Resident withholding tax focus of new tax Bill
The alignment of certain investment tax rates with income tax rates is the central feature of an omnibus taxation Bill tabled in Parliament today, Revenue Minister Peter Dunne said.
"The Taxation (Consequential Rate Alignment and Remedial Matters) Bill consists of a good deal of 'catch-up' legislation that makes downstream changes to tax law that follow on from earlier tax changes, as well as generally updating tax law and providing greater taxpayer certainty," he said.
"The Bill introduces new resident withholding tax (RWT) rates on interest paid to individuals, to bring them into line with recent changes to personal tax rates. The new rates for individuals will be 12.5%, 21%, 33% and 38%, depending on their income.
"The Bill introduces a new default rate of 38% for people who do not notify their bank of their correct tax rate. The new default rate will apply to accounts opened from 1 April 2010.
"There will be a transitional period for people who have a bank account at 1 April 2010 and who are on the current RWT default rate of 19.5%. They will be automatically shifted up to a 21% rate for a year from 1 April 2010. They will then have a year in which to either confirm with their bank that 21% is their correct rate or to select one of the other RWT rates. If they neither confirm the 21% rate nor elect another rate, their RWT default rate will then go up to 38% from 1 April 2011.
"The changes to the default rate are being made to motivate people to use the correct tax rate for the interest they receive from their financial institution.
"The bill also introduces a new 30% RWT rate on interest paid to companies, to align with the recent change in the company tax rate. Its use will be optional for a year from 1 April 2010 and mandatory thereafter.
"As a complementary measure, the Bill aligns the tax rates on portfolio investment entities with the new personal tax rates, so that PIE rates will be 12.5%, 21% and 30%. The changes will ensure that people who invest in PIEs are not disadvantaged relative to direct investors. Once enacted, the changes will apply from 1 April 2010," Mr Dunne said.
Other changes in the bill include:
- Secondary tax code and extra pays: introduction of a new 12.5% secondary code and a new 12.5% withholding tax rate for extra pays that brings the withholding rates on employment income into line with new personal tax rates.
- Forestry/climate change: clarification that the expenses of participants in the Permanent Forest Sink Initiative are to be treated as forestry business expenses for tax purposes.
- Tax returns: changes to allow Inland Revenue to accept corrections of minor errors in subsequent returns, to reduce compliance costs for taxpayers.
- Trusts: changes to allow tax agents more time, if needed, to allocate beneficiary income.
- GST/waste: clarification that the new waste disposal levy, introduced on 1 July, is subject to GST.
For information on these and other changes in the Bill, see the separate commentary on the Taxation (Consequential Rate Alignment and Remedial Matters) Bill, at www.taxpolicy.ird.govt.nz.
Media contact: Mark Stewart, Press Secretary, 021 243 6985