On April 1, we move into a new financial year for most Kiwi businesses – and the new top personal tax rate comes into effect. For individuals earning over $180,000, that top chunk of income will now be taxed at 39% instead of 33%.
This will only affect you if you personally earn more than $180,000 each year. It won’t make a difference if your household earns more than $180,000, but you and your partner each make less than that threshold.
If you do earn over $180,000, it’s also important to note that you don’t pay an extra 6% on all your income. For example, if you earn $200,000, you’ll only pay 39% tax on the last $20,000 of income, not the entire $200,000. In total, you will pay around $1,200 more under the new rate compared to the old one.
An ideal time to review your structures
This is an ideal time to take a closer look at how your affairs are structured – you certainly don’t want to be paying unnecessary tax.
However, it’s vital that you don’t appear to be acting in order to avoid paying the higher rate. Inland Revenue has been very firm on this: “IR will be keeping a close watch for any activity by (those affected) that looks like its primary aim to is avoid the 39%. If that’s how it looks to us then we’ll take the necessary action… The message really is, if you’re in doubt, or have questions, the best thing to do is seek advice.”
We’re here to provide exactly that advice, so do get in touch if you have any questions about how the new top tax rate will apply to you, and to review your current structures and set-ups. We’d love to hear from you.
Words extracted from Boma Marketing