Recent hatches: Tax legislation changes in New Zealand
As the End of Financial Year approaches in New Zealand, here’s a look at key taxation legislation changes that could impact your employees and Human Resources/payroll business processes.
Employee Share Scheme (ESS) gets more options
Effective 1 April 2017, employers can opt to withhold PAYE on benefits provided under an employee share scheme by processing them as “extra pay”.
If an employer does chose to tax ESS benefits in this manner it would also include other obligations such as student loans and child support.
This information will be reported on the EMS regardless of whether PAYE has been deducted or not. It would be classified on the EMS as ‘Gross Earnings’ and ‘Earnings not liable for ACC Earners’ Levy’, except when:
- an employee or associate of the employee sells share rights to a non-associated third party,
- share benefits arises from a “Commissioner approved” employee share purchase scheme; and
- share benefits are provided to a former employee.
This is a significant change as typically, ESS benefits have always been the obligation of the employee/taxpayer (even in neighboring Australia). The IRD was however concerned about ESS not being taxed accurately, with some individuals treating them as tax free capital gains.
That said, where an employer chooses not to withhold PAYE on the benefits an employee received under a share purchase agreement, the obligation to pay tax remains with the employee.
At the same time, the IRD issued some guidance to help clarify their position on ESS benefits including deductions for employers and the special rules for start-ups.
Minimum Wage receives a booster
As of 1 April 2017, the minimum adult wage will increase from $15.25 per hour to $15.75 per hour and the “starting-out” minimum wage moves from $12.20 per hour to $12.60 per hour (80% of the adult minimum).
ACC Earners’ Levy inches up
Cabinet has agreed on the rates for the ACC Earner Levy for the 2017/18 financial year, however they are still subject to final regulations being issued.
Schedular Payment Deductions awaits approval
The following proposed changes to Schedular Payment Deductions will take effect from 1 April 2017 if the Taxation (Business Tax, Exchange of Information and Remedial Matters) Bill is passed:
- Contractors (including companies) hired by labour-hire firms under a labour-hire arrangement will be added as a new scheduler payment type;
- There will be an additional new schedular payment type for persons wanting to voluntarily have tax deducted from their contractor income. The voluntary schedular payments will have a standard 20 cents to the dollar of the payment;
- Most contractors will now have the ability to elect their own withholding rate, subject to a minimum of 10 cents per dollar of the payment;
- The Commissioner will also be able to notify the payer of a specific tax rate to be deducted from contractor payments; and
- A new tax rate notification form will be issued in due course to cover all schedular payments and the existing IR330 will be amended to remove them.
For further information, please check the IRD website and keep an eye out for updates on the progress of this legislation via my regular blogs.
NZ Government’s Business Transformation takes its first steps
The New Zealand Government confirmed in late 2016 that the Business Transformation initiative will be extended to cover ‘payday payroll reporting’ from 1 April 2019. Employers and employees can expect quite a few changes, including adjustments to Inland Revenue (IR) Electronic Filing.
Keeping up with how taxation legislation changes affect you and your employees can be confusing. Hope this helps you understand what action you may need to consider.
Written by: Angela Lehmann, ADP, Legislative Manager