NEWS

Following changes to the Tax Administration Act 1994, those who receive significant other income will now have to apply for a special tax rate as per this letter from the IRD...

Tax Codes Letter from the IRD

We are aware that some tax agents have encouraged their clients to use a higher tax rate, such as a secondary tax rate (ST code), to help offset tax bills based on other income they receive.

Due to changes in the Tax Administration Act 1994 Schedule 5 Part A Clause 4, this is no longer allowed if the income being taxed at the higher rate is their only source of PAYE income. The legislation was updated with effect from 1 April 2019 by the Taxation Act 2019 which changed the phrasing around use of tax codes when considering an income source from "annual income is" to "total PAYE income payments are".

Employers and the Ministry of Social Development have been instructed to change tax codes in accordance with the new legislation. We have issued letters to affected customers to let them know their new tax code.

If you do not want a client to have their source deductions taxed at the rate in this letter, you will need to apply for a tailored tax code.

From October, we will begin issuing letters to individuals where the tax code they're using is unsuitable. For example, this may include an individual using the correct secondary tax code but whose secondary income tax spans tax brackets and results in too much PAYE being deducted. We will recommend these individuals apply for a tailored tax code to calculate a rate that will work for them.

Once this tailored tax code has been granted, we will notify both the individual and their employer.

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Please don't be concerned if you receive a letter from the IRD advising that your tax code needs to be changed. Simply call or email us and we can sort this out for you.

 

Disclaimer

This information is intended to provide general advice only.  We recommend you discuss your specific situation with your Accountant.