The 39% tax rate - Your questions answered

New Zealanders earning over $180,000 a year will now pay a 39% tax rate, which came into effect on 1 April 2021. If this includes you, are you aware of how your tax obligations change when it comes to shares, property, FBT, superannuation tax, or trusts? The rate applies only to individuals, not to trusts, companies or other structures, except as outlined below.

The 39% tax rate and trusts

From now on, you’ll need to disclose a lot more information to Inland Revenue in your annual trust tax returns. The additional information will provide the Government with information on how trusts are being used, particularly with the introduction of the new 39% tax rate. As part of their annual income tax return, trustees will now have to disclose:

• Financial accounting information, including profit and loss statements and balance sheet items
• Loans to related parties
• Information on distributions and settlements made during the income year
• Names and details of settlors from prior years
• Names and details of each person who, under a trust deed, has the power to appoint/dismiss a trustee, to add/remove a beneficiary, or to amend the trust deed.

‍The 39% tax rate and beneficiary income from a trust

If you receive beneficiary income from a trust, let us know if you’d like to know more about your tax position.

The 39% tax rate and property or shares

If you are looking to purchase assets such as property or shares, or already have such investments, it would be prudent to assess your overall investment strategy so that it meets your commercial and personal goals, including your tax profile. Such investments are able to be held in companies or a trust, which have tax rates of 28% and 33% respectively, however on distribution to individuals in most cases the individual's tax rate will effectively be applied. A strong note of caution - the main reason for any restructuring should not be due to any perceived tax benefits arising out of the restructure. Any restructuring should be focused on achieving key objectives such as successful commercial, risk, succession, and asset protection outcomes. We can review and assist you with planning to meet your objectives.

The 39% tax rate and superannuation contribution tax

Time to check whether you have employees whose Employer Superannuation Contribution Tax (ESCT) and Retirement Savings Contribution Tax (RSCT) rate threshold exceeds $216,000. The tax rate for these have risen to 39% (as of 1 April 2021).

The 39% tax rate and fringe benefit tax

A new Fringe Benefit Tax (FBT) rate of 63.93% will apply for all-inclusive pay above $129,681 and the single rate and pooling of non-attributed fringe benefit calculations. The 42.86% rate for non-attributed benefits will no longer apply. Talk to us about your current FBT profile and we can review it together.

The 39% tax rate and additional employment income

The tax change applies to all employment income over $180,000 a year, including bonuses, back pay, redundancy, and retirement payments. As an employer, take account of when additional remuneration to employees may affect their tax obligations and make sure tax is deducted correctly.

The 39% tax rate and RWT and RLWT

• If you earn interest, this will be taxed at 39% (RWT) from 1 October 2021.
• If you’re selling property covered by the bright-line test, residential land withholding tax (RLWT) will increase from 1 April 2021 to 39% (except where the vendor is a company).