Government delivers April 1 tax cuts, SME changes

New Zealand households will get a billion-dollar-a-year boost from tax cuts which take effect this week, Finance Minister Bill English and Revenue Minister Peter Dunne said today.

The personal tax cuts, which take effect from Wednesday, will boost the income of a worker on the average wage of $48,500 by $18 a week. A range of initiatives making it simpler and less expensive for small and medium sized businesses to pay tax also take effect from this date.

"These changes form a central part of the Government's Jobs and Growth plan and will provide a shot in the arm for our economy at a vital time," Mr English said.

About 1.5 million workers will receive a personal tax cut, injecting an extra $1 billion into the economy in the coming year. The business initiatives are worth $484 million over four years.

"The tax cuts we have delivered will stimulate the economy in the short term by putting cash in people's pockets, and in the longer term by encouraging people to invest in their own skills to earn and keep more money. They are an important step towards the government's medium-term goal of delivering a tax system that rewards effort and provides better incentives to get ahead."

Mr Dunne said the personal tax cuts took New Zealand one step closer to a 30/30/30 percent alignment of the top personal, company and trustee tax rates.

"That is something I have long advocated and I'm pleased it is now a medium term government priority. In regard to small and medium-sized businesses, the tax assistance initiatives will make it easier for them to manage their cash flows and meet their tax obligations during tough economic times," Mr Dunne said.

For earners the changes mean tax rate cuts and threshold changes, as well as a new Independent Earner Tax Credit,which will give an extra $10 a week to those earning between $24,000 and $44,000 a year who do not receive a benefit, Working for Families tax credits or New Zealand Superannuation.

"This provides tax relief to a group of hard-working low and middle-income earners who received very little from the previous government," Mr English said.

The Ministers said nearly every business would benefit in some way from the tax assistance initiatives, which allow companies to keep their money longer, reduce the interest they pay on underpaid tax and cut compliance costs.

From April 1 members of KiwiSaver will also get cash relief, with the minimum level of contributions dropping from 4 percent of their pay to 2 percent. The employer tax credit and $40-a-year member fee subsidy will also cease.

The attached table shows how much the tax cuts deliver from April 1. These savings are in addition to the 1 October 2008 tax cuts. A factsheet outlining the specific changes is also attached.

April 1 personal tax changes

• The threshold where the 33c in the dollar personal tax rate begins rises from annual income of $40,000 to $48,000.


• A new Independent Earner Tax Credit will return $10 a week to people earning between $24,000 and $44,000 who do not receive a benefit, Working for Families tax credits, or New Zealand


• Superannuation.The IETC will be abated at 13c for every dollar earned over $44,000.


• The rate of tax paid in the top personal income bracket, which starts at $70,000, reduces from 39c in the dollar to 38c.

April 1 SME initiatives include

• Removing the 5 percent “uplift” rate that businesses pay in advance on provisional tax instalments throughout the year.


• The GST payments threshold will increase to $2 million in annual revenue from $1.3 million.


• The GST registration threshold will increase to $60,000 in annual revenue from $40,000.


• The GST six-monthly return filing threshold will be raised from $250,000 to $500,000.


• Businesses with $10,000 or less of annual business-related legal expenditure can fully deduct the expense in the year it is incurred, regardless of whether or not it is a capital expense.


• The PAYE once-a-month filing and payment threshold will be raised to $500,000 in employer PAYE deductions from $100,000. \


• The Fringe Benefit Tax annual filing threshold will be raised to $500,000 in employer PAYE deductions from $100,000.


• The value of minor fringe benefits (such as chocolates and flowers) that can be provided to employees without attracting FBT will increase to $300 a quarter per employee up from $200, and $22,500 a year per employer from $15,000.


• The provisional tax "use of money" safe harbour threshold will be raised from $35,000 to $50,000.


• Another part of the package - reducing the “use of money” interest rates on underpaid and overpaid tax from 14.24% to 9.73% and 6.66% to 4.23% respectively took effect on March 1.

KiwiSaver changes

• The minimum level of employee contributions will drop from 4 percent of pay to 2 percent.


• The member fee subsidy of $40 a year will cease.


• The minimum level of employer contributions will stay at 2 percent. The tax-free threshold will also stay at this level.


• The employer tax credit will cease.