Issued
01 Jun 1985

Income Tax Amendment Act 1985

Archived legislative commentary on the Income Tax Amendment Act 1985 from PIB vol 133 Jul 1985.

This commentary item was published in Public Information Bulletin Volume 133, July 1985

More information about Public Information Bulletins.

1984-1985 Legislation

Income Tax Amendment Act 1984

Income Tax Amendment Act 1985

National Superannuitant Surcharge

Introduction

This Public Information Bulletin contains:

  1. Details of the legislation giving effect to the national superannuitant surcharge which applied from 1 April 1985.
  2. Supplementary information on a number of matters affecting the surcharge.
  3. Two examples of how the various provisions of the surcharge interact.
  4. A decision model flowchart which can be used to determine a national superannuitant's liability for the surcharge and the ways in which he can pay that surcharge.

Note: This Bulletin does not take into account the changes to the national superannuitant surcharge announced in the June 1985 Budget, namely, the increase in the maximum specified exemption levels from $6,240 to $7,200 and from $10,400 to $12,000 which are to take effect from 1 April 1986, and the extension of the period in respect of which national superannuation continues to be paid to a superannuitant who is temporarily overseas from 13 weeks to 26 weeks.

The Legislation - The New Part XA

The surcharge is imposed in a new Part XA of the Income Tax Act 1976 (hereafter referred to as the principal Act) which was inserted by section 17(1) of the Income Tax Amendment Act 1984 and was subsequently amended (before its 1 April 1985 introduction) by the Income Tax Amendment Act 1985.

The new Part provides that national superannuitants who have taxable incomes other than national superannuation in any income year above certain limits shall be liable to a surcharge of 25 cents in the dollar on the balance of that other income. There is however a maximum surcharge liability in respect of any income year which will be the net amount of national superannuation received by each national superannuitant in that income year.

The new Part XA consists of sections 336A to 336M. Before analysing the legislation in detail a brief description of each section follows:

  • Section 336A - contains definitions of various terms and expressions which are used in the Part.
  • Section 336B - provides a further definition, that of "other income", upon which the new surcharge is based.
  • Section 336BA - provides a further definition, that of a "specified exemption", which is the amount of "other income" which can be derived by a national superannuitant before he/she becomes liable to the surcharge.
  • Section 336C - specifies the application date for the Part and the surcharge as being from the 1985/86 income year.
  • Section 336D - imposes the surcharge and provides details of how it is to be calculated.
  • Section 336E - empowers the Commissioner to make assessments of the surcharge and enables objections thereto.
  • Section 336F - provides details of the election which must be made by national superannuitants as to the class of income on which they wish to pay the surcharge.
  • Sections 336G and 336H - list the procedures to be followed where a national superannuitant elects to pay the surcharge against his national superannuation.
  • Sections 336I to 336K list the procedures to be followed where a national superannuitant elects to pay the surcharge against his "other income".
  • Section 336L - details the surcharge codes to be used in making surcharge deductions on a PAYE basis.
  • Section 336M - applies the other provisions of the principal Act with any necessary modifications.

Section 336A - Interpretation

This section is the interpretation section and lists twelve definitions relevant to the new Part of the principal Act. In addition, section 2 of the principal Act contains three further definitions which are directly relevant to the new Part and section 17(2) of the 1984 Amendment Act inserts a further definition in that section which is relevant. Each definition is discussed below:

(a) "Gross"

This definition is contained in section 2 of the principal Act. In relation to any amount, it means without any deduction whatsoever from that amount.

Its relevance to the new Part is that the word is used several times throughout the Part where reference is made to a national superannuitant's "gross national superannuation". In accordance with the section 2 definition that expression refers to an amount of national superannuation before deducting any PAYE tax deduction or any surcharge deduction.

(b) "Income From Employment"

Section 336A gives this expression the same meaning as in section 105(1) of the principal Act, which means:

  1. salary, wages and extra emoluments (income from employment as defined in section 2 of the Act);
  2. salary, wages and other income of shareholder/employees of private companies (in accordance with section 6(2) of the Act);
  3. withholding payments for work done or services rendered by casual agricultural workers and payments to Deputy Returning Officers, poll clerks, interpreters, ushers, and other persons engaged for any election or poll (clause 10 of Part A and clause 6 of Part B of the Schedule to the Income Tax (Withholding Payments) Regulations 1979).

(c) "National Superannuation"

This definition is contained in section 2 of the principal Act. National superannuation means:

"National superannuation paid or payable under Part I of the Social Security Act 1964; but does not include any supplement or benefit paid or payable under section 61A or section 61E or section 61G of that Act:"

The section 61A, 61E and 61G exclusions refer respectively to the child supplement, accommodation benefit and special benefit which are all additions to the basic national superannuation benefit which are paid on hardship grounds.

Thus only the basic national superannuation benefit is subject to the national superannuitant surcharge.

(d) "National Superannuitant"

Section 336A defines a national superannuitant as being any person who receives national superannuation in an income year. This includes a person who receives the national superannuation benefit for only part of an income year but does not include a person who may have been entitled to receive national superannuation but who for any reason had not applied for it.

Specifically excluded from the definition are national superannuitants who receive national superannuation in accordance with section 16 of the Social Security Act 1964. The class of persons referred to here are persons over the age of 60 who have met the residential requirements and who have a spouse under the age of 60 or a spouse who has not met the residential requirements. In these cases, section 16 of the Social Security Act allows each spouse to receive half the "married couple" rate ($220.28 each gross per fortnight as at 1 April 1985) instead of the over 60 person receiving the full single rate ($267.66 gross per fortnight as at 1 April 1985) only. Where this situation arises both spouses will not be liable for the surcharge by virtue of their not being national superannuitants, since the option to receive half the married couple rate is subject to an income test.

(e) "National Superannuitant Surcharge" or "Surcharge"

This is a new definition which is inserted in section 2 of the principal Act in accordance with section 17(2) of the Income Tax Amendment Act 1984.

The definition merely provides a title for the new surcharge and caters for its abbreviation wherever it occurs in the principal Act, mainly in the new Part XA.

(f) "Net National Superannuation"

This definition, which is contained in section 336A, is necessary for the purposes of section 336D(3) which is the provision that restricts the liability for the surcharge of any national superannuitant in any income year to the net amount of national superannuation he receives during the income year.

In particular, net national superannuation is calculated in accordance with an a - (b - c) formula where "a" is a national superannuitant's gross national superannuation and "b - c" is the tax applicable to that gross national superannuation.

It is important to note that the tax applicable to the gross national superannuation is calculated as the difference between the amount of tax assessed in respect of a national superannuitant's taxable income and the amount of tax that would have been assessed if he/she had not received national superannuation, thereby treating the national superannuation as the last "slice" of income derived. The tax applicable to the benefit is calculated on an annual basis. Any entitlement to the section 105 standard deduction in respect of the national superannuation received, bearing in mind his/her other income from employment (if any), will be taken into account in a manner that is similar to that required in the determination of "other income" under section 336B(1).

Net national superannuation is thus also calculated on an annual basis. Any PAYE tax deductions (whether deducted on any of codes "A" to "G", "SEC", "ND", "SHR", or "SSH" or on a special tax code) or surcharge deductions made from national superannuation are therefore not relevant in calculating net national superannuation.

(g) "Other Income"

The section 336A definition simply refers to an amount of other income determined in accordance with section 336B. Details of this definition are included in the commentary on that section.

(h) "Source Deduction Payment"

The section 336A definition provides that any reference to a source deduction payment in the new Part shall not include a withholding payment, a payment which would otherwise be included in that definition by virtue of the definition in section 6(1) of the principal Act.

Source deduction payments thus mean, for the purposes of the new Part only, payments by way of salary, wages and extra emoluments(which because of the section 2 definition of salary or wages, also includes payments of national superannuation and pension payments). Any surcharge payable on withholding payments will be payable on a "provisional tax" basis. In practice this may mean that some national superannuitants who derive withholding payments may need to furnish IR3 returns (for surcharge and income tax purposes) instead of the IR5 returns that they might otherwise have furnished for income tax purposes.

(i) "Special Surcharge Code"

A special surcharge code refers to the special surcharge rates which are determined where a superannuitant wishes to have the surcharge deducted against his/her other income. (It does not refer to the special rates determined by Inland Revenue district offices and supplied to the Department of Social Welfare where surcharge deductions are to be made against a superannuitant's national superannuation). Accordingly, the definition refers to codes supplied by the Commissioner in a similar manner to special tax code certificates supplied pursuant to section 351 of the principal Act.

(j) "Specified Exemption"

Section 336A provides that "specified exemption" has the meaning specified in section 336BA. For further information see the commentary on that section.

(k) "Specified Foreign Social Security Pension"

The definition provided by section 336A, includes only those pensions or benefits which reduce an eligible person's entitlement to national superannuation. The pensions in this category are:

  1. United Kingdom National Insurance Pensions
  2. Canadian Old Age Security Pensions
  3. German Insurance Pensions
  4. Greek Old Age Pensions
  5. Italian Old Age Pensions
  6. Netherlands Old Age Security Pensions
  7. United States Retirement Insurance Benefits

(see the section entitled "Foreign Social Security Pensions" on page 26.)

