Taxation (Income Tax Rate and Other Amendments) Bill

  • enacted

Taxation (Income Tax Rate and Other Amendments) Bill

Government Bill

2—1

Explanatory note

General policy statement

This Bill introduces amendments to the following legislation:

  • Income Tax Act 2007:

  • Tax Administration Act 1994.

The policy proposals in this Bill are aimed at implementing the commitment in the New Zealand Labour Party’s manifesto for the 2020 general election to introduce a new top personal income tax rate of 39% on annual income that exceeds $180,000. The objective for this policy is to raise revenue to allow the Government to continue providing public services and manage debt while supporting New Zealand’s economic recovery, in a way that increases the progressivity of the tax system.

The Bill also sets the minimum family tax credit threshold for the 2020–21 and later tax years, a tax credit aimed at providing financial support to low-income working families.

New top personal tax rate

This Bill introduces a new personal income tax rate of 39% on annual income over $180,000. The new rate applies for the 2021–22 and later income years.

Aside from amending basic income tax rates, the Bill amends a number of tax rules to incorporate the new top personal rate to 39%, including:

  • PAYE rules (new secondary earnings and extra pay codes):

  • fringe benefit tax (FBT):

  • resident withholding tax (RWT) on interest:

  • employer’s superannuation contribution tax (ESCT):

  • residential land withholding tax (RLWT):

  • retirement scheme contribution tax (RSCT):

  • the taxable Māori authority distributions non-declaration rate.

The consequential changes to the PAYE rules, FBT, ESCT, RLWT, RSCT, and the taxable Māori authority distributions non-declaration rate will apply from 1 April 2021. The higher RWT rate on interest will take effect from 1 October 2021 to ensure that interest payers are able to implement the required systems changes.

Strengthening information-gathering rules

This Bill introduces a clarifying amendment to ensure that the Commissioner of Inland Revenue can collect information solely for tax policy development purposes. Having access to information is critical to providing good tax policy advice.

This Bill also introduces a new information-gathering measure to collect further information from trustees in order to gain insight into whether the top personal rate of 39% is working effectively and to provide better information to understand and monitor the use of structures and entities by trustees.

Minimum family tax credit

The policy proposals in this Bill set the minimum family tax credit (MFTC) threshold for the 2020–21 and later tax years. It is being increased from $27,768 per annum to $29,432 per annum to account for the $25 per week increase in main benefits made in 2020.

Departmental disclosure statement

Inland Revenue is required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

Regulatory impact assessment

Inland Revenue produced a regulatory impact assessment on 18 November 2020 to help inform the main policy decisions taken by the Government relating to the contents of this Bill, other than setting the MFTC threshold.

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 is the commencement clause.

Part 1Income tax rate amendments

Clause 3 provides the application date for the clauses in Part 1, except clauses 19 and 20.

Amendments to Income Tax Act 2007

Clause 4 sets out the clauses that affect the Income Tax Act 2007.

Clauses 5 and 6 amend sections RD 10 and RD 17 to ensure that the new income tax rate may apply appropriately for extra pays under the PAYE rules.

Clauses 7 to 13 amend sections RD 50, RD 52, RD 53, RD 58, RD 59, RD 60, and RD 61 to ensure that the new income tax rate may apply appropriately for FBT.

Clause 14 amends section RD 67 to ensure that the new income tax rate may apply appropriately for ESCT.

Clause 15 amends section RL 4 to ensure that the new income tax rate may apply appropriately for RLWT.

Clause 16 amends schedule 1, part A, table 1 to ensure that the new income tax rate of 39% applies to a person’s taxable income upwards of $180,000.

Clause 17 amends schedule 1, part C, table 1 to ensure that the new income tax rate may apply appropriately for FBT.

Clause 18 amends schedule 1, part D, table 1 to ensure that the new income tax rate may apply appropriately for ESCT.

Clauses 19 and 20 amend schedule 1, part D, tables 2 and 3 to ensure that the new income tax rate may apply appropriately for RWT.

Clause 21 amends schedule 1, part D, table 4 to ensure that the new income tax rate may apply appropriately for the taxable Māori authority distributions non-declaration rate.

Clause 22 amends schedule 1, part D, table 5 to ensure that the new income tax rate may apply appropriately for RSCT.

Clause 23 amends schedule 2, part A to ensure that the new income tax rate may apply appropriately for the PAYE rules using a new tax code.

Clause 24 amends schedule 2, part B, table 1 to ensure that the new income tax rate may apply appropriately for extra pays under the PAYE rules.

Clause 25 amends schedule 6, table 2 to ensure that the new income tax rate may apply appropriately in relation to a retirement scheme contribution made for a person.

Amendments to Tax Administration Act 1994

Clause 26 sets out the clauses that affect the Tax Administration Act 1994.

Clause 27 amends section 28C to ensure that the new income tax rate may appropriately apply for the retirement scheme prescribed rate for a person.

Clause 28 amends section 48B to ensure tax file numbers are appropriately reported for retirement scheme contributions.

Clause 29 amends schedule 4, table 1 as a consquential cross-reference matter for the new income tax rate.

Clause 30 amends schedule 5, part A, clause 1 to ensure that the new income tax rate may apply appropriately for the PAYE rules using a new tax code.

Clause 31 amends schedule 5, part A, tax code table, row 6 to ensure that the new income tax rate may apply appropriately for the PAYE rules using a new tax code.

Part 2Other amendments

Amendments to Tax Administration Act 1994

Clause 32 sets out the clauses that affect the Tax Administration Act 1994.

Clause 33 inserts new section 17GB to clarify that the Commissioner can issue an information demand for a purpose relating to the development of policy for the improvement or reform of the tax system.

Clause 34 repeals section 59(3), which imposes an obligation on a trustee to make a return of income for the trust.

Clause 35 inserts new sections 59BA and 59BAB. New section 59BA(1) requires a trustee to make a return of income for the trust and corresponds to the former section 59(3). Subsection (2) gives details of the information that a trustee is required to provide. Subsection (3) provides for exceptions to the obligation for the trustees of some trusts. Subsection (4) provides that a New Zealand resident settlor is responsible for ensuring that the obligations imposed by the section are met if the trustee is a non-resident. New section 59BAB gives a power to the Commissioner to require trustees to provide information for income years after the 2013–14 income year and before the 2021–22 income year. Subsection (3) provides that a New Zealand resident settlor is responsible for ensuring that the obligations imposed by the section are met if the trustee is a non-resident.

Amendments to Income Tax Act 2007

Clause 36 sets out the clauses that affect the Income Tax Act 2007.

Clause 37 amends section ME 1(3)(a) to increase the MFTC threshold from $27,768 per annum to $29,432 per annum to account for the $25 per week increase in main benefits made in 2020.

Clause 38 inserts a cross-reference to new sections 59BA and 59BAB of the Tax Administration Act 1994 into the definition of trust rules.