THE
REDUNDANCY TAX CREDIT
WHAT IS IT?
Currently, income earners can be overtaxed when their redundancy payments
push them into a higher tax bracket.
If these payments are taxed at a higher tax rate, without taking into
consideration your personal tax rates before and after redundancy, you may
be over taxed.
The government has passed legislation to make taxing redundancy payments
fairer to people who are pushed into a higher tax bracket when they receive
the lump sum payment.
A simple tax rebate (the redundancy tax credit) has been introduced that
will apply to redundancy payments paid on or after 1 December 2006.
WHO CAN APPLY?
The redundancy tax credit is generally allowed on a redundancy payment
that is:
- paid to an employee whose employment is terminated because the
position is surplus to the requirements of the person's employer, and
- compensation for the person's loss of employment.
WHO CANNOT APPLY?
Some payments do not qualify for the redundancy tax
credit. The redundancy tax credit is not allowed for a payment
for:
- retirement from employment
- loss of seasonal employment arising from a normal seasonal work cycle
- a contract of employment for a fixed term, or for the duration of a
project
- employment for a period following notice of termination of employment
- a redundancy payment paid, directly or indirectly, by an employer who
is "associated" (see below) or related to the employee.
Associated Rules
The tax credit is not allowed for a redundancy payment paid, directly or
indirectly, by a person who is "associated" or related to you.
Payments that may not qualify for the tax credit include redundancy
payments paid directly or indirectly by:
- a company to its director, or to a shareholder-employee
- an employer who is a close relative of the employee, or spouse, or
civil union or de facto partner
- a partnership to any of its partners
- a trustee to an employee who is also a beneficiary or a settlor of the
trust.
NEW
SECONDARY TAX RATES FROM 1 APRIL 2010
New secondary tax rates and thresholds from 1 April 2010:
| Income threshold |
Rate |
Tax code
(no student loan) |
Tax code
(with student loan) |
| $0 - $14,000 |
12.5% |
SB |
- |
| $14,001 - $48,000 |
21% |
S |
S SL |
| $48,001 - $70,000 |
33% |
SH |
SH SL |
| $70,001 and over |
38% |
ST |
ST SL |
If any of your employees have more than one job they may want to check
their tax code is correct. They can work out if they're on the right code by
using out work out
your tax code decision tree. If they want to change their tax code they
need to complete a Tax code declaration (IR 330) form and
give it to you. You'll need to update your Employer monthly schedule (IR
348) with their new tax code and calculate PAYE at the correct rate.
Use our PAYE calculator to calculate your PAYE, go to "Work
it out".
APPLYING
FOR INSTALMENT PAYMENT ARRANGEMENTS ONLINE
If you think you may have financial difficulty paying your tax
IRD now
have a new service where you can apply online for an instalment arrangement.
You can find the Instalment arrangement proposal under "Get
it done online".
This is what you'll need to do when you apply:
- Fill in your IRD number, name and contact details.
- Propose an instalment payment plan, including payment amount,
frequency and start date.
- Include your weekly income after tax.
- Tell IRD about the financial or personal circumstances that have led
you to apply to pay off your debt.
IRD will email you within three working days to say if they have accepted your
proposal or if they need more information.
TAX
STATISTICS AVAILABLE ONLINE
A range of statistics about tax revenue and social entitlements is
available on the IRD website.
The statistics include data about customers, revenue collection, donation
rebates, Working for Families Tax Credits entitlements, child support, GST
turnover and filing, and income distribution by income bands.
They cover the years from July 2001 to June 2008, and customer data is
available from April 2001 to March 2008. The figures will be updated every
year and the current tables were published on 1 December 2009.
View
the tax statistics.
T
RUSTEES
OBLIGATIONS FOR INVESTING
Trustees must be particularly careful when investing
trust assets. They must invest the trust's assets according to the
Trust Deed, any statute and general law that is in place and also in
accordance with any court order.
Generally a trustee must:
A trustee should also take advice in areas where the
trustee does not have any expertise, such as investments. Section 13B
Trustee Act 1956 states "A trustee exercising any power of investment
shall exercise the care, diligence and skill that a prudent person in
business would exercise in managing the affairs of others"
If the trustee has special skills from their profession,
employment, or business, a higher duty of care is imposed. Section 13C
Trustee Act 1956 states "the trustees in exercising any power of
investment, shall exercise the care, diligence and skill that a prudent
person engaged in that profession, employment, or business would exercise in
managing the affairs of others" These are high standards for
trustees to meet.
It is important to note that prudent decisions are
measured by how investment decisions are made by the trustees rather than
the results of the investment decisions made.
An Investment Strategy should take into account the
following:
-
Objectives for the Trust. What are the trust
funds required for? How much is required? Whan are the funds required?
-
The Risk Profile of the Trust. Unless
authorised by the Trust Deed, trustees must not make speculative
investments. This does not mean that trustees cannot make
investments that may carry a degree of risk, but the degree of risk must
be reasonable and in keeping with the trust's objective and risk
tolerance
-
Capital growth and income requirements thatrmeet the
needs of the beneficiaries
-
Liquidity needs for the Trust
Beneficiaries may request access to Trust
documentation. The investment strategy will show benedficiaries that
the trustees are very clear about their investment obligations.