(l) "Specified Income"

This is a new definition in section 336A which is the complement of the "source deduction payment" definition discussed above. That is, specified income means all income other than source deduction payments. Withholding payments are included in the term "specified income" by virtue of their exclusion from the "source deduction payment" definition.

Both the "source deduction payment" and "specified income" definitions are needed for the purpose of making an election as to how any surcharge liability is to be paid (see section 336F) and the rules which apply if that election is to have the surcharge paid on a national superannuitant's other income (see sections 336I to 336K).

(m) "Standard Deduction Entitlement"

This is a new definition in section 336A which is only used in the new Part in section 336B as part of the calculation of a national superannuitant's "other income". It refers to the portion (if any) of a standard deduction/employment related expense claim which relates to a national superannuitant's national superannuation benefit.

As the standard deduction/employment related expense claim provided in section 105 of the Income Tax Act 1976 is allowed against payments of national superannuation as well as against other income from employment, this definition details a set of rules to be followed in determining what portion of any such claim (if any) relates to the national superannuation benefit. For this purpose it is assumed that where a standard deduction claim is made, the standard deduction relates firstly to income from employment other than national superannuation and secondly (if there is any balance) to national superannuation. The standard deduction entitlement that relates to national superannuation is thus treated as the last segment of any standard deduction claim.

In particular, the definition requires that the standard deduction entitlement that relates to national superannuation is:

  • where national superannuation is the only "income from employment", the lesser of $52 or 2 percent of the national superannuation (the 2 percent could occur where national superannuation was received for part of a year only);
  • where the "income from employment" other than national superannuation is less than $2,600, 2 percent of the difference between that amount and $2,600;
  • where the "income from employment" other than national superannuation is equal to or greater than $2,600, nil.

This definition and its associated rules are necessary to ensure that the calculation of a national superannuitant's "other income" (see the commentary on section 336B) not only excludes the superannuitant's gross national superannuation but also adds back the portion of any standard deduction/employment related expenditure claim which relates to it.

(n) "Surcharge Code"

This section 336A definition refers to the "SAJ", "MAJ", "MIN" and special surcharge codes (as described in section 336L) which are to be used in paying the surcharge along with tax deductions from source deduction payments (other than national superannuation) on a PAYE basis where the national superannuitant has elected to have the surcharge paid on his other income and that other income includes source deduction payments.

The definition is similar to the "tax code" definition in section 2 of the Act.

(o) "Surcharge Deduction"

This section 336A definition simply refers to any PAYE deduction of the surcharge made from any source deduction payment (including national superannuation) in the same way that any PAYE deduction of income tax is referred to as a "tax deduction".

(p) "Taxable Income"

For the purposes of the new Part, any reference to taxable income simply takes the same meaning that applies for income tax purposes in accordance with the section 2 definition of that term.

The definition is referred to in the calculations required to compute "net national superannuation" (as described above) and "other income" (see below).

Section 336B - Determination of "Other Income"

This section is in effect another definition section. It simply provides the formula to be used in determining the amount of a national superannuitant's "other income" which is the base on which any surcharge liability is calculated after deducting the specified exemption.

Subsection (1) provides for the calculation of other income in all cases where:

  • national superannuation has been received by a national superannuitant for a full year;
  • national superannuation has been received by a national superannuitant for only part of a year for any reason other than those mentioned in subsection (2) (where an apportionment formula is required). This will include those cases where, during an income year, a superannuitant dies, goes overseas temporarily for more than 13 weeks on a continuous basis (at which time payments of national superannuation cease to be made) or decides not to accept payments of national superannuation for some part of the year. (Where a superannuitant does not accept any national superannuation in a year, although entitled to it, he is not a national superannuitant as defined in section 336A and thus has no surcharge liability.)

In such cases, the "other income" of a national superannuitant is calculated in accordance with the formula:

a - (b - c) - d
where
a is the superannuitant's taxable income in the income year,
(b - c) is the portion of that taxable income that relates to national superannuation, this being calculated as the gross national superannuation received in the income year less the standard deduction entitlement that relates to it,
d is the amount of all specified foreign social security pensions received.

Subsection (2) provides for the calculation of "other income" in those cases where national superannuation has been received by a national superannuitant for only part of a year by reason of:

  • that national superannuitant commencing to receive national superannuation after the beginning of an income year. This would include not only those persons who reach age 60 and apply for the benefit during the year but also persons who arrive in New Zealand during the year and/or meet the residential qualifications in order to obtain the national superannuation benefit.
  • that national superannuitant permanently departing from New Zealand. In such cases, processing of the final part year income tax return completed before departure will need to include a calculation of any surcharge liability payable. As national superannuation ceases to be paid 13 weeks after departure in such circumstances, the "final" part year IR12 included in the tax return will generally represent all payments of national superannuation during the year.

In such cases, instead of making the calculation required in subsection (1), income sources are apportioned in the following manner to arrive at the national superannuitant's "other income":

  • any income derived from any source (excluding national superannuation and specified foreign social security pension payments) which, in the opinion of the Commissioner, was derived only in that part or those parts of the year while the national superannuitant was receiving national superannuation is to be included. This would generally include those pensions which commence to be paid from the date a person reaches age 60.
  • any income derived from any source (excluding national superannuation and specified foreign social security pension payments) which, in the opinion of the Commissioner, was derived only in that part or those parts of the year while the national superannuitant was not receiving national superannuation is to be excluded. This would include, for example, any salary or wages derived by an employee before he ceased employment on reaching age 60, a situation which commonly occurs in the public sector.
  • all "remaining income" (ie, income derived in periods both where the national superannuitant was receiving national superannuation, and in periods where he/she was not receiving national superannuation) excluding a "specified foreign social security pension" payment is to be apportioned on the basis of the number of fortnightly periods in respect of which national superannuation was received in the income year compared with the number of fortnightly payment days that occurred in that year. (These fortnightly payment days are defined as "pay days" in section 3 of the Social Security Act 1964).

The apportionment is handled by the apportionment formula:

(d - e - g) x f + e
h

where

d - e - g represents the "remaining income" described above
d is the total amount of "other income" in the year (as determined in accordance with section 336B(1))
e is that portion derived only while in receipt of national superannuation
g is that portion received only while NOT in receipt of national superannuation
f/h is the apportionment fraction
f is the number of pay days in respect of which national superannuation has been received
h is the number of pay days in that income year, which must be 26 or 27 depending on the year concerned

A practical example of how the formula works is set out at Example B on page 39 of this Bulletin.

(As to the general rules which apply in determining whether income from any source comes within "e" or "g", see the section entitled "Apportionments of 'Other Income' and 'Specified Exemptions' in Certain Cases Where National Superannuation is Received for Part Only of an Income Year" on page 28).

Subsection (3) provides a limited exception to the rules (detailed above) in relation to when the determination of "other income" can involve apportionments of income sources.

The subsection provides that where any source of income is received within a reasonable period after a national superannuitant has commenced receiving national superannuation and where the receipt of that income was delayed due to circumstances beyond the control of the national superannuitant, the Commissioner may treat that income as having been received in full before the superannuitant commenced receiving national superannuation.

The purpose of the subsection is to cater particularly for those cases where a person ceases employment prior to receiving national superannuation but receives his last payments of salary or wages, possibly together with a retiring allowance, soon after he has reached age 60 and commenced receiving national superannuation. The determination of what constitutes a reasonable period will of course depend on the facts in each case.

Section 336BA - Determination of "Specified Exemption"

Subsection (1)

Section 336BA(1) provides the method for calculating a superannuitant's "specified exemption" where an income tax/surcharge assessment is made in the normal course (section 336BA(2) deals with "early" assessments made under section 12 of the Income Tax Act (assessments to date of death, persons going overseas etc.))

A superannuitant's specified exemption is calculated as the sum of up to four different amounts, each of which is calculated in one of paragraphs (a) to (d), as follows:

Single Persons

  • Paragraph (a) represents an exemption for single superannuitants of $6,240 multiplied by a fraction representing the number of fortnightly payments of national superannuation (defined as pay days in the Social Security Act 1964), in the income year, made at the "single" rate (this is described in the Social Security Act as being 60 percent of the married rate).

Married Person on Married Rate Benefit

  • Paragraph (b) represents a similar apportionment of the married couple exemption, based on the number of fortnightly payments of national superannuation which have been paid at the "married" rate (this is described in the Social Security Act as being 50 percent of the married rate). The exemption for a married superannuitant (receiving the married rate of national superannuation) is the greater of:
    1. $10,400 reduced by an amount equal to the "other income" of the superannuitant's spouse:
    2. $5,200.

Example:

  "Other" Income National Superannuation" Total
A $10,000 pa $5,727 $15,727
Spouse of A $3,000 pa $5,727 $8,727
Exemption      
A $10,400 pa - $3,000 = $7,400    
Spouse of A $3,000    

Married Person on Single Rate Benefit

  • paragraph (c) represents a similar apportionment based on the number of fortnightly payments of national superannuation which have been paid at the single rate of benefit. This applies to a married superannuitant with a non-qualifying spouse. The exemption for a married superannuitant receiving the single rate of national superannuation (this occurs where the superannuitant's spouse is under age 60 or has not met the 10 year residential requirement) is the greater of:
    1. $10,400 reduced by an amount equal to the taxable income (excluding specified foreign social security pensions) of the superannuitant's spouse:
    2. $6,240.

