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What do the upcoming tax changes mean for you?

By SmartPayroll | March 30, 2021

The end of financial year is just a few days away and there’s some key changes coming in on 1 April 2021. With the introduction of a new tax rate, minimum wage rate, Payday Filing version 2, new KiwiSaver options, plus the usual annual tax and legislation changes, there’s a lot to be aware of. To help you out, we’ve summarised these changes and what they mean for you.

Rate updates

ACC Earners’ Levy Rate

The Earners’ Levy rate for the 2021/2022 tax year will remain unchanged at $1.39 for every $100 of liable earnings. The maximum liable earnings threshold also remains at $130,911.

Student Loan Threshold

The annual student loan repayment threshold has increased to $20,280 for the 2021/2022 tax year. This is the income level above which student loan deductions will be taken. This is broken down by pay period threshold amounts in the following table:

If you’re paid… Your repayment threshold is…
Weekly $390
Fortnightly $780
Four-Weekly $1,560
Monthly $1,690
Annually $20,280

 

New tax threshold and rate change

A new top personal income tax rate of 39% applies on annual personal income that exceeds $180,000. The personal income tax rates from 1 April 2021 are:

Taxable income Tax rate
$0 – $14,000 10.5%
$14,001 – $48,000 17.5%
$48,001 – $70,000 30%
$70,001 – $180,000 33%
$180,001 upwards 39%

If you’re using SmartPayroll, we’ll automatically switch to the updated tax rates from 1 April 2021. More information about tax rates is available here.

Secondary tax codes

To support the new top tax rate, the ST secondary tax code will still apply for secondary employment earnings for an employee whose total income subject to PAYE is more than $70,000 but would only apply up to $180,000.

Where an employee’s total income subject to PAYE is greater than $180,000 the new SA tax code will apply from 1 April 2021.

Tax code changes for use on Employment Information (EI) return Description
ST Secondary income $70,001 to $180,000
SA Secondary income > $180,000
ST SL Secondary income $70,001 to $180,000 with Student Loan
SA SL Secondary income > $180,000 with Student Loan
NB: “Secondary income” is the total of all employment income from all sources (primary and secondary)

 

Employer Superannuation Contribution Tax (ESCT)

A new ESCT rate of 39% on superannuation contributions made for an employee whose ESCT rate threshold amount exceeds $216,000 will apply from 1 April 2021.

ESCT rate threshold amount Tax rate
$0 – $16,800 10.5%
$16,801 – $57,600 17.5%
$57,601 – $84,000 30%
$84,001 – $216,000 33%
$216,001 upwards 39%

 

Extra Pay Tax

Lump sum payments – also called extra pays – earned in the course of employment such as bonuses, backpay, redundancy and retirement payments, are generally taxed at the employee’s marginal rate. The new 39% tax rate will apply on extra pays if a person’s gross taxable annual income exceeds $180,000.

Moving to version 2 of Payday Filing

For files with a payday of 1 April 2021 or later, Inland Revenue (IR) will require all employers to use the new payday filing format (version 2). Version 2 provides more Employment Information (EI) and Employee Detail (ED) information than the current version 1.

The addition of KiwiSaver details in version 2 of the ED file means a separate KiwiSaver Employment Details (KS1) form will no longer need to be filed.

Note: Any amendments to previously filed EI files (EIA) will have to be made using the same version as the original EI file. This means that if you file through version 1, you must amend through version 1.

Reporting KiwiSaver information

IR have introduced new requirements for reporting KiwiSaver information via payday filing. We’ve outlined the available options in SmartPayroll to accommodate this.

KiwiSaver status

IR have updated the KiwiSaver status codes for version 2. To support this, the SmartPayroll KiwiSaver options have been updated and are outlined in the table below along with a description of the circumstances in which they should be used.

Selecting the correct KiwiSaver option is important as this determines whether KiwiSaver is deducted from an employee’s pay packet and what information is sent in the ED file. There’s some more information about KiwiSaver for new employees here.

KiwiSaver Option on SmartPayroll When to use
Exempt
  • an employee not eligible for KiwiSaver
  • an employee who doesn’t need to be automatically enrolled and has chosen not to opt-in

Note: not to be used for employees who fall into the categories for Exempt (Casual/Temp employee) or Exempt (Under 18).

