Since the introduction of withholding tax on employer contributions in April 1990 the rate has been 33%. Since that time changes in the marginal tax rates of employees have resulted in it being more tax effective to pay employees rather than to make contributions to superannuation on their behalf.
ASFONZ and other industry bodies have been lobbying government over a lengthy period to address this anomaly.
Right up to the final report of the Finance and Expenditure Committee on the Bill the proposed legislation introduced a degree of complexity at payroll level that may have resulted in reluctance on the part of employers to take advantage of the changes. As recently as mid-October it appeared that even more complexity might result from changes proposed by United Future's Gordon Copeland.
As it has turned out, a last minute change in stance has resulted in the Act introducing an approach which is simpler to administer than the approach set out in the Bill. The Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 which received Royal Assent on the 25th of November 2003 introduces a system to apply from 1 April 2004 which provides for withholding tax to be levied (at the employer's discretion) at the current rate of 33% or at a rate related to the income derived by the employee in the previous income year. For employees with less than a year of employment the rate will be based on the employer's estimate of earnings in the next year.
The proposals preserve the 33% withholding tax rate for those with earnings in excess of $38,000 the new rates are 15% for those with earnings up to $9,500 and 21% for those between $9,500 and $38,000. The Act wording suggests that employers will be able to make their decision on an employee by employee basis.
Spooner notes that the new option will still result in extra work at payroll level but, in comparison to the options put forward to date, it is relatively simple. Accordingly she hopes that this will mean that more employers adopt the new progressive rates to the benefit of lower income members of schemes. Of the set of three options put up for consultation this option was ASFONZ's preference. Other options put forward by ASFONZ were dismissed.
The Act is expected to be supported by an Income Tax Bulletin to be released in the near future to explain in more detail how the Act is to apply. Of particular interest will be how defined benefit plans will be treated under the new regime.
| « Planning for the future is not just about retirement | Raising retirement age positive » |
Special Offers
© Copyright 1997-2024 Tarawera Publishing Ltd. All Rights Reserved