Note:

In calculating the amount of the taxable income of the superannuitant's spouse in (i) above, where that non-qualifying spouse has qualified to receive national superannuation during the income year, the amount of national superannuation received by him/her should, as is the case with specified foreign social security pensions, also be excluded.

Example:

  "Other" Income National Superannuation" Total
A $10,000 $6,959 $16,959
Spouse of A $3,000 N/A $3,000
Exemption      
A $10,400 - $3,000 = $7,400    
Spouse of A N/A    

Adjustment for any period national superannuation not received

  • paragraph (d) represents the allocation of a portion, of one of the exemptions provided in paragraphs (a) to (c) above, to that period of the income year (if any) in respect of which national superannuation is not paid in those cases where the national superannuitant is temporarily overseas (the Social Security Act provides for the stopping of payments where a superannuitant is absent for more than 13 weeks) or has not applied for, or has refused receipt of, national superannuation. This paragraph effectively ensures a full year's exemption is applicable in all cases where a full year's other income is taken into account

In the majority of cases only one of the formulae in paragraphs (a) to (c) will apply since the same rate of national superannuation will have been paid in the same circumstances throughout the income year. In such cases, the a/b, d/e, or g/h segments of the apportionment formulae will equal 1 so that a simple calculation of the annual exemption is all that is required.

Other points to note concerning section 336BA(1) are:

  • The $6,240 exemption level for single superannuitants is equal to 60 percent of the combined household exemption of $10,400 for married superannuitants. This percentage is consistent with that used for the payment of national superannuation whereby the single rate of benefit is set at a level of 60 percent of the total benefit that two married persons each receive.
  • The $10,400 household exemption was introduced to place the married national superannuitant who is unable to split his income in the same position as the superannuitant who is able to avail himself of the maximum amount of exemption available. The transferability of an unused exemption will always go from a lesser-earning national superannuitant to his/her spouse. There will however be no transferability where both spouses have an income in excess of $5,200.
  • The exemption level for married superannuitants receiving the single rate of national superannuation is a combination on the other two exemptions. It arises from the fact that superannuitants in this position receive the single rate of benefit - calculated at 60 percent of the married rate of benefit.
  • Married superannuitants who have a non-qualifying spouse may instead of receiving the single rate (and being subject to the surcharge as described above) apply to receive two married rates with both the superannuitant and his/her spouse receiving national superannuation as if they both qualified for national superannuation. This latter option is however subject to an income test administered by the Department of Social Welfare. Arising from the strictness of that income test, superannuitants receiving national superannuation on this basis are not liable to the surcharge. This is achieved through their exclusion from the section 336A definition of a "national superannuitant", (they receive national superannuation pursuant to section 16 of the Social Security Act 1964).
  • The use of the words "in respect of which that national superannuation was payable" in the descriptions of item "a" in the formula in paragraph (a), item "d" in the formula in paragraph (b), and item "g" in the formula in paragraph (c) is important. It not only covers normal fortnightly national superannuation payments but also relates to lump sum "back" period payments. The Social Security Act provides that these "back" period payments cannot extend back more than six months. However in cases where such a "back" payment has been made and this extends back into a former income year, a superannuitant could receive the equivalent of more than the standard 26 or 27 pay days in the income year the lump sum is received. In these cases, a superannuitant should not however be allowed a higher specified exemption than that which would apply on an annual basis. (This is because the specified exemption relates to the amount of other income received rather than the amount of any national superannuation received.)
  • In allocating a portion of one of the exemptions provided in paragraphs (a) to (c) to a part of the income year in respect of which national superannuation is not paid for any reason other than those stated in subparagraphs (i) to (iii) of paragraph (d), the general rule (as contained in subparagraph (iv)) involves the use of the exemption that applied to the last fortnightly payment made in the same income year prior to national superannuation not being paid. Where there has been no such prior fortnightly payment in the income year (ie the first fortnightly payment in the income year was not received), then subparagraph (v) provides that the exemption to be used shall be that applied to the first fortnightly payment made in the same income year. (No provision is necessary where national superannuation is not paid for the full income year as there would be no liability for the surcharge).
  • In those cases where national superannuation is not received for part of an income year for any of the reasons stated in subparagraphs (i) to (iii) of paragraph (d) no allocation of any of the exemptions in paragraphs (a) to (c) is required. Instead the exemptions provided by paragraphs (a) to (c) will be less than a full year equivalent. This effectively ensures a part year exemption is applicable in all cases where a part year's other income is taken into account. See the section entitled "Apportionments of Other Income" and "Specified Exemptions" in Certain Cases where National Superannuation is Received for Part only of an Income Year" on page 28).

Changes in eligibility for benefit

  • Whereas paragraphs (a) to (d) clearly cater for apportionments of the exemption level in those cases where:
    1. a single superannuitant marries another superannuitant during the income year (paragraph (a) to (b)), or
    2. a married superannuitant's qualifying spouse dies during the income year (paragraph (b) to (a)), or
    3. a single superannuitant marries a non-qualifying person and does not opt for the income tested married rates during the income year (paragraph (a) to (c)), or
    4. the non-qualifying spouse of a married superannuitant (who had not opted for the income tested married rates) dies during the income year (paragraph (c) to (a)), or
    5. the non-qualifying spouse of a married superannuitant (who had not opted for the income tested married rates) qualifies during the income year (paragraph (c) to (b)), or (Note: a simple change from paragraph (b) to (c) is generally not possible unless a married superannuitant's qualifying spouse dies and he/she immediately remarries a non-qualifying spouse during the income year).
    6. any combination of (i) to (v) above, or
    7. any of (i) to (vi) above with non-payment of national superannuation for part of the income year,
  • they do not explicitly cover all possible situations where an apportionment would be necessary. Examples of this follow:
    •  
    • Example (1):
      • Where a married superannuitant with a non-qualifying spouse has been receiving the income tested married rates of benefit and his/her spouse qualifies during the income year. (In such cases the exemption level should be apportioned to reflect the period that the superannuitant was liable for the surcharge, ie not receiving the income tested benefit - his/her "other income" would likewise be apportioned on a time basis.)
    • Example (2):
      • Where a single superannuitant or married superannuitant with no dependent children is in hospital for a period in excess of 13 weeks, in which case his/her after-tax rate of national superannuation is reduced to $10 per week. (In the case of single superannuitants the single rate exemption in paragraph (a) should be applied in respect of each $20 fortnightly national superannuation payment. In the case of married superannuitants who have qualifying spouses, however, the Social Security Act provides that the qualifying spouse's benefit will, after the 13 weeks, be increased to the single rate. In these cases, the variable $6,240 to $10,400 exemption in paragraph (c) should be applied to the single rate recipient in respect of each fortnightly payment made at the single rate. (As a hospitalised superannuitant will be entitled in most cases to a maximum exemption in his/her own right, the exemption obtained by both married superannuitants can be up to $11,440).
  • Subsection (2) Section 336BA(2) provides the method for calculating a superannuitant's "specified exemption" where an income tax/surcharge "early" assessment is to be made pursuant to section 12(2) of the Income Tax Act (ie the assessments to date of death, persons going permanently overseas, etc). In order to avoid the need to wait until the end of a tax year to determine the correct specified exemption of a married superannuitant, in such cases the subsection (1) formulae should be applied using only the spouse's "other income" to the superannuitant's date of death, date of departure or date of becoming bankrupt rather than using "other income" for the full income year.

Section 336C - Application of this Part

This section is the application section for the purposes of the new Part XA.

Subsection (1) provides that the national superannuitant surcharge shall be payable by every national superannuitant in accordance with the provisions of the new Part XA.

Subsection (2) specifies that the surcharge, which is in respect of the "other income" of a national superannuitant, is to apply from the income year commencing on 1 April 1985.

This application date is particularly important in so far as it affects superannuitants with balance dates other than 31 March. Arising from the income year application date, the surcharge will in effect be applied against each superannuitant's income as shown in his/her annual tax return. Thus, where for example a superannuitant has a 30 June balance date the surcharge will apply, in the first year to which the surcharge applies, to source deduction income derived in the year ended 31 March 1986 and business income for the year ended 30 June 1986 where the superannuitant has elected to have the surcharge applied against other income. If, instead, the election is made to have the surcharge applied against the gross national superannuation the surcharge will be deducted from the superannuitant's national superannuation in the year ended 31 March 1986.

In addition those superannuitants who have early balance dates may have derived other income prior to 1 April 1985 commencement date which will be subject to the surcharge. For example, a superannuitant with a 31 October balance date who has elected to have the surcharge applied against "other income" should in theory already be making provision for the surcharge. However, as all such non-31 March year income comes within the definition of specified income and as the surcharge paid on such income is paid as if it were provisional tax with no provisional tax being required in the first year of the surcharge, this should cause no difficulties in practice.

Section 336D - National Superannuitant Surcharge Imposed

This section imposes the national superannuitant surcharge and details how any liability for the surcharge is to be calculated.

Subsection (1) imposes the surcharge in respect of national superannuitants who receive national superannuation at any stage during an income year.

