PONSONBY PROFESSIONALS

With the start of the new income tax year, we thought it would be good to revisit some of the recent significant tax changes that came into force on 1 April 2021 and to highlight some important expected changes to sick leave entitlements.

New Top Tax Rate Individual income earned above $180,000 is now taxed at 39 percent. This threshold now matches Australia’s top tax threshold of A$180,000, but is worth noting that the Australian top tax rate is 47 percent.

Tax payers who don’t have tax deducted at source might want to consider topping up their provisional tax payments throughout the 2021 year to avoid a larger year-end tax bill.

With this new income tax rate, other changes were required to ensure that distortions were not created across other types of personal income, these are as follows:

Fringe benefit tax: The rate on amounts of all-inclusive pay over $129,681 will be 63.93% to ensure consistent treatment of cash and non-cash remuneration.

Employer’s superannuation contribution tax and retirement savings contribution tax: ESCT and RSCT will rise to 39% on superannuation contributions made for an employee whose ESCT rate threshold exceeds $216,000.

Residential land withholding tax: RLWT will increase to 39% (except where the vendor is a company).

Resident withholding tax: All the new rates will apply from 1 April 2021 with the exception of the higher RWT rate on interest, which will take effect from 1 October 2021 so that payers can make changes to their systems. The non-declaration rate of 39% will remain the same.

There will also be a new tax code for secondary income earners whose total PAYE exceeds $180,000.

Other personal income tax thresholds and rates remain unchanged.

Increased Disclosure Requirements for Trusts In addition to the introduction of the new Trusts Act 2019, which came into force on 30 January 2021, Inland Revenue (IR) now require trusts to provide more information on their annual returns for the 2021-2022 income year onwards. Essentially this means that IR will pay closer attention to family trusts to see if the right amount of tax is being paid across associated tax payers.

The additional information required includes distributions and settlements made in the income year; and profit and loss statements and balance sheets. The Commissioner can also request information from trusts for prior years back to the 2013-2014 tax year as appropriate. This allows for comparable information to be gathered. The increased disclosure requirements do not apply to non-active trusts, charitable trusts and trusts eligible to be Maori authorities.

Minimum wage has increased The adult minimum wage has increased by $1.10 to $20 per hour. The starting-out and training minimum wage has risen to $16 per hour so it remains at 80 percent of the adult minimum wage.

Income abatement threshold for benefit payments has increased Prior to 1 April there was a tiered abatement threshold ranging from $90 to $115 before tax each week, dependent upon individual/family circumstances. The threshold is now $160 before tax each week for the following benefit categories: Jobseeker support, Sole parent support, Supported Living payment, Veteran’s pension under 65, and NZ Super/ Veteran’s pension with a non-qualifying partner.

Youth Payment and Young Parent Payment are not affected as they have different income abatement rules.

Family tax credit The family tax credit has increased to a minimum of $566 per week for families who work full-time and do not otherwise receive a benefit (this is to ensure they are on a higher income than if they received a benefit).

Upcoming changes to sick leave entitlements The Holidays (Increasing Sick Leave) Amendment Bill (“the Bill”) is currently before the Select Committee of the New Zealand Parliament and is under review.

The bill primarily seeks to double the minimum number of sick days available to employees from 5 to 10 days per annum, after they have worked with an employer for six months.

The bill does not propose any changes to an employee’s entitlement to roll-over their sick leave each year. The maximum amount of sick leave an employee can hold unused is 20 days.

The changes are primarily in the wake of the Covid-19 pandemic, however, the request for changes to the minimum numbers of sick days has long been a topic of public interest and is reflective of the ongoing call for greater care and treatment for workers. It should be noted that New Zealand has comparatively less sick leave days than many other OECD nations. For example, Australians are entitled to 10 days per year and the balance of leave is carried over with no limitation to how many days can be held unused.

