A new tax rate and other big changes coming your way in 2021

22 February 2021
‘To be prepared is half the victory.’ So, in the spirit of preparation, we’ve put together a roundup of the big changes business owners in New Zealand have coming their way in 2021.

It’s fair to say 2021 has not exactly delivered the “return to normal” we were hoping for. Businesses in New Zealand - regardless of industry or size  - are collectively facing an unknown road ahead. For some, there are many opportunities, for others, there are many challenges.

Despite the uncertainty out there, there are a few things we know for sure. In the coming financial year, expect to see changes to tax rates, minimum pay rates and leave benefits. Here are the important changes and updates business owners and managers need to know about for 2021.
Tax rate changes: the new top tier

One of Labour’s key election promises, the new top tax rate began to see the light of day towards the end of last year. In case you were preoccupied with summer holidays and planning Christmas parties, here's a recap of the details you need to know:

From the start of the 2022 financial year, a new tax rate of 39% will apply to personal income above $180,000 pa. Currently there are four individual tax rates in New Zealand using a progressive system; this will become the fifth. Current tax rates in New Zealand are:

  • Income up to $14,000 - 10.5%
  • Income over $14,000 up to $48,000 -17.5%
  • Income over $48,000 up to $70,000 - 30%
  • Income over $70,000 - 33%

What you need to know:
  • The new tax rate applies to all employment income including bonuses, back pay and redundancy payouts.
  • The new rate takes effect from April 1, 2021 (the 2021-22 financial year)
  • Both the company and trust tax rates are unchanged at 28% and 33%, respectively.
Minimum wage increase

Another follow on from Labour’s election promises is an increase to the minimum wage. From April 1, 2021, we will see the adult minimum wage rise to $20 per hour. This is an increase of $1.10 per hour from the current rate of $18.90 per hour. The last time New Zealand saw a wage increase was in 2017.

The training and starting-out minimum wages will both increase to $16 per hour, remaining at 80% of the adult minimum wage. The current rate for this group is $15.12 per hour.

Workplace Relations and Safety Minister Michael Wood has stated the wage increase will boost the economy by $216 million adding $44 a week into the pockets of nearly 175,000 Kiwis.

While the wage increase aims to strengthen the economy, it is coming at a tough time for business owners. The wage increase has been on the cards for many years; business owners at least have some certainty in this area now that the new rate is locked in.

What you need to know:
  • The minimum wage will increase from $18.90 to $20.00, a 5.8% increase
  • Minimum wage rates apply to employees aged 16 years and over in full or part-time work, fixed-term, casual, or working from home
  • The rate increase applies to employees on an hourly rate or salary as well as most commission-based employees.
Maternity leave on myIR

From March 1, 2021, employees will have the ability to apply for and manage their paid parental leave (PPL) in myIR. Through IRD’s myIR site, individuals can easily update contact details, account details and change of circumstances.

As well as this, recent regulation changes now allow more information to appear automatically in myIR. The IRD will pre-populate some of the information required for maternity leave applications, including employer details and income estimates. For employers, this means they no longer need to verify income details for employees. The changes also apply to self-employed workers.

Find out more about paid parental leave changes here.

2019/2020 mileage rates

The IRD has released mileage rates for 2019/2020. This information will be of use to anyone who runs a vehicle for work purposes. 

If you have a vehicle used only for business purposes, you can claim all running costs as a business expense. If the vehicle is used for both business and personal trips, you will need to work out how to allocate costs correctly. The recently announced 2019/2020 mileage rates will affect how you do this.

The new Tier One rate - relating to your vehicle's fixed and running cost - has increased. The IRD says the increase reflects rises in owning a vehicle, including insurance and registration charges.

The new Tier Two rate  - relating to running costs only - has lowered. The decrease reflects the lower overall cost of operating a vehicle mainly due to lower fuel prices.

Any employer needing to estimate reimbursements for employees who use their vehicle for business purposes will also need to be aware of the new mileage rates.

The new 2019/20 mileage rates:
Vehicle Type Tier One Rate Tier Two Rate
Petrol or Diesel 82 cents 28 cents
Petrol hybrid 82 cents 17 cents
Electric 82 cents 9 cents

If you've already filed your 2020 income tax return using the previous rates, get in touch and we can help with any amendments you may need to make. Find out more information on the 2019/2020 mileage here.

With a clearer idea of the big changes coming your way, now is the perfect time to review your business planning for 2021. Got a query on tax rates, wage increases, mileage claims or leave entitlements? Get in touch - we’re here to help.
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