In such cases, the annual surcharge liability imposed in respect of any income year is an amount equal to 25 percent of the excess of a national superannuitant's "other income" over the specified exemption. Subsection (3) however places a maximum on that liability.

Subsection (2) has been repealed by section 3(3)(b) of the Income Tax Amendment Act 1985. The provisions of the previous subsection (2) have been incorporated in section 336BA.

Subsection (3) limits the amount of the surcharge for which any national superannuitant is liable in any income year, as calculated in accordance with subsection (1), to the amount of "net national superannuation" of that national superannuitant for that income year.

Using the rates of national superannuation applicable at 1 April 1985 and the new rates which will apply, the maximum surcharge applies where:

  • in the case of superannuitants on the single rate and eligible for a specified exemption of $6,240, their estimated total taxable "other income" (ie, excluding national superannuation) exceeds $22,657 per annum; and
  • in the case of superannuitants on half the married couple rate and eligible for a specified exemption of $5,200, their estimated total taxable "other income" exceeds $20,133 per annum; and
  • in the case of superannuitants on half the married couple rate and eligible for a specified exemption of $10,400, their estimated total taxable "other income" exceeds $23,637 per annum.

Section 336E - Assessment of Surcharge

This section empowers the Commissioner to assess the amount of the surcharge and applies the objection provisions of the principal Act to the surcharge in the same manner as they apply to income tax with any necessary modifications. This section makes it clear that assessments of the surcharge and objections thereto shall be treated in the manner as if they were assessments of income tax and objections thereto.

Panels for the annual assessments of surcharge will be included in national superannuitants' tax returns, in particular in both the IR3 and IR5 forms. As the surcharge is to apply from the income year commencing on 1 April 1985, the 1984/85 tax returns will not be affected. The first appearance of a surcharge assessment panel, which it is envisaged will be combined with the tax assessment panel, will thus be on 1985/86 tax returns.

Section 336F - Election by National Superannuitant in Respect of Payment of Surcharge

This section is the main operative section of the new Part XA. In essence, the section requires any national superannuitant who expects to be liable for the surcharge to make an election as to whether he wishes to pay that surcharge liability by way of deductions from his gross national superannuation or by way of payments from his "other income".

In those cases where a superannuitant elects to have the surcharge paid by way of deductions from his gross national superannuation, the provisions of sections 336G and 336H apply.

However, where the national superannuitant elects to have the surcharge paid by way of payments from his "other income", the provisions of sections 336I, 336J or 336K will apply depending on the composition of his "other income". In particular:

  • Section 336I will apply where the superannuitant's other income comprises only "specified income", (ie, income other than source deduction payments).
  • Section 336J will apply where the superannuitant's other income comprises source deduction payments only.
  • Section 336K will apply where the superannuitant's other income consists of both specified income and source deduction payments.

Subsection (1) is the provision which requires the making of an election, by any national superannuitant who expects that he will be liable for the surcharge, as to how the surcharge is to be paid.

It should be noted that if a national superannuitant fails to make an election that failure is, by virtue of sections 336M and 416(1)(d) of the principal Act, an offence against the Act. (Section 416(2) provides that every person who commits such an offence shall be liable to a fine not exceeding $500.)

Subsection (2) sets out the elections available to any national superannuitant who expects to be liable for the surcharge dependent on the composition of his "other income".

Subsection (3) requires that where a national superannuitant has made an election, as to how the surcharge is to be paid, under one of the paragraphs of subsection (2) and finds that due to a change in the composition of his "other income" subsequent to the making of that first election, he should have made an election under another paragraph, a fresh election is to be made in accordance with that other paragraph.

For example, an employed national superannuitant who has elected to have the surcharge deducted from his salary, and who also pays surcharge on his rental income as provisional tax, may stop working. In this case he must make a new election, the new election being whether he now wants the surcharge deducted from his gross national superannuation or whether he wants to pay it on his rental income as provisional tax only.

Section 336G - Surcharge Deductions from National Superannuation, and Section 336H National Superannuitant to Estimate Other Income

As spelt out in section 336G(1) these sections apply to national superannuitants who have elected in accordance with section 336F to have the surcharge paid by way of deductions from their gross national superannuation for any year.

In such cases, section 336H(1) requires those national superannuitants to provide to the Commissioner, as soon as practicable after the making of their election: (a) an estimate of the "other income" they expect to receive in that year and (b) an estimate of the amount of national superannuation which they expect to receive in that year. Section 336H(2) requires that information to be provided to the Commissioner on a prescribed form (this is the IR23S) together with the national superannuitant's IR12 tax code declaration.

Section 336H(3) then requires that on receipt of the tax code declaration and the IR23S prescribed form from a national superannuitant, the Commissioner is to determine the amount of the surcharge deduction to be made against future payments of national superannuation by the Department of Social Welfare in that year.

Although not specified in the legislation, the surcharge deduction will be determined on a basis which is consistent with the "other income" and the specified exemption provisions in the new Part XA.

Section 336H(3) also requires that the Commissioner, having determined the surcharge deduction amount, advise the Department of Social Welfare of it. Section 336G(2) then requires that Department to deduct from any payment of national superannuation to that national superannuitant in that year a surcharge deduction equal to that amount and to pay that to the Commissioner with the fortnightly tax deduction on the national superannuation.

In every case where the combined total of the fortnightly tax deduction (using the superannuitant's tax code) and the surcharge deduction applied by the Department of Social Welfare would equal or exceed the gross amount of the national superannuation payment, the superannuitant will not receive any national superannuation and the gross national superannuation will be paid direct to Inland Revenue.

Any shortfall in the surcharge deduction made, compared with that determined by the Commissioner, is to be accounted for in the end of year assessment panel in the national superannuitant's tax return. This means that any national superannuitant who has a special tax code, operating in respect of his national superannuation, which deducts a low rate of PAYE and who has elected this option could face a substantial debit in his/her year end assessment.

Section 336I - Surcharge Paid As Provisional Tax

As spelt out in section 336I(1), this section applies to those national superannuitants who have elected in accordance with section 336F to have the surcharge paid as provisional tax. This option can be selected only by a national superannuitant where his/her "other income" consists of specified income only. (However where specified income and source deduction payments are both derived, see section 336K).

In such cases, section 336I(2) provides that the provisions of Part XII of the principal Act (which relate to provisional tax) will apply to a national superannuitant's surcharge liability in respect of his expected specified income as if that liability were payable as provisional tax.

The surcharge will thus generally be payable in two instalments (in three instalments in the case of some farmers) due 7 August and 7 February in each income year being 1/3 and 2/3 portions respectively. Also, as with provisional income and income tax, the surcharge payable can be based on the previous year's specified income.\

The specified income of a national superannuitant is reduced by the amount of his/her specified exemption in order that the exemption can be taken into account in regard to his 1/3 and 2/3 "provisional tax" payments.

It is important to note that the proviso to section 336I(2) provides that in respect of the first income year where the surcharge is payable by a national superannuitant, he shall be relieved of his obligation to pay that provisional tax. This means that all national superannuitants who can and have elected to have the surcharge deducted on their other income in accordance with this section will not be required to make provisional tax payments in the 1985/86 income year. Instead their first payment will be a 1/3 instalment due on 7 August 1986, based on the specified income of the national superannuitant in the 1985/86 income year reduced by the amount of his/her specified exemption. The 1985/86 terminal surcharge will still, however, be payable and this is due by 7 February 1987 together with the 2/3 provisional surcharge balance. Superannuitants should therefore be advised of this "doubling up" which would occur at that time under this option.

The proviso therefore provides a treatment which is similar to that where a taxpayer becomes a provisional taxpayer for the first time and gets a deferral advantage in the first year with a "doubling up" of tax payments in the second.

The proviso however goes further than this. It not only relieves national superannuitants from liability to pay the surcharge as provisional tax in the 1985/86 income year but also relieves any other national superannuitant from liability to pay the surcharge as provisional tax where he is able and does, in any future income year, elect to pay the surcharge under this section for the first time. Where, for example, a national superannuitant pays the surcharge on a provisional tax basis in one year, as deductions against his gross national superannuation in the second year, and on a provisional tax basis again in the third year, he will not be able to obtain the deferral advantage in respect of that third year.

Section 336J - Surcharge Deductions from Source Deduction Payments

As spelt out in section 336J(1) this section applies where a national superannuitant has elected in accordance with section 336F to have his surcharge liability paid by way of deductions from source deduction payments other than national superannuation. This option can only be selected only by a national superannuitant where his/her "other income" consists of source deduction payments only.

In such cases, the election is made by the national superannuitant specifying, along with his tax code for PAYE deduction purposes, a surcharge deduction code on each IR12 or other tax deduction certificate. There are four surcharge deduction codes used for this purpose - "SAJ", "MAJ", "MIN", or a special surcharge code, description of which appear in the commentary on section 336L. In simple terms the "SAJ" surcharge code allows a $120 per week ($6,240 per annum) exemption against the largest source deduction payment of national superannuitants who receive national superannuation at the single rate. The "MAJ" surcharge code allows a $100 per week ($5,200 per annum) exemption against the largest source deduction payment of national superannuitants who receive national superannuation at half of the married rate. The "MIN" surcharge code charges the 25 percent surcharge in full and should be used in respect of all source deduction payments except the largest one. The special surcharge code allows for the surcharge to be deducted at a special rate which is calculated by the Inland Revenue Department. It is expected that the main use for this surcharge code will be where a superannuitant's spouse has other income of less than $5,200. In those circumstances the superannuitant can qualify for a specified exemption of up to $10,400.

