Dunne: April 1 tax changes promote fairness, boost business

Tax changes taking effect tomorrow are in line with the Government’s vision to make the tax system fairer and encourage productivity through saving and enterprise, Revenue Minister Peter Dunne said today.

“From 1 April, tax on interest earned from savings will match lower income tax rates introduced in 2009. This means savers who have confirmed their correct tax rate with their bank won’t be paying more resident withholding tax on their interest earnings than they need to,” he said.

The new RWT rates will be 12.5%, 21%, 33% and 38%, depending on people’s personal tax rates.

People who are currently on the 19.5% RWT rate will automatically be moved to the new 21% rate.

Mr Dunne said it was important that when people open a bank account, they give their bank their correct tax rate so they receive the benefit of the changes.

“It is in taxpayers own interests to make sure they do not end up with a tax bill at the end of the year because they have had RWT withheld at the wrong rate,” he said.

The default rate for those who open a new account from 1 April and do not specify their tax rate will rise from 19.5% to 38%.

“Savers with investments in portfolio investment entities will also be taxed on their interest earnings at the new income tax rates, up to the maximum rate of 30% that applies for PIEs, so they receive the same benefits as people who invest directly,” Mr Dunne said.

“There will also be a new 30% RWT rate on interest for companies. Banks and other interest payers will have the option of applying this new 30% rate for one year from 1 April 2010 and it will be compulsory after that.”

A new 12.5% secondary tax code for employees who receive secondary income and a new 12.5% withholding tax rate for extra pays also brings the withholding rates on employment income into line with the new personal tax rates introduced in 2008.

A number of other important changes to the tax rules will also come into effect from 1 April.

“Among these is a major change to our international tax rules, which will enable New Zealand-based businesses to compete more effectively in foreign markets.

“This change was part of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act passed in December last year, and brings New Zealand’s tax rules into line with other countries by giving a tax exemption for income earned offshore from “active” business such as manufacturing or sales.

“This is a very significant step forward in our ongoing reform of the international tax rules to make New Zealand businesses more competitive internationally,” said Mr Dunne.

The exemption applies from 1 April 2010 for taxpayers with a standard balance date.

Changes to strengthen the definition of “associated persons” in income tax law to prevent people in non-arm’s length situations circumventing our tax laws also come into force on 1 April for standard balance date taxpayers.

ENDS

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