Major changes to tax and wages in New Zealand
13 April 2021
Vanessa Williams and Greg Millar, Directors at Alliott NZ, AGA accounting firm in Auckland, update us on the key changes to individual and residential tax rates and to minimum wage in the country.
Individual Tax Rates:
From 1 April 2021 the top individual tax rate will increase to 39% from 33%. The 39% will be applied to income earned by individuals over $180,000 per annum. All other tax rates, including the corporate tax rate, remain unchanged.
Resident Investment - Brightline Rules and Interest Deductibility:
In an effort to control rising house prices, the NZ government has implemented the following tax changes in regard to residential investment properties. Whether this will achieve the NZ’s government desired effect of taking the heat out of housing prices remains to be seen.
New Build Residential Investment Properties:
- For new build residential investment properties purchased on or after 27 March 2021, there will be a 5 year period for which any gain will be taxable on sale under the Brightline Rules.
- The government is considering an exemption for new builds to enable them to continue to claim interest.
All Other Residential Investment Properties (Other than New Builds):
- For residential investment properties purchased on or after 27 March 2021, there will be a 10 year period for which any gain will be taxable on sale under the Brightline Rules. Previously this was set at 5 years.
- For residential investment properties purchased on or after 27 March 2021, from 1 October 2021 the interest deductibility will be removed. Therefore you can only claim interest up to 1 October 2021.
- For investment properties purchased before 27 March 2021, 100% of the interest can be claimed up to 1 October 2021. After this date interest deductibility will be reduced over a 4 year period. Please see the table below.
- If money is borrowed on or after 27 March 2021 to maintain or improve a residential investment property and it was purchased before 27 March 2021, the interest deductibility will be removed. So, you can only claim interest up to 1 October 2021.
- The government is considering whether those taxed on the sale of a property i.e. under the Brightline rules will be able to deduct the interest expense at the time of sale.
Please note the changes above do not affect the ring fencing of rental losses. Rental losses continue to be ring fenced and can only be used to offset income from other residential property.
The adult minimum wage will go up, from $18.90 to $20.00 gross per hour, and the starting-out and training minimum wage will go up from $15.12 to $16.00 gross per hour.
If you have employees on the minimum wage, employers should send them a letter or email (variation of employment contract) advising them of the new wage.
If any employees are on starting-out or training wages, employers should check when they will be eligible to move onto the adult rate. Employers should also check that any affected employment agreements (contracts) are updated.
There could be potential impacts due to internal wage relativity (e.g. how employees are paid compared to each other) and external benchmarking (e.g. how your pay rates compare to others in your industry or sector).
About Alliott NZ:
Alliott NZ is a full-service accounting firm based in Auckland, New Zealand and is a CAANZ Top30 NZ accounting firm, providing Accounting Services, Expert Business Advice and Financial Management Services for small to medium sized businesses.
At Alliott NZ we understand you want your business to succeed and grow. For that to happen you need us to be accessible, transparent and responsive in all our dealings with you and provide you with timely and strategic financial advice when you need it. Most of all, you need us to have your best interests at heart. That's why at Alliott NZ, we:
- always price our work up front;
- guarantee a four-week turnaround;
- readily share our financial knowledge and business insights with you; and
- continuously monitor industry trends and technology so we can provide you with expert and quality advice.
We call this The Alliott Difference.