LOGAN GRANGER: RECENT TAX BILL INTRODUCED

The Government recently tabled the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill with the Budget.

We thought it would be good to revisit some of the recent tax developments that have come into force and highlight some of the key changes below:

Trust tax rate 39%

Obviously, the major aspect from a tax standpoint from the budget is the proposed increase of the trustee tax rate from 33% to 39%. The Government announced its proposal to lift the Trust income tax rate from 1 April 2024, therefore effective from the 2025 tax year. The increase is intended to support the top personal tax rate of 39% for income over $180k per annum.

There are special rules which include:

· Treating beneficiary income received by certain "close companies" (ie, companies with 5 or fewer natural person or trustee shareholders holding more than 50% of the shares, which are not Māori Authorities or charities, and where a settlor of the trust has “natural love and affection” for a shareholder of the company), trustee income taxed at 39%. Allowing trustees of a deceased estate to pay tax on trustee income at the deceased person’s marginal tax rate if the income is derived within 12 months of the person’s death, to avoid over-taxation. Trustee income derived more than 12 months after death will be subject to tax at 39%.

· Allowing trustees of a “disabled beneficiary trust” (a trust whose sole beneficiary must be the disabled person) to be taxed at the disabled beneficiary’s marginal tax rate.

It's important to note, the proposals are not legislation until enacted and are subject to select committee and political changes.

However, as we’re currently starting to prepare 2023 accounts and tax returns, it’s a good time to do a high-level review to identify if your Trust would be materially affected by the 39% Trust tax rate and plan what options are available to mitigate the proposed change.

Taxing Lump Sum Receipts from ACC and MSD

These typically relate to instances where recipients didn’t get paid when entitled, due to a dispute and the dispute is later resolved with a lump sum received which results in higher marginal results and therefore higher tax to pay.

Changes to apply for lump sums received from 1 April 2024 are based on the below:

ACC – new ACC formula taxed on the basic tax rate on year received or average basic tax rate over the previous four years with a minimum of 10.5% if the formula is less.

ACC will deduct withholding tax – a final tax on the lump sum regardless of other income that year.

· MSD – new formula also. MSD calculated tax is the final tax and MSD lump sum is included as a family scheme income for Working for Families.

Additional North Island flood tax relief – flooding January and February 2023

These include:

· Tax rollover relief for depreciable assets and revenue account assets that have been destroyed or are uneconomic to repair. The rollover relief will apply until the earlier of the income year, the relevant assets have been replaced or the end of the 2027-28 income year. Clarification that depreciation and on-going expenses and losses can continue to be claimed where there are ongoing business disruptions. Optional matching rules for timing of income and deductions (for disposal losses) when insurance proceeds have been received for flood-affected assets.

Other measures in the Tax Bill

These include: The annual rates of income tax for the 2023–24 tax year (unchanged).

Implementing the OECD Global Anti-Base Erosion rules. From 1 July 2024, the Government will pay the three percent employer contribution to KiwiSaver on Paid Parental Leave payments if the recipient also makes a matching contribution.

Keep an eye out for more details on these proposals as they develop.

For more information on any of the above topics, please contact us at Johnston Associates.

Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this article; always see your professional advisor before taking any action that you are unsure about.