Tax bill improves fairness at home and abroad

  • NZ joins global effort to ensure multinationals pay a minimum rate of tax
  • Tax on ACC, MSD lump sum payments changed to reduce amounts owing for some
  • KiwiSaver topups for child carers taking paid parental leave
  • Implementing changes to trustee tax and tax relief for flood-hit businesses

Several measures in a tax bill introduced today will lead to fairer outcomes for taxpayers here and overseas, Revenue Minister David Parker said today.

“The bill commits New Zealand to an OECD-led global tax initiative aimed at ensuring large multinationals pay a minimum tax rate of 15 per cent in participating countries. The aim is to stop a global “race to the bottom” among countries trying to entice the mobile capital of multinationals by slashing their tax rates.

“The GloBE tax measure is expected to raise only minimal revenue in New Zealand, where we have a 28 per cent corporate tax rate and a relatively robust international tax regime. This is about our country playing its part in this worthy global effort,” David Parker said.

“It also reduces the overseas compliance costs of New Zealand-based multinationals. When asked, they said they prefer to deal with Inland Revenue alone, rather than multiple overseas tax jurisdictions.

Smoothing tax on ACC, MSD lump sums

Another initiative, taking effect from 1 April 2024, deals with a fairness problem around the tax treatment of backdated lump sum payments from ACC and MSD.

“Currently, the tax system treats such payments as income in the year they receive it.  This means recipients might have to pay more tax than if they had received the payment in smaller instalments over a longer period.

“The change in this bill smooths the tax treatment of ACC lump sums, so that the recipient pays the average of their applicable tax rate over the previous four years. This may be a considerable saving for some people.

“This has been a long-standing concern, and I am pleased to be able to announce a remedy today,” David Parker said.

KiwiSaver boost for paid parental leave

A further change will help the savings rates of women in the main, who typically retire with a smaller savings nest egg than their male counterparts.

“Child carers often take paid parental leave, but this can put the brakes on their KiwiSaver contributions. Recognising this, the Government will pay a three per cent contribution to the KiwiSaver accounts of paid parental leave recipients, provided they continue to make their own contributions to KiwiSaver while on leave.

“Good childcare is important, but it is often unpaid. This small top-up helps redress the imbalance with others, normally males, who do not take extended childcare leave.”

Implementing other changes to trustee tax, tax relief for flood-hit businesses

The bill also gives effect to the trustee tax change announced in the Budget, and to tax relief for flood-hit businesses that I announced last month.

“The trustee tax change will align the trustee tax rate with the top personal tax rate of 39 per cent. There is evidence that high income earners have shifted their income to trusts to avoid the top personal rate.

“This change will mainly affect the super-trusts of the super-wealthy. In the 2021 tax year, 5 per cent of all trusts that earned some income earned 78 per cent of all trustee income. The change does not ordinarily target smaller family trusts, who can continue to use existing rules to allocate trust income to beneficiaries to be taxed at their personal rates.

“The bill also implements a measure allowing businesses who receive insurance or compensation for their flood-damaged assets to have tax on those payments deferred.

“There are a number of other small tidy-up measures in the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill.

“Taken together, the underlying theme of the measure in this bill is adjusting the system to achieve fairer results for taxpayers,” David Parker said.