Section 336J(2) provides for the payer of any source deduction payment to a national superannuitant to make a surcharge deduction therefrom, in addition to the PAYE tax deduction, of an amount which corresponds with the relevant surcharge code.

Having made any such surcharge deduction, paragraph (b) of section 336J(2) then requires the payer of the source deduction payment to pay that deduction to the Commissioner as if it were a PAYE tax deduction. That is, surcharge deductions are included with tax deductions in each month and both are paid in on an IR66N by the 20th day of the following month.

Employers and other payers of source deduction payments can similarly include surcharge deductions and PAYE tax deduction together in their records. The IR12 tax deduction certificate returned to employees or other recipients of source deduction payments after 31 March (or earlier where for example, an employee ceases work) should show a gross figure and a PAYE deductions figure which incorporates both surcharge and tax deductions. These deductions will be set off against the combined total of income tax and surcharge assessed in the superannuitant's annual tax return.

An important point to note in relation to surcharge deductions being made from source deduction payments using the "SAJ, "MAJ", and "MIN" surcharge codes is that where the largest source deduction payment is less than the specified exemption but total source deduction payments exceed the specified exemption, the full effect of the exemption cannot be obtained using the surcharge codes. In such cases, national superannuitants may ensure that they do not make overpayments of surcharge during the year by taking either of the following courses:

  1. electing to have surcharge deductions made from their gross national superannuation instead of against their "other income"; or
  2. applying for a special tax code in order to decrease the rate of PAYE tax payable on one or more source deduction payments to which the surcharge code "min" applies.

Similarly, an overpayment of surcharge may occur where there is a large source deduction payment which exceeds $22,657 (superannuitants who receive national superannuation at the single rate and are eligible for an exemption of $6,240) or $20,133 (those who receive the benefit at half the "married couple" rate and are eligible for an exemption of $5,200). This is because the surcharge codes do not allow for cutting out the surcharge above the level at which the maximum surcharge is reached. National superannuitants may ensure that they do not overpay the surcharge during the year, by also taking one of the two courses mentioned above.

A final point to note is that the surcharge codes do not take into account the section 105 standard deduction. In general, superannuitants will therefore be slightly better off, on a PAYE basis, where they have surcharge deductions made from their gross national superannuation rather than from their source deduction payments. (Refer to Example A on page 37. They will however pay the same surcharge in the end of year assessment whichever method of surcharge payment is used.)

Section 336K - Surcharge Deductions from Source Deduction Payments and Surcharge Paid as Provisional Tax

As spelt out in section 336K(1) this section applies where a national superannuitant has elected in accordance with section 336F to have his surcharge liability paid both by way of deductions from source deduction payments (other than national superannuation) and as provisional tax on his/her specified income. This option can only be selected where a national superannuitant's "other income" comprises both source deduction payments and specified income (income other than source deduction payments).

Subsections (2) and (3) of section 336K specify the rule as to which class of income the specified exemption is to be applied against. That rule is that the exemption is to he allowed against the largest class (ie, the greater of total specified income and total source deduction payments).

Subsection (2) deals with the situation where a national superannuitant's expected specified income is larger than his expected source deduction payments (other than national superannuation). In such cases:

  • The specified exemption is deducted from the superannuitant's specified income and is thus reflected in his 1/3 and 2/3 "provisional tax" instalments. By virtue of the reference to section 3361 in subsection (2), the national superannuitant is however relieved from his obligation to pay "provisional tax" in the first year in which he is liable for the surcharge.
  • The surcharge code "MIN" which charges the full 25 percent deduction rate should he used in respect of all source deduction payments. Payers of the source deduction payments should make surcharge deductions at the appropriate rate and pay them to the Department as if they were tax deductions (the commentary on section 336J refers).

Subsection (3) deals with the situation where a national superannuitant's expected specified income is equal to or less than his expected source deduction payments (other than national superannuation). In such cases:

  • The surcharge is payable on the national superannuitant's specified income in the same manner as provisional tax but no reduction in the specified income is allowed for that purpose.
  • The surcharge code "SAJ" or "MAJ" is used in respect of the largest source deduction payment (other than national superannuation) which allows the specified exemption against that source deduction payment, with the "MIN" surcharge code applying to all other source deduction payments (other than national superannuation). Payers of such source deduction payments should make surcharge deductions at the appropriate rates and pay them to the Department as if they were tax deductions (the commentary on section 336J refers).

It should be noted that in the situation of subsection (3) above, where the source deduction payment to which the "SAJ" or "MAJ" code applies is less than the specified exemption the full benefit of the exemption cannot be obtained. To avoid overpayment of surcharge deductions by national superannuitants in these cases, these superannuitants are advised to either have the surcharge deducted against their gross national superannuation rather than against their "other income", OR to apply for a special tax code which will fix a lower rate of tax and surcharge.

Section 336L - Application of Surcharge Codes Specified in Tax Code Declarations

This section specifies the surcharge codes which are to be used in making payments of a national superannuitant's surcharge liability by way of deductions from source deduction payments (other than national superannuation).

The four codes used for this purpose are specified in section 336L (1) as:

  1. "SAJ" code - This code allows on a pay period basis the benefit of the $6,240 single superannuitant "other income" exemption.
  2. "MAJ" code - This is the code which allows on a pay period basis the benefit of the $5,200 married superannuitant "minimum other income" exemption.
  3. "MIN" code - This is the code which does not allow an exemption on a pay period basis, with the result that the surcharge is deducted at a flat rate of 25 cents in the dollar.
  4. Special Surcharge Code - This is a code which may be used at the option of the superannuitant instead of using one of the codes described in (1) to (3) above. Its main use is expected to be in allowing married superannuitants to obtain on a pay period basis an exemption level of up to $10,400 per annum, (ie above the $5,200 and $6,240 minima).

It should be noted that the above codes are applicable only where a national superannuitant elects to pay the surcharge on his other income. The "special surcharge code" in particular should not be confused with the special rate of PAYE deduction to be advised by Inland Revenue district offices to the Department of Social Welfare where a national superannuitant has elected to have the surcharge deducted from his/her national superannuation.

Surcharge deductions should be made at the appropriate rate for each complete dollar of income on which the surcharge is payable.

For various pay periods, the specified exemption in terms of the "SAJ" code ($6,240 per annum) is allowed in accordance with subsection (1A) as follows:

Pay/Period Specified Exemption
1 day $24
1 week $120
2 weeks $240
3 weeks $360
4 weeks $480
1 month $520

Where the "MAJ" code applies, subsection (2) provides that the specified exemption is as follows:

Pay/Period Specified Exemption
1 day $20
1 week $100
2 weeks $200
3 weeks $300
4 weeks $400
1 month $433.34

Section 336M - Application of Other Parts

This section is the general section which relates to the new Part XA all Parts of the principal Act, other than Part IV in so far as they are applicable and with any necessary modifications, as if the surcharge were income tax levied under section 38 of the principal Act.

This section is important in that it applies many provisions of the principal Act in conjunction with the new Part XA. The major areas those other provisions relate to are:

  • the furnishing of returns of income upon which surcharge assessments can be made;
  • the making of assessments and reassessments and the treatment of objections thereto (see also section 336E of the Act);
  • the due dates for payment of the surcharge in respect of surcharge deductions and surcharge payments made on a provisional tax basis and also in respect of the surcharge assessed in the end of year assessment;
  • procedures for recovery of the surcharge;
  • provisions allowing refunds or relief from the surcharge;
  • the penalty and offence provisions of the Act.

In all cases the application, of those other provisions to the surcharge is identical to their application to, as the context requires, income tax, tax deductions or provisional tax.

The Legislation - Other Section 17 Subsections and Transitional Provisions

As already stated the new Part XA of the principal Act was introduced by subsection (1) of section 17 of the Income Tax Amendment Act 1984. In addition, subsections (2) to (4) of section 17 made amendments to sections 2, 57(1) and 356(1) respectively of the principal Act, consequential on the introduction of the surcharge. A transitional provision concerning implementation of the surcharge was enacted at section 5 of the Income Tax Amendment Act 1985.

Section 17(2)

This subsection inserts in section 2 of the principal Act a definition of "national superannuitant surcharge" or "surcharge". A comment on this amendment is included under the reference to that definition in the commentary on section 336A.

Section 17(3)

This subsection amends section 57(1) of the principal Act, (which relates to the allowing of rebates of income tax against amounts of income tax payable) to provide that in any case where the tax rebates of a national superannuitant exceed the income tax payable by him, the surplus rebates can be offset against any amount of surcharge assessed to the national superannuitant.

Section 17(4)

This subsection amends section 356(1)(a) of the principal Act to ensure that all persons liable for the surcharge in any income year are excluded from the definition of a "pay-period taxpayer".

The consequence of this is that all persons liable for the surcharge in any income year are required to furnish annual returns of income in respect of that year.

