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Tax changes to give - and take

Published: 12:20PM Friday March 30, 2012 Source: ONE News

For many Kiwis, next week's tax changes may be a case of "the Government giveth, and then the Government taketh away".

The start of the new financial year on April 1 sees a reduction in the ACC levy rate, the removal of a tax exemption for KiwiSaver contributions, Working for Families adjustments and changes to the student loan scheme.

The ACC levy, which is applied to salary and wage income, is currently 2.04% but is being reduced to 1.70% after several years of increases.

That means an additional $2.72 per week going into the pay pocket, instead of to the IRD, for the average Kiwi on the median wage of $41,600 a year.

However, for many, that will be gobbled up by another change.

Employer KiwiSaver contributions of up to 2% used to be tax exempt but the Government removed that in last year's Budget and the changes are now coming into effect.

Median-wage workers who contribute the minimum 2% of $16 per week will lose $2.80 from the matching employer contribution, an overall net loss of eight cents a week versus the levy change.

Families' tax credits

Ernst and Young tax partner Jo Doolan told TV ONE's Breakfast today that the 400,000 Kiwi families who currently receive Working For Families (WFF) tax credits will also be affected by the April 1 changes.

"Previously if you got fringe benefits or you had some sort of investments via trusts, these weren't counted in how you calculated your entitlements. From now, those amounts will count and there's a slight adjustment where about 7000 families will no longer qualify," she said.

Doolan says about 200,000 Kiwi families will be receiving slightly more from WFF while 100,000 will be getting less.

Overall the tax partner said the onus is on workers to figure out what they are entitled to and tell their bosses if they need to make changes, especially if they have more than one job.

Small business specialists MYOB says these small adjustments could provide a major headache for employers, and payroll adjustments must be made.

"While each is just an adjustment to existing schemes, the potential is that employers might not be aware of the changes, or may not take them into account immediately - and end up overtaxing their staff," MYOB general manager Julian Smith said.

Smith says the reduction in ACC payments is a key change employers need to be across.

"While it's never good for employers to be overtaxing their staff, with sluggish growth across the country at present we need all New Zealanders to be getting everything they've earned, and investing that back into the economy."

In addition to the tax changes, 1 April sees the introduction of new Student Loan rules, with all borrowers now required to use a student loan tax code, regardless of their earnings threshold, and separate tax codes for compulsory (SLCIR) and voluntary (SLBOR) deductions.

MYOB has prepared some end of year information for employers.