In January 2021 the Government got off to a quick start with a raft of tax changes required to enact some of the policy that they committed to during the election which was to be expected but they also slipped some extensions into the bill which may catch some off guard. Key changes were:
New top personal tax rate of 39%
Increased disclosure requirements for trusts
Increased minimum family tax credit threshold
Changes to the Small Business Cashflow Scheme
New Personal Tax Rate
This was a promise from the election and the Government has been quick to enact a new personal income tax rate of 39% which will apply to all income in excess of $180,000 from 1 April 2021. The flow on of this change is that there are also new tax rates for other tax types like RWT and secondary income to ensure that the rate is consistently applied across all tax types.
If you are affected by this tax rate change and are a provisional tax payer then it is important to note that your provisional tax payments will need to be adjusted to reflect this 6% increase to the tax rate.
If you earn or expect to earn personal income in excess of $180,000 there are actions that you can take before 31 March 2021 to mitigate the impact of this change moving forward. Get in touch with the team at Thrive CA to discuss your situation.
Increased Disclosure Requirements for Trusts
Until recently, trusts have been a relatively anonymous way to hold assets. The Trusts Act 2019 came into effect on 30 January 2021 and this significantly changes the landscape around trusts.
However, the Government has upped the ante with the introduction of increased disclosure requirements for all trusts in this bill under the guise of being able to determine whether trust usage changes as a result of the increase to the personal income tax rate. These changes were completely unexpected and appear to have been slipped into a bill whose main purpose was to increase the top personal income tax rate.
With effect from the 2022 income year, all trusts will be required to provide far more information to IRD on the trust when they file their income tax return. This information will cover:
Details of settlors, including all settlors in the past. This information will include names, IRD numbers and other appropriate information.
Details on all persons holding the power to appoint the trustees.
Details of any changes in beneficiaries.
Financial Statements will be required where the trust has assessable income.
Distributions and Settlements made in the income year.
These disclosure requirements are significant given that in the first year historical information will need to be provided to IRD. To ensure that we have all the information by the time it is required, we will start working with all trust clients to review what information is required and ensure that we have everything in place before these rules come into effect.
The interesting question is what will the iRD do with all this extra information. That remains to be seen.
These changes, together with the application of the Trusts Act 2019 highlight why it is absolutely critical to have your trust records in order and ensure that you are meeting the requirements of both the Trusts Act 2019 and this new bill. If you need help with your trust, get in touch with the team at Thrive CA and we’ll work with you to ensure that your trust affairs are in order.
Increased 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 taxpayers 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 taxpayers 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 you have an overall refund or bill once everything is taken into account.
Small Business Cashflow Scheme Changes
The Government has again changed the rules of the Small Business Cashflow Scheme (SBCS) to extend it’s availability and tweak the scheme to bring the conditions in line with the promises made during the election. The key changes are:
Applications for the scheme will now remain open until 31 December 2023.
The loans will now be interest free for 2 years (increased from 1 year).
Restrictions on how the loan can be used have eased. As well as spending on core operating costs, you can now also choose to use the loan to invest in your business.
Changes to eligibility criteria, specifically around when the business was established, the decline in revenue test, employee number test and re-borrowing.
These changes came into effect on 28 January 2021 and apply to loans that have already been drawn down.
It’s been a while since we had any significant changes but I suspect that with the Government that we have and the current economic environment that this is just the beginning.