Section 17(5)

This subsection specifies the time of the coming into force, and the application subsection for section 17 of the Income Tax Amendment Act 1984, which differ from the general application provisions specified in section 2 of that amendment Act.

It provides that section 17 is to come into force on the day on which the Act receives the Governor-General's assent and is to apply on and from that day. It should be noted however that, so far as the new Part XA is concerned, the 1985/86 income year application date specified in section 336C(2) overrides the application date specified in section 17(5).

Transitional Provision

Section 5 of the Income Tax Amendment Act 1985 introduced a transitional provision relating to the implementation of the surcharge. This provision was necessary in order to cater for the short time available prior to 1 April 1985 in which to implement the surcharge and in particular the changes made to it in the Income Tax Amendment Act 1985.

Where a national superannuitant did not deliver to his employer ("employer" includes the Director-General of Social Welfare by virtue of the definition of "employer" in section 2 of the principal Act) by 1 April 1985 a new IR12 tax code declaration or special tax code certificate to apply in respect of the 1985/86 income year, then the employer could continue to make PAYE tax deductions using the tax codes in force on 31 March 1985 (instead of the "no declaration" rate) until the earlier of 31 May 1985 or the date on which a new IR12 tax code declaration or special tax code declaration was so delivered.

This dispensation applied only to national superannuitants (as defined in section 336A) and only where a new tax code declaration/special tax code certificate was not delivered to an employer by reason of delay in ascertaining a surcharge code for the superannuitant.

In all cases, after 31 May 1985, the "no declaration" rate is however to be used where a tax code declaration/special tax code certificate in respect of the 1985/86 income year was not supplied to an employer on or after that date.

Supplementary Information

Foreign Social Security Pensions

This section details the treatment of certain social security pensions for the purposes of the surcharge.

Background

At present a number of national superannuitants receive overseas pensions which are similar in form to the New Zealand national superannuation. In some cases, where the amount of the overseas pension exceeds national superannuation, the superannuitant receives the amount of the foreign pension only, with no payment of national superannuation. In such cases, since the foreign pension recipients do not receive national superannuation, they are not national superannuitants (as defined in section 336A) and thus are not affected by the surcharge.

In other cases, however, the overseas pension is less than national superannuation in which case the Department of Social Welfare pays the superannuitant a "top up" portion of national superannuation. The result in such cases is that the total payment of national superannuation and foreign pension, combined, is equal to the amount of national superannuation to which the superannuitant would be eligible had he not received the foreign pension. The most common example of this kind of pension is the United Kingdom national insurance pension which is paid through the Department of Social Welfare. Other similar overseas pensions are paid direct to the superannuitant with a top up portion of national superannuation being paid by the Department of Social Welfare.

Foreign pension excluded from "other" income

The Income Tax Amendment Act 1985 provides that the amount of any "specified foreign social security pension" is excluded from the definition of "other income". This ensures that national superannuitants receiving those foreign pensions have the same income thresholds as other superannuitants, before they are required to pay the surcharge.

Calculation of net national superannuation

However as the foreign pension is not national superannuation, the amount of a superannuitant's "net national superannuation", which represents the maximum amount of surcharge which is payable, is calculated using only the "topping up" portion of the national superannuation payment. This is to ensure that the surcharge will not in effect claw back a pension for which the superannuitant is independently eligible and which is not paid by the New Zealand Government.

Types of foreign pension included

As mentioned previously, "specified foreign social security pensions" include the following:

  1. United Kingdom National Insurance Pensions
  2. Canadian Old Age Security Pensions
  3. German Insurance Pensions
  4. Greek Old Age Pensions
  5. Italian Old Age Pensions
  6. Netherlands Old Age Security Pensions
  7. United States Retirement Insurance Benefits

Other foreign pensions treated as "other income"

All other types of foreign pension will form part of a national superannuitant's "other income" unless they have been specifically exempted from income tax. For example, war pensions paid from any foreign Government in respect of any disability or disablement attributable to or aggravated by service in the armed forces are exempt from tax pursuant to section 61(10) of the Income Tax Act and accordingly, since they are not included in a recipient's taxable income, they are not "other income" and thus are not liable for the surcharge. On the other hand, armed forces "service" pensions would be included as "other income" since they are simply related to employment in the same manner as the Government Superannuation Fund is in New Zealand.

Examples

  1. A single national superannuitant's income comprises:
National Superannuation $6,959 ($5,000 foreign pension + $1,959 top up)
Salary $12,000  
  $18,959  
His taxable income $18,959 - $52 (standard deduction) = $18,907
His "other income" $18,907 - ($1,959 - nil) - $5,000 (a - (b - c) - d) = $11,948

 

His surcharge liability is thus ($11,948 - $6,240) x 0.25 = $1,427
  other
income
  single
exemption
 

However, his "net national superannuation" calculated in accordance with the definition in section 336A is:

= $1,959 - (Tax on $18,907 - Tax on ($11,948 + 5,000)) (a - (b - c))

= $1,959 - ($5,459.31 - $4,812.84)

= $1,312.53

The surcharge payable is $1,312.53 being the net national superannuation maximum. Together with tax deductions thereon he thus effectively loses the full amount of the "top up".

His "net national superannuation" (a - (b - c)) is:

= $727 - (Tax on $12,212 - Tax on $(6,500 + $5,000))

= $727 - ($3,249.96 - $3,015.00)

= $492.04

The surcharge payable is $325. As this is less than his net national superannuation the superannuitant effectively retains a portion of his "top up".

NB: In this example, the standard deduction has been calculated at $14.54 this being 2 percent of the $727 top up payment. The standard deduction is not allowable against the interest or the foreign pension (which is not related to past employment) as neither constitutes income from employment in accordance with section 105 of the Income Tax Act.

  1. The income of a married national superannuitant (whose spouse derives income over $5,200) comprises:
National Superannuation $5,727 ($5,000 foreign pension + $727 top up)
Interest (after $200 exemption) $6,500  
  $12,227  
 
His taxable income $12,227 - $14.54 (standard deduction) = $12,212.46
His "other income"
[(a - (b - c) - d)]
$12,212.46 - ($727 - $14.54) - $5,000 = $6,500

 

His surcharge liability is thus ($6,500 - $5,200) x 0.25 = $325
  other
income
  married
exemption
 

His "net national superannuation" (a - (b - c)) is: = $727 - (Tax on $12,212 - Tax on $(6,500 + $5,000)) = $727 - ($3,249.96 - $3,015.00) = $492.04 The surcharge payable is $325. As this is less than his net national superannuation the superannuitant effectively retains a portion of his "top up". NB:In this example, the standard deduction has been calculated at $14.54 this being 2 percent of the $727 top up payment. The standard deduction is not allowable against the interest or the foreign pension (which is not related to past employment) as neither constitutes income from employment in accordance with section 105 of the Income Tax Act.

Apportionments of "Other Income" and "Specified Exemptions" in certain cases where National Superannuation is received for part only of an income year

(a) General

In the majority of cases, a national superannuitant will receive national superannuation throughout an entire income year. In such cases, his/her liability for the surcharge is calculated by taking into account his/her "other income" for the full year and his/her specified exemption for the full year.

In other cases however, national superannuation may be received for part only of an income year. In same circumstances the "other income" and "specified exemption" will be apportioned in relation to the number of pay periods in respect of which national superannuation is payable. In other cases the "other income" derived during the whole of the year, and the full amount of the "specified exemption" will be used to calculate the surcharge.

The following list shows the basis for the calculation of the surcharge in various circumstances.

"Full Year" cases "Part Year Apportionment" cases
1. National superannuation paid in respect of the full income year 1. Superannuitant reaches age 60 during the income year
2. Superannuitant temporarily departs from New Zealand during the income year (or returns to New Zealand after having temporarily departed) 2. Superannuitant meets residential requirements during the income year
3. Superannuitant refuses to accept or does not apply for, while eligible, national superannuation 3. Superannuitant dies during the income year
4. Superannuitant is in a penal institution 4. Superannuitant permanently departs from New Zealand during the income year
5. Superannuation received for part of the year although entitled to receive it for the full year.    

(b) Other Income Apportionments

The determination by the Commissioner of the sources from which a superannuitant derived income during only the period in respect of which national superannuation was payable (item "e" of the other income apportionment formula) and of the sources from which a superannuitant derived income during only the period in respect of which national superannuation was not payable (item "g" of the other income apportionment formula), will depend upon the circumstances of each case.

For such determinations the general rules are:

  1. Salary and Wages/Superannuation
    • The general rule is that where income from an employer or a superannuation fund is paid during an income year and
      • A - the income is paid during a part of the income year where national superannuation was not also being paid at any time during that part, that income will comprise item "g";
      • B - the income is paid during a part of the income year where national superannuation was also being paid at all times during that part, that income will comprise item "e";
      • C - the income is paid either for the full income year or during a part of the income year in any case other than those above (ie where national superannuation was paid both at some time during that part and at some time outside that part), that income will comprise neither item "e" nor item "g". (It will thus form part of the "d - e - g" residue).

