‘Employees will feel’ new tax rate’s effect

A new top tax rate for highincome earners will require law changes to more than just personal income tax, experts say.

Tonight the House of Representatives will be going into urgency to pass bills on tax changes and other matters.

The Labour Party said it would bring in a new top rate of 39 per cent on income earned above $180,000 from April 1, 2021, a change it said would affect 2 per cent of earners. It would introduce no new taxes or further increases to income tax in the next term, it said.

The changes are expected to bring $550 million into the Government’s accounts next year, rising to $634m by 2024.

Deloitte tax partner Robyn Walker said other taxes that affect individuals would probably need to be altered in order to accommodate the new rate. Adding in a new rate was expected to also mean new rates and thresholds for all other employment taxes.

A new 64 per cent fringe-benefit tax rate would need to be applied to people on a 39 per cent marginal tax rate to ensure there was not an incentive to move between cash and non-cash remuneration of employees, she said. The existing 49 per cent fringe-benefit tax rate would remain for anyone earning less than $180,000, Walker said.

Fringe benefits are non-cash benefits provided by an employer to employees. If a new fringe-benefit tax rate was introduced then employers would incur higher compliance costs in having to undertake more complicated tax rate attribution, she said. ‘‘They bear that cost.’’

It also meant companies would need to pay more in tax when providing fringe benefits, she said.

‘‘That might have a flow-on impact to how many fringe benefits the employer wants to provide because the cost goes up.’’

She said Deloitte also expected something would need to be done to ensure that those on a 39 per cent rate had an increased tax on employer contributions (employer superannuation contribution tax) into KiwiSaver and other superannuation schemes.

That would result in total employer contributions into KiwiSaver and other superannuation schemes being reduced due to a greater amount of tax being held by Inland Revenue, she said.

‘‘Employees will feel this as a reduction in the amount of the employer contribution that goes into the superannuation fund. That’s a cost to the employee.’’

There may also need to be changes to the resident withholding tax (RWT) rate, which applies to interest and dividends paid to New Zealanders, she said.

Those on the new top personal income tax rate may see their RWT rate increase from 33 per cent to 39 per cent, resulting in a higher amount of tax being taken from interest payments.