Income Tax Amendment Act (No 2) 1985

This commentary item was published in Public Information Bulletin Volume 132, November 1984

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Income Tax Amendment (No.2) Bill

In a press statement released on 18 December 1984, the Minister of Finance, the Hon. RO Douglas, provided details of the provisions contained in the Income Tax Amendment (No.2) Bill introduced in Parliament.

Mr Douglas said the principal measures contained in the Bill relate to matters which were announced in the Budget but which were not contained in the Income Tax Amendment Bill passed on Budget night. In particular, it contains the legislation which will impose the new tax on fringe benefits, and the new late payment penalty and interest on tax in dispute provisions, which are to apply from 1 April next year. The Minister said that a detailed information paper on the fringe benefit tax has been prepared for release and is now available from his office and also from district offices of the Inland Revenue Department. Details of the legislation relating to late payment penalties and the payment of tax in dispute were contained in a detailed information sheet issued on Budget night.

Mr Douglas explained that the fringe benefit tax follows the broad detail of the Budget announcement except in one area. Shareholder employees will not be subject to the tax in relation to benefits provided to them in that capacity. The Government has given further consideration to this question, and it has been decided that the current tax treatment of shareholder employees is adequate for the time being. Under existing tax law private expenditure of shareholder employees is non-deductible to the company and may be treated as a dividend to the shareholders if not repaid by them to the company, Mr Douglas said.

The Bill also contains a number of technical amendments and several amendments which give effect to measures previously announced. These include changes to the legislation relating to the donations and school fees rebate (including the reinstatement of CORSO), pay period taxpayers, the tax treatment of assets distributed to the shareholders of a company on winding up, the tax deductibility of Accident Compensation levies and salaries to partners in a partnership, and the phase out of export incentives.

Mr Douglas explained that in view of the importance and detailed measures in the Bill, it will be referred to a Select Committee of Parliament in order that interested parties may make submissions. Details for the making of submissions will be advertised shortly, said Mr Douglas.

Taxation of Shearers and Shearing Shedhands

The following is the text of a press statement released by the Parliamentary Under-Secretary to the Minister of Finance, Mr Trevor de Cleene, on 29 November 1984 outlining the new basis for determining PAYE deductions for shearers and shearing shedhands to apply from 1 April 1985.

The Parliamentary Under-Secretary to the Minister of Finance, Mr Trevor de Cleene, today gave further details about the new rates of PAYE for shearers and shearing shedhands to apply from 1 April 1985. The new rates have been introduced in response to requests for change from the shearing industry.

The new rates of PAYE deduction are a flat rate of 25 cents in the dollar for shearers and 20 cents in the dollar for shearing shedhands.

Mr de Cleene said that the new flat rates of tax are designed to make the tax deduction process easier for shearers' employers, and to minimise overdeduction of tax during the year which could result under the present tax tables for shearers and shearing shedhands.

Mr de Cleene explained that the existing graduated tax tables did not fully recognise the seasonal and intermittent nature of employment in the shearing industry and the resulting fluctuations in shearing earnings. "In the case of an experienced shearer who earned in excess of $150 per day, PAYE deductions under the current basis of calculation could be excessive when compared with the tax assessed in the annual tax return."

The flat rate of 25 cents in the dollar for shearers recognises a quantum of expenditure incurred by shearers and obviates difficulties experienced by farmers in calculating PAYE deductions, said Mr de Cleene.

Mr de Cleene also announced that as a consequence of this new basis for determining PAYE deductions for shearers the 10 percent combs and cutters allowance is to be removed from 1 April 1985. Shearers will however be permitted to claim actual expenditure in their 1986 and future years returns of income.

"Because of the generally lower incomes derived by shearing shedhands a 20 cent rate is considered more appropriate in their case" Mr de Cleene said.

Mr de Cleene pointed out that the above changes affect only those persons who are engaged as "employees" either by the shearing contractor or farmer. For shearing contractors the current withholding tax rate of 15 cents in the dollar remains unchanged. Similarly, for farm employees who assist with shearing but who also perform other duties on the farm the general PAYE tax tables applicable to all employees should continue to be used.

A copy of this press statement has been sent to:

1. NZ Dairy Farmers Industrial Union of Employers
2. NZ Workers Union
3. NZ Society of Accountants
4. Federated Farmers
5. NZ Agricultural and Related Farmers Industrial Union of Employers
6. NZ Shearing Contractors' Industrial Union of Employers
7. NZ Sheep Owners' Industrial Union of Employers.