Income Tax Amendment Act (No 4) 1985

This commentary item was published in Public Information Bulletin Volume 136, May 1985

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This Act gives effect to:

• The announcement in the June 1985 Budget that the specified exemption levels for the National Superannuitant surcharge will be increased from $6,240 (single rate recipients) and $5,200 (married rate recipients) to $7,202 and $6,006 respectively with effect from 1 April 1986.
• An expansion of the specified exemption section for the National Superannuitant surcharge to cater for cases where National Superannuation is received at rates other than the single or married rates and to clarify the exemption to be applied where a National Superannuitant is receiving the single rate by reason of his spouse having been in hospital for more than 13 weeks.
• The announcement in the August 1985 Statement on Taxation and Benefit Reform that the fringe benefit tax rate will be increased to 48 percent from 1 April 1986.
• The announcement in the August 1985 Statement on Taxation and Benefit Reform that the rate of tax for resident companies and resident company tax rate related taxpayers will be increased from 45 cents in the dollar to 48 cents in the dollar with effect from the income year commencing 1 April 1986.
• The announcement in the August 1985 Statement on Taxation and Benefit Reform that the rate of tax for non-resident companies and non-resident company tax rate related taxpayers will be increased from 50 cents in the dollar to 53 cents in the dollar with effect from the income year commencing 1 April 1986.
• The announcement in the August 1985 Statement on Taxation and Benefit Reform that the above two sets of increased tax rates be taken into account in relation to the provisional tax payments that are required in the 1986/87 tax year.

The Act received the Governor-General's assent on 7 December 1985, and the commentary which follows explains its effect.

Section 1 - Short Title

This section provides that this Amendment Act is to be read with and form part of the Income Tax Act 1976.

Section 2 - National Superannuitant Surcharge Specified Exemptions

Provision is made to increase the exemption levels (as announced in the June 1985 Budget statement) which apply in respect of income other than National Superannuation derived by National Superannuitants in determining their liability for the National Superannuitant surcharge.

These levels were to be increased to $7,200 for a single person and to $12,000 per annum which will be the combined exemption for a married couple with effect from 1 April 1986. For administrative reasons (namely PAYE divisibility by 52 these amounts were altered to $7,202 and $12,012 respectively. The provision specifying the exemption levels is also expanded to take account of those situations where National Superannuitants receive National Superannuation at rates other than the married or single rate and to clarify the exemption to be applied where a National Superannuitant is receiving the single rate by reason of his spouse having been in hospital for more than 13 weeks.

Each subsection is explained in detail below.

Subsection (1)

At present section 336BA(1) of the principal Act outlines the specified exemptions available where:

• National Superannuation is being received at the single rate by reason of the National Superannuitant being not married - the annual exemption in these cases is $6,240 (paragraph (a)).
• National Superannuation is being received at the married rate - the annual exemption in these cases is $5,200 although provision is made for any unused exemption to be transferable to a National Superannuitant's spouse to give a combined exemption of $10,400 (paragraph (b)).
• National Superannuation is being received at the single rate by reason of the spouse of the National Superannuitant not qualifying for National Superannuation, (ie, under age 60 or not having met the residential requirements) - the annual exemption in these cases is $6,240 although provision is made for this to be increased up to $10,400 where the non-qualifying spouse has little or no taxable income (paragraph (c)).
• National Superannuation is not being received for part of a year for any reason other than the national Superannuitant commencing to receive, dying, or permanently departing frown New Zealand. This provision ensures that a full year's "other income" is to be taken into account despite National Superannuation having been received for part of a year only (paragraph (d)).

Subsection (1) alters these expansions by replacing the present paragraphs (c) and (d) with new paragraphs (c), (d) and (e) which do the following:

• Paragraph (c) - This is a repetition of the present paragraph (c) with two changes having been introduced -
  
  Firstly, the variable $6,240 to $10,400 exemption is specifically made available to those National Superannuitants who are receiving the single rate of National Superannuation by reason of their spouse having been in hospital for more than 13 weeks. In such cases, section 75 of the Social Security Act 1964 provides that after the expiry of 13 weeks, the spouse's entitlement to National Superannuation is to be reduced from the married rate to a rate which gives the spouse $10 per week (soon to be increased to $15 per week) after tax and at the same time the non-hospitalised superannuitant's rate increases from the married rate to the single rate.
  
