to 64% for fringe
benefits provided or granted on or after 1 April 2000. Because fringe
benefit tax is calculated on the after-tax value of the benefit, it is
grossed up to give a rate of 64% (64% = [0.39/[1 ? 0.39]]).
For those employers who provide fringe benefits to
shareholder-employees on an income year basis, the increased rate will
apply from 1 April 2000 on the annual value of the fringe benefits
provided or granted in the 1999-00 or 2000-01 income year, prorated
for the period after 1 April 2000. For example, a company has
elected to pay fringe benefits provided to its shareholder-employees
on an income year basis (1 July 1999 to 30 June 2000). The annual value
of fringe benefits provided is $10,000. The value of the benefits
prorated on a daily basis is as follows:
Value of benefits provided or granted to 31 March 2000 (subject to tax at
49%) is $7513.66. Value of benefits provided or granted on or after 1
April 2000 (subject to tax at 64%) is $2486.34.
Tax return filing
The rules setting out which individuals have to file tax returns or
receive income statements will be amended to reflect the increase in the
threshold at which the top personal tax rate applies (from $38,000
to $60,000). New provisions will require taxpayers to file a tax
return or receive an income statement if their total annual income is
more than $60,000 and they received interest, dividends, extra
emoluments and/or secondary employment income of more than $200 that was
taxed at a withholding rate of less than 39%.
ENDS

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