Keep an eye out for the changes later on this year when the bill is expected to come into effect. For more information on any of the above topics, please contact us at Johnston Associates. (LOGAN GRANGER)  PN

JOHNSTON ASSOCIATES, 202 Ponsonby Road, T: 09 361 6701, www.jacal.co.nz

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.

Tammy McLeod

TALKING TRUSTS: JOHN & TOM

John’s friend, Tom, was an old university friend. They had been to the same student hostel together and remained friends over the last twenty years, although now their lifestyles were vastly different – John had settled down, got married and had three small children.

Tom was still the quintessential playboy, a different girlfriend every few months, children from two exwives, numerous holidays and still lacking in any kind of responsibility. John was therefore surprised when Tom approached him to become a trustee of his trust.

The trust was going to be purchasing a commercial property. Tom had recently inherited some money from his father and thought that commercial property would be a good investment. The building the trust was buying was the only asset it was going to own. Tom had never purchased a home to live in and was still renting – he seemed to spend all his money on holidays and going out.

John agreed to become trustee of Tom’s trust. He didn’t meet with Tom’s lawyer or accountant, just signed the numerous documents Tom gave him to sign, which included an application for an IRD number and GST number for the trust. John didn’t get copies of the documents and while he knew that the commercial building was tenanted he didn’t hear much from Tom in relation to the building or the trust. In fact, they had no trustee meetings and the only thing John did in relation to the trust was sign financial accounts once a year.

John was hugely surprised then to one day find a letter from Inland Revenue in his letterbox. It was in relation to GST payable for Tom’s trust. It seemed that the trust had not been paying any GST on the rent it was receiving for the past 18 months. Inland Revenue was writing to John because as a co-trustee he was personally liable for payment of the GST as well as interest and penalties. John tried calling Tom leaving message after message for him. He then rang the number on the letter from Inland Revenue to find out what had been going on. Inland Revenue told John that no GST returns had been filed in 18 months and as a trustee he was personally liable. It didn’t matter that it was actually a trust to benefit Tom and it also didn’t matter that Tom was a co-trustee. Trustee liability is personal and so Inland Revenue was quite within its rights to demand payment of the GST and associated penalties and interest from John. John’s next phone call was to his lawyer. John’s lawyer confirmed that trusteeships are personal and that while John could be reimbursed by the trust through the indemnity that was in the trust deed and also part of the Trusts Act 2019, John had to act quickly to make sure that his own record with the IRD was not tarnished.

John’s lawyer advised that the trust role of the trustee had become more serious over the years, and trustee duties and obligations were now even more stringent because of additional obligations under the new Act. Trustees had the obligation to read and understand the trust deed and also needed to keep a copy of the deed and any other core documents relating to the trust. John remembered seeing the trust deed when he came on as a trustee, but certainly didn’t hold a copy and had no idea what the other core documents might be. John’s lawyer told him that it was also advisable to get a lawyer to review the terms of the trust to ensure that John knew what he was signing up to as all trust deeds had different terms and obligations. She was also concerned that John understood the needs and requirements of Tom’s two sets of children from different relationships and understood what those children could ask of John as a trustee.

John had learned the hard way that trusteeships are not just about signing documents when called upon. In this litigious day and age and also with new obligations set out in the Trusts Act, it was more often advisable to leave being trustee to the professionals. John quickly contacted Tom, told him he no longer wished to be trustee and instigated the process to remove himself as trustee. He also learned that it was not enough simply to retire as trustee, but that in order to fully absolve himself of his duties as trustee, he would need to be replaced. What had started out as a favour to a friend, ended up costing John a lot of time, money in legal fees and also the worry of being a trustee.

John learned the hard way that in 2021 independent trusteeships are most often best left to the professionals.

For more information on trusts and asset structuring, talk to the team at Davenports Law.  PN DAVENPORTS LAW, 331 Rosedale Road, Level 1, Building 2, Albany, T: 09 883 4400, www.davenportslaw.co.nz