Inland Revenue - Tax policy Tax Policy

News and information about the Government's tax policy work programme, including:
- proposed changes to the laws that Inland Revenue is responsible for
- updates on the progress of bills through Parliament
- policy announcements

Tax bill introduced

17 October 2000

The year's third taxation bill was introduced into Parliament yesterday. The Taxation (Beneficiary Income of Minors, Services-related Payments and Remedial Matters) Bill introduces a wide range of changes, including:

  • Making restrictive covenant and exit inducement payments taxable
  • Taxing certain distributions of trust beneficiary income to minors at 33%
  • Tax simplification measures to reduce compliance costs for businesses
  • A mandatory 33% resident withholding tax rate for companies
  • Remedial amendments, including several to the international tax rules.

For details see Minister's media statements and the Commentary.


Hon Dr Michael Cullen
Minister of Revenue

MEDIA STATEMENTS

Tax bill cuts business compliance costs

The Government has moved to reduce tax compliance costs for businesses in a bill introduced into Parliament yesterday.

"The compliance costs created by the tax system are a concern for the business community and for the Government," Revenue Minister Michael Cullen said. "This bill is the third this year to tackle the problem by introducing a number of initiatives that, together, will help reduce those costs."

"For example, one small administrative change in the bill will make a big difference to the one in eight people who forget to make the necessary adjustments for fringe benefits on their GST returns. We are simply transferring this adjustment to the fringe benefit tax return, which will save these taxpayers a lot of time and money."

"These are small but significant changes designed to prevent small errors turning into big costs. This means that business people can spend less time worrying about tax matters and more time running their businesses," Dr Cullen said.

The main changes are:

  • GST on fringe benefits will be included on the fringe benefit tax return instead of the GST return.
  • Businesses that pay their taxes just a few days late will not incur a heavy late payment penalty.
  • Incremental late payment penalties will not apply while taxpayers meet the terms of their instalment arrangements with Inland Revenue.
  • Failure to pay approved issuer levy on time will no longer result in a disproportionatly large withholding tax bill.

Detailed information on these and other matters in the bill can be found in the commentary on the Taxation (Beneficiary Income of Minors, Services-related Payments and Remedial Matters) Bill. It is available on the web site of the Policy Advice Division of Inland Revenue at www.taxpolicy.ird.govt.nz.

Contact: David Carrigan IRD Advisor - 04 471 9729 or 021 432 100


Taxation bill introduces equity measures

Legislation introduced into Parliament yesterday contains two key measures for making the progressive tax system more equitable.

The first is to make restrictive covenant and exit inducement payments taxable so they cannot be used to replace taxable income such as salary and wages. The other will tax certain distributions of trust beneficiary income to children under 16 at the trustee rate of 33%, rather than the minor's marginal tax rate, which can be as low as 19.5%.

"Both measures are intended to introduce greater equity into paying tax," Revenue Minister Michael Cullen said. " Most ordinary New Zealanders cannot get around paying lower taxes by arranging a restrictive covenant with their employer, or putting income-earning assets into a trust that distributes the income to their young children. Instead they pay their full tax bill."

"Restrictive covenant payments compensate people for restricting their activities to endorsing a single product, for example, or working for a single employer. They are commonplace in some industries, and are likely to receive greater use as a way of avoiding the top 39% tax rate. Exit inducement payments are used to encourage people to give up a position or activity. Both types of payment can be for millions of dollars. They are employment-related, and it is clearly unfair that they are not taxed."

"The minor beneficiary legislation will reduce the tax advantage gained by using a trust. It will apply only if the beneficiary income is derived from property settled on a trust by a minor's relative or guardian, or someone associated with the relative or guardian."

"It is estimated that in 1998 about 3,500 children under six shared $27 million in beneficiary income from various business activities. Again, it is unfair that this income should be taxed at a lower rate than their parents' rate."

"The legislation spells out a number of exceptions to ensure that taxing beneficiary income of minors at 33% is not unjust. For example, it will not apply to income from property for which the settlor was ordered by a court to pay damages or compensation to the child," Dr Cullen said.

Detailed information on these and other matters in the bill can be found in the commentary on the Taxation (Beneficiary Income of Minors, Services-related Payments and Remedial Matters) Bill. It is available on the web site of the Policy Advice Division of Inland Revenue at www.taxpolicy.ird.govt.nz.

Contact: David Carrigan IRD Advisor - 04 471 9729 or 021 432 100