Exempt (Casual/Temp employee)
  • a casual employee who has chosen not to opt-in
  • a temporary employee employed for 28 days or less who isn’t required to be automatically enrolled and has chosen not to opt-in

Note: not to be used for Casual Agricultural Workers (tax code CAE).

Exempt (Under 18)
  • an employee exempt from KiwiSaver because they are aged under 18 years, and they have not opted in with their scheme provider
Opting In (Existing Member)
  • an employee that is already a KiwiSaver member
Opting In (Automatic Enrolment)
  • a new employee required to be automatically enrolled
  • a temporary employee who is automatically enrolled after 28 days (i.e. changing from option Exempt (Casual/Temp))
  • a casual agricultural employee (tax code CAE) who is automatically enrolled after 3 months

Note: not to be used for anyone who opts in voluntarily, use Opt In (Voluntary Enrolment) instead.

Opting In (Voluntary Enrolment)
  • a new or existing employee aged 65 years or older and chooses to opt-in
  • a new or existing casual employee chooses to opt-in
  • a temporary employee chooses to opt-in within 28 days of starting their employment
Opting Out
  • an employee who is automatically enrolled, and has chosen to opt out (employees cannot opt-out within two weeks of their start date)
Opting Out (Over 65)
  • an existing employee who is aged 65 years or older and belonged to KiwiSaver and has now chosen to opt-out
Savings Suspension
  • an opted in employee is on a savings suspension

 

Late opt-out reasons

If an employee is automatically enrolled in KiwiSaver when they start their new job, they can opt-out between 2 to 8 weeks of starting work (i.e. between day 14 and day 56).

Subject to approval from IR, an employee may be able to opt-out after 8 weeks, but they must provide a reason for the late opt-out.

The following table lists the late opt-out reasons available on SmartPayroll. Remember, this field should only be used if the date of the signed opt-out notice you receive from your employee is 56 days or more after their employment start date.

More information about employees who opt-out late from KiwiSaver can be found here.

Late opt-out reasons
Employer did not provide a KiwiSaver information pack within seven days of starting employment (see KS3 for criteria)
Inland Revenue did not send an investment statement upon allocation to a default scheme
Employer did not provide an investment statement (for the employer-chosen KiwiSaver scheme)
Events outside of control meant the opt-out application was unable to be submitted within eight-week time limit
Did not meet the criteria to join KiwiSaver
Incorrectly enrolled under the age of 18
Other reason (please explain)

If you select “Other reason (please explain)” you will be prompted to provide a reason. This information will be sent to IR.

KiwiSaver Exempt Income

IR require employers to select one of the below options if an employee is likely to receive KiwiSaver exempt income within their first 12 months of employment.

This is required to be selected for new employees only (it is not retrospectively applied to existing employees) and will be reported to IR when the employee is first paid. Note the employee doesn’t have to receive the exempt income payment in their first pay.

In the event the employee will receive more than one type of KiwiSaver exempt income within the 12-month period, then the reason associated to the income type with the greatest estimated overall value should be selected.

More information about KiwiSaver exempt income can be found here.

 

SmartPayroll Exempt Income Options (Employee Details Screen) Description
Provide board-lodging or use of a house or part house or equivalent allowance The value of providing board, lodging, use of a house or part of a house, or an allowance instead of accommodation
Honoraria payments Honoraria payments paid by Fire and Emergency New Zealand to a volunteer
Overpayment of an amount of an employer’s superannuation cash contribution Repayment to an employee of overpaid superannuation employer contribution
Retiring allowance Retirement/pension payments.
Taxable allowances for accommodation and living costs overseas Expenditure or allowances for accommodation and living costs overseas
Some payments under a voluntary bonding scheme and living costs overseas Payments under a Voluntary Bonding scheme funded by the Ministry for Primary Industries, the Ministry of Health or the Ministry of Education

 

Other legislative changes

New Minimum Wage Rate

The minimum wage is set to increase on 1 April 2021 from $18.90 per hour to $20.00 per hour (before tax).

The starting out and training minimum wage rates will also increase from $15.12 to $16.00 per hour (before tax).

Note: you will need to update the rate for any employees affected by this change as SmartPayroll does not automatically change wage rates.

For some our top end of financial year tips, head to our EOFY Blog.

 

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