The following example illustrates the general rule (but see the exception below): Mr M turns 60 and consequently becomes a national superannuitant on 1 July. His income for the year ending on the following 31 March is as follows:

Employer's Name Period Employed Gross Earnings
G Packers Ltd 1/4/85 to 30/6/85 $3,950
RSA 1/4/85 to 15/7/85 $ 817
DSW (Nat Super) 1/7/85 to 31/3/86 $5,081

During the year additional income derived was:

  1. Investment income (net of exemption) $5,500
  2. Backpay from G Packers Ltd not included in original IR12 $2,200

In determining the amount of "other income" for surcharge purposes:

  1. Income from wages from G Packers Ltd is not included as this was derived from a source from which no income was derived after the taxpayer became a national superannuitant.
  2. The backpay, although received after 1 July is deemed to have been received before 1 July as provided for under section 336B(3) and is therefore not included in "other" income.
  3. The investment income is apportioned on a "pay day" basis (see below).
  4. Income from wages from RSA is also apportioned, as income from this source was derived both before and after the taxpayer became a national superannuitant. The "other income" thus calculated in accordance with the following formula is thus:
(d - e - g) x f + e (Section 336B(2))
h

where

d = $12,415 (all income except national superannuation less the $52 standard deduction)
e = nil
g = $6,150 (wages and backpay G. Packers Ltd $3,950 + $2,200)
f = 20 (national superannuation pay days after 1 July)
h = 26 (pay days in the full year)

Hence "other income" is

($12,415 -0-$6,150) x 20 + 0
26
= $4,819.23

It should be noted that the salary or wage payable from EACH employer is treated as a separate source of income.

Exception: In respect of item "c" in the general rule above, where a superannuitant can show what portion of a salary/wage was derived while he was also receiving national superannuation and correspondingly the portion derived while he was not receiving national superannuation, AND it is to the superannuitant's advantage, the respective portions can be treated as comprising item "g" and item "e" rather than forming part of the "d - e - g" residue.

If in respect of the same example above, Mr M had advised the Department that of his $817 salary from the RSA only $117 was derived after he qualified for national superannuation on 1 July (and he had a letter from the RSA supporting this), his "other income" would then be:

($12,415 - 117 - $6,850) x 20 + 117
26
 
where
d = $12,414 (all income except national superannuation less the $52 standard deduction)
e = $117 (R.S.A.)
g = 20 (pay days after 1 July)
h = 26 (pay days in the full year)
  1. Income Other than from Salary and Wages
    • In respect of each source of income (all interest is treated as one source, all dividends as one source, all rents as one source, all business income as one source), the general rule is that where income from that source is derived during an income year and
      • D - the income is derived during a part of the income year where national superannuation was not also being paid at any time during that part, that income will comprise item "g";
      • E - the income is derived during a part of the income year where national superannuation was also being paid at all times during that part, that income will comprise item "e";
      • F - the income is derived either throughout the full income year or during a part of the income year in any case other than those above (ie where national superannuation was paid both at some time during that part and at some time outside that part), that income will comprise neither item "e" nor item "g". (It will thus form part of the "d - e - g" residue).

As each type of income (interest, dividends, rents, business income) is treated as being a separate source, in most cases such income will comprise neither item "e" nor item "g" in accordance with item "f" above. As a general rule then, it will be only where all accounts or all shareholdings or all properties or all businesses are "sold" or "purchased" that a separation into item "e" or item "g" could be considered. Exception: Where a superannuitant can show what portion of each source (for example, dividends from individual companies) was derived while he was also receiving national superannuation and correspondingly the portion derived while he was not receiving national superannuation and it is to the superannuitant's advantage, the respective portions can be treated as comprising item "g" and item "e" rather than forming part of the "d - e - g" residue.

Specified Exemption Apportionments

The formulae used in apportioning a superannuitant's specified exemption are contained in section 336BA. A full commentary on these formulae and when they should be used is contained on pages 9 to 14.

Lump Sum Payments of National Superannuation

The Department of Social Welfare may on occasions pay backdated payments of national superannuation.

For income tax purposes the national superannuation is taxable in the year in which it is received. The same interpretation will be used for the purposes of the national superannuitant surcharge.

This affects the calculations of "net national superannuation" and "other income". The gross level of national superannuation which constitutes items "a" and "b" in the calculation of "net national superannuation" and "other income" respectively is the total of payments of national superannuation PAID in that income year. When calculating the taxable income figure (item "a" in the "other income" formulae) any payments received in the income year (and therefore liable to income tax in that year) but paid in respect of any other income year should be included.

Returns of Income Covering Periods Other than 12 Months Owing to a Change in Balance Date

In those cases where a superannuitant, with the Department's approval, changes his balance date with the result that a return of income for a period other than 12 months is furnished, the superannuitant's "other income" and "net national superannuation" calculations need no adjustment as in both cases each relates to the period covered by the non 12-month return of income. The superannuitant's "specified exemption" will however be adjusted to reflect the number of pay days (within the other than 12-months period) in respect of which national superannuation was paid.

The following example illustrates the procedure to be followed:

Example:

Joe Farmer retires to the city and obtains the Commissioner's approval for a change of balance date from 30 June to 31 March. This results in a 9 month return of income for the year in which the change is made.

Joe was a single national superannuitant for the entire period and had invested the proceeds from the sale of the farm to derive the following income for the period 1/7/85 to 31/3/86:

Interest $ 3,800  
Dividends $ 4,400  
National Superannuation $ 5,353 (20 pay days)
  $ 13,553  

The surcharge is calculated as follows:

His taxable income $13,553 - $52 - $200 = $13,301
  (standard
deduction)
(interest/dividend
exemption)

Note: For income tax assessment purposes tax is calculated on the income of $13,301 at the rate applying to an income of $17,734 (13,301 x 12/9)(section 16(6)) and any special exemption or section 50A to 55 rebates would need similar adjustments (section 16(4) and (5)).

(2) His "other income" (a-(b-c)-d)= $13,301-($5,353-$52) - 0 = $8,000

(3) His specified exemption =

6,240 x 20 =$4,800
26
(single
exemption)
  (assumes 26 pay
days in year to 31/3/86)
 
         

(4) His surcharge liability at 25 cents of each complete dollar of the excess of his other income over his specified exemption is:

0.25 x ($8,000 - $4,800
=$800

(5) His net national superannuation (a - (b - c)) =

$5,353 - (Tax rate on $13,301
as rate for $17,734
- Tax on $8,000
at rate for $10,666
$5,353 - ($3,804.08 - $2,054.96)
= $3,603.88

(6) His surcharge payable is thus $800, this being less than his net national superannuation maximum.

Notes:

  1. The procedures followed in the above example are used in respect of other than 12-month surcharge assessments resulting from changes in balance date only. Other than 12-month assessments arising from, for example, returns to date of death or date of permanent departure from New Zealand are subject to the "other income" and "specified exemption" apportionment provisions outlined in sections 336B and 336BA.
  2. If, in the above example, Joe Farmer had been entitled to the maximum $1400 life insurance/superannuation special exemption, his entitlement to that exemption would need to have been proportionately decreased to 9/12 (1400) = $1,050. His taxable income in (1) would thus be reduced to $12,251, his "other income" in (2) would be reduced to $6,950 and his surcharge liability in (4) would then be 0.25 x ($6,950 - $4,800) = $537.50. His net national superannuation in (5) would similarly require adjustment.

Amount of salary or wages on which tax and/or surcharge deductions are calculated where payments to a superannuation fund are made

Where deductions for superannuation contributions are made from an employee's salary or wages the deduction is, for tax deduction purposes, limited to $22.07 in the case of a weekly pay period, in accordance with section 341 of the Income Tax Act 1976.

For pay periods exceeding 1 week the deduction is limited to:

  • $46.14 for fortnightly pay periods
  • $69.21 for three weekly pay periods
  • $92.28 for four weekly pay periods
  • $99.27 for monthly periods

This limitation applies for national superannuitant surcharge purposes where a national superannuitant elects to pay the surcharge on his "other income" and that other income comprises salary or wages.

However, while the same superannuation contribution limitations are taken into account, it should be noted that a difference arises between the PAYE tax and surcharge deduction methods in relation to the treatment of the $52 standard deduction. While the standard deduction is taken into account in the deduction amounts shown in the normal PAYE tax deduction tables (IR184X, IR184Y and IR184Z) and while the deduction amounts shown in the supplementary PAYE tax and surcharge deduction tables (IR184NS) are calculated using the same PAYE figures as a base, the amount added to them as a surcharge deduction, in accordance with the amount specified in section 336L, ignores the standard deduction.

The following example, which is contained in the IR184NS tables applying from pay periods ending on or after 1 April 1985, illustrates the correct procedure to be followed by an employer in making tax/surcharge deductions from the amount of salary or wages payable to a national superannuitant who has specified a tax code and a surcharge code in respect of that income (ie the surcharge is to be paid by way of deductions from the national superannuitant's other income).

Example

Basic weekly pay $350.00; overtime $18.80 and shift allowance $12.00; superannuation contribution $35.00 (approved fund); tax code G; surcharge code MAJ.

  Tax Purposes Actual
Basic weekly pay $350.00 $350.00
Plus overtime 18.80 18.80
Plus shift allowance 12.00 12.00
GROSS EARNINGS $380.80 $380.80
Deduct current superannuationfund contribution (limited for tax deduction purposes) 23.07 35.00
  $357.73 $345.80
TAX TO BE DEDUCTED AT CODE G MAJ (on $357.73)   $166.73
    $179.07
Add non-taxable allowances (such as tool money), if any   4.50
NET PAYMENT TO EMPLOYEE SUPERANNUITANT $183.57  

Further Information

If further information is required two booklets are available from local tax offices. "Income Tax Surcharge on National Superannuation" (IR262) deals with the deduction of the surcharge from national superannuation, while "Surcharge Codes for National Superannuitants" (IR262A) sets out information for superannuitants who elect to have the surcharge deducted from other income.

Examples

Example A

A single national superannuitant expects that his income in the year ending 31 March 1986 will be:

National Superannuation (full year) $6,959.16
Government Superannuation $12,000.00
Interest and dividends (net of exemption) $4,000.00
  $22,959.16

The first step is to determine whether he is liable for the surcharge. To do this it needs to be known whether his "other income" exceeds the specified exemption (section 336D(1)). As he is in receipt of national superannuation at the single rate, the specified exemption is $6,240.

As national superannuation is to be received for the full year, "other income" is determined in accordance with section 336B(1) as:

(Taxable income - (Gross national superannuation - Standard deduction entitlement) - specified foreign social security pensions)

= $22,907.16 - (6,959.16 - 0) - 0

= $15,948

As this exceeds the $6,240 specified exemption the superannuitant is liable for the surcharge. His liability for the surcharge as calculated in accordance with section 336D(1) is:

(Other income - $6,240) x 25 percent

= (15,948 - $6,240) x 0.25

= 9,708 x 0.25

= $2,427.00

In accordance with section 336D(3) however, the annual surcharge cannot exceed the amount of the national superannuitant's net national superannuation. This is calculated under section 336A as:

(Gross national superannuation - (tax payable on taxable income-tax payable on taxable income other than national superannuation))

= $6,959.16 - (tax on 22,907.16 - Tax on 15,948.00))

= $6,959.16 - (6,779.31 - 4,482.84)

= 4,662.69

As the surcharge liability is less than the net national superannuation, the liability remains at $2,427.

The next step is to consider the options which the national superannuitant has for paying that surcharge liability. As the other income comprises both a source deduction payment (government superannuation) and specified income (interest and dividends) the national superannuitant's options (as spelt out in section 336F(2)(c)) are to pay the surcharge:

(1) by way of deductions against gross national superannuation; or

(2) both by way of deductions from government superannuation and as provisional tax on his interest and dividends.

If option (1) is chosen, the superannuitant is required to inform the Commissioner of his estimated income detailed above on a form entitled "Application to have Surcharge Deducted from National Superannuation" (IR23S) and also forward to the Commissioner his tax deduction certificate(IR12) in respect of national superannuation to be payable to him by the Department of Social Welfare. (Sections 336H(1) and 336H(2)). Section 336H(3) then requires the Commissioner to determine the amount of the surcharge deduction to be made from gross national superannuation and to advise the Department of Social Welfare accordingly.

The surcharge deduction to be determined by the Commissioner would simply be the surcharge liability ($2,427) divided by the number of pay days in the 1985/86 year (26). The amount is thus $93.34 per fortnight.

If the national superannuitant has also correctly self-coded his tax code, for his national superannuation, at the secondary rate the PAYE deduction required on the national superannuation is calculated as the gross fortnightly payment ($267.66) multiplied by the secondary tax rate (0.33) = $88.32

The combined surcharge and PAYE tax deduction required to be deducted from each $267.66 fortnightly payment is thus $181.66 so that the national superannuitant receives $86.00.

If option (2) is chosen, then section 336K(3) is applicable since the national superannuitant's expected source deduction payment (government superannuation) exceeds his expected specified income (interest and dividends). Under that subsection, the surcharge is payable:

(a) on his specified income as if it were provisional tax (section 336K(3)(a)), but by virtue of the proviso to section 336I, no surcharge will be payable on a provisional basis in the first year. The terminal surcharge liability on that $4,000 of interest and dividends (assuming that is the amount of interest and dividends actually derived) equals $1,000 (25 percent) and, is due by 7 February 1987.

(b) on his source deduction payment (government superannuation) the "SAJ" surcharge code is used (section 336K(3)(b)(i)).

As government superannuation is paid four-weekly, the amount of the source deduction per four weeks is calculated, in accordance with section 336L(2)(b), as:

(four-weekly payment - 480 (4 week exemption entitlement)) X 0.25

= (923.07 - 480) x 0.25

= $110.76

The surcharge paid annually from this source would thus be $110.76 x 13 = $1,439.88. The surcharge thus paid from both (a) and (b) is $2,439.88.

Comparing the two options, it can be seen that there is a difference in the surcharge paid on an annual basis of $12.88. This arises from a combination of a rounding difference of $0.12 and a $13.00 difference ($52 x 0.25) since the surcharge codes do not take into account a standard deduction entitlement.

Credit for the above excess ($12.88) which represents an overpayment of surcharge will in effect be given when the annual return of income is furnished as part of the annual "square up".

Example B

A single national superannuitant knows that halfway through the 1985/86 year he will turn 60 and will stop work. At that time he expects to apply for national superannuation. He has estimated his income in that year to be:

National superannuation (13 pay days) $3,479.58
Employment (6 months) $13,000.00
Interest and Dividends (net of exemption) $18,000.00
  $34,479.58

The first step is to determine whether he is liable for the surcharge. To do this it needs to be known whether his "other income" exceeds the apportioned specified exemption.

As national superannuation is to be received for part only of the year by reason of the national superannuitant reaching age 60, the national superannuitant's other income is determined, in accordance with section 336B(2), as:

(d) - (e) - (g) x (f)
(Other income
as determined in
s 336B(1)
income while
on N/S
income while
not N/S
No. of pay days
where N/S received
No. of pay days in year (h)
+ Income while on N/S(e)
= (Taxable income - (Gross N/S - Standard Deduction entitlement) - 0 - 13,000 x 13
  26
+ 0
= (34,427.58 - (3,479.58 - 0) - 13,000 x 0.5
= $8,974
The superannuitant's specified exemption, under section 336BA, is calculated as:
  Number of pay days where N/S received x $6,240
  Number of pay days in year
= 13 x $6,240  
  26  
= $3,120

As the "other income" ($8,974) exceeds the apportioned exemption level, the national superannuitant is liable for the surcharge. His liability for the surcharge is calculated in accordance with section 336D(2) as:

(apportioned other income) - specified exemption) x 25 percent

= (8,974 - 3,120) x 0.25

= $1,463.50

In accordance with section 336D(3), however, the annual surcharge cannot exceed the amount of the national superannuitant's net national superannuation. This is calculated under section 336A as:

(gross national superannuation - (tax payable on taxable income - tax payable on taxable income other than N/S))

= ($3,479.58 - (Tax on 34,427.58 - Tax on 30,948.00))

= ($3,479.58 - (12,208.54 - 10,256.82))

= $1,527.86

As the surcharge liability is less than the net national superannuation, the liability remains at $1,463.50.

The next step is to consider the options which the national superannuitant has for paying that surcharge liability. As the other income comprises specified income (interest and dividends) only, the national superannuitant's options (as spelt out in section 336F(2)(a)) are to pay the surcharge:

(1) by way of deductions against gross national superannuation; or

(2) as provisional tax in respect of his specified income.

If option (1) is chosen, the superannuitant is required to inform the Commissioner of his estimated income, detailed above, on a form entitled "Application to have Surcharge Deducted from National Superannuation" (IR23S) and to forward to the Commissioner his tax code deduction certificate in respect of national superannuation to be payable to him by the Department of Social Welfare (IR12) (sections 336H(1) and 336H(2)). Section 336H(3) then requires the Commissioner to determine the amount of the surcharge deduction to be made from gross national superannuation and to advise the Department of Social Welfare accordingly.

The surcharge deduction to be determined by the Commissioner would simply be the surcharge liability ($1,463.50) divided by the number of pay days for which the national superannuitant can receive national superannuation (13). The amount is thus $112.57 per fortnight.

If the national superannuitant had also correctly self-coded his tax code for his national superannuation at the "G" code, the PAYE deduction required on the gross fortnightly payment ($267.66) of national superannuation is $57.10.

The combined surcharge and PAYE tax deduction required to be deducted from each $267.66 fortnightly payment is thus $169.67 so that the national superannuitant receives $97.99.

If option (2) is chosen, then section 336I(2) is applicable. Under that subsection, the surcharge will be payable on the national superannuitant's specified income as if it were provisional tax. The superannuitant's specified exemption is allowed against his specified income. The proviso however means that no surcharge is payable on a provisional basis in the first year. The terminal surcharge liability on $5,854 (8,974 - 3,120) of interest and dividends (assuming that it is the amount of interest and dividends actually derived), which equals $1,463.50 (25 percent), would be due by 7 February 1987.

National Superannuitant Surcharge Decision Model

(Use only where you receive National Superannuation for the full year.)

A flowchart of National Superannuitant Surcharge Decision Model

View larger version of image

Note:

  1. If you receive National Superannuation for part only of the year see your nearest Inland Revenue Office.
  2. If you receive "Other Income" in excess of $5,200 in a year you must furnish a return of income. You need also furnish a return if your spouse wishes to claim an increased exemption based on your income.