  Example:
  
  Two National Superannuitants are receiving the married rate of National Superannuation. One is admitted to hospital for a period of 21 weeks during the year. During this time the non-hospitalised superannuitant has received $9,000 of other income whereas the hospitalised superannuitant has received $4,500 of other income.
  
  By virtue of section 75 of the Social Security Act, the non-hospitalised superannuitant will have received the married rate for 44 weeks (22 pay days), this including the first 13 weeks while his spouse was in hospital, and the single rate for eight weeks (four pay days).
  The non-hospitalised superannuitant's specified exemption for the year will thus be:
  
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  Secondly, the wording relating to the description of item f has been altered to ensure that only a spouse's "other income" is taken into account when calculating a National Superannuitant's specified exemption in those cases where paragraph (c) applies.
• Paragraph (d) - This is a new paragraph which provides an exemption in respect of that part of a year in respect of which a National Superannuitant is receiving National Superannuation at a rate other than the married or single rate. This can occur in those cases where:
  • National Superannuation is being paid at a rate at the discretion of the Social Security Commission where, for example, the superannuitant is in a penal institution.
  • The reduced $10 per week (soon to be increased to $15 per week) after tax rate is being paid to a superannuitant who has been in hospital for more than 13 weeks.
  • The superannuitant is in receipt of a specified foreign social security pension with the result that the National Superannuation (as defined in Part XA of the principal Act) being received is less than the amount actually being paid to the superannuitant by the amount of the "top-up".
  • A National Superannuitant has received the married income-tested rate of national Superannuation for part of the year.
• 
  In these situations, the specified exemption available is:
  • Where the superannuitant is not married, the exemption available under paragraph (a).
  • Where the superannuitant is married, the superannuitant's spouse is entitled to receive National Superannuation AND that spouse has not been in hospital for a period of 13 weeks, the exemption available under paragraph (b).
  • In any other case, the exemption available under paragraph (c).
• Paragraph (e) - This is a repetition of the present paragraph (d) with changes to the wording being made in subparagraph (i) to ensure that immigrants who have previously received National Superannuation obtain a full year's exemption (a similar amendment in the Income Tax Amendment Bill (No 5) provides that a full year's "other income" will be taken into account in such cases) and in subparagraphs (iv) and (v) consequential on the introduction of the new paragraph (d).

The new paragraphs are to apply with respect from the income year that commenced on 1 April 1985 being the date from which the National Superannuitant surcharge first applied.

Subsection (2)

This subsection increases the specified exemption levels for National Superannuitants with effect from the income year that commenced on 1 April 1986.

The exemptions were to have been increased from $6,240 to $7,200 (single rate recipients) and from $5,200 to $6,000 (married rate recipients, giving a combined exemption of $12,000 instead of the present $10,400) as announced in the June 1985 Budget, but these amounts have been increased slightly to ensure their divisibility by 52.

The new levels will be $7,202 and $6,006 (giving a combined exemption for married couples of $12,012) respectively.

Subsection (3)

This subsection makes a consequential amendment to section 336BA(2) of the principal Act resulting from the replacement of paragraphs (c) and (d) of the present section 336BA(1) with new paragraphs (c), (d) and (e) as detailed in subsection (1) of this Amendment Act.

Subsection (4)

This subsection specifies the pay-period equivalents of the new $7,202 exemption for single rate recipients for the purpose of the "SAJ" code.

Subsection (5)

This subsection specifies the pay-period equivalents of the new $6,006 exemption for married rate recipients for the purposes of the "MAJ" code.

Subsection (6)

At present, National Superannuitants who receive more than $5,200 of taxable income in addition to their National Superannuation are excluded from being "pay-period taxpayers" as that term is defined in section 356(1) of the principal Act.

This subsection consequentially amends that definition as a result of the new specified exemption levels to ensure that only those National Superannuitants who receive more than $6,006 of taxable income in addition to their National Superannuation will be excluded from being "pay-period taxpayers".

Subsections (7) and (8)

These are the application date subsections. They ensure that the expansion of the present specified exemption section will apply with effect from the income year commencing on 1 April 1985 (the date from which the surcharge first applied) while the increase exemption levels will only apply with effect from the income year commencing on 1 April 1986.

Section 3 - Fringe Benefit Tax Rate

This section simply provides that, as announced in the August 1985 Statement on Taxation and Benefit Reform, the rate of fringe benefit tax will be increased from 45 percent to 48 percent with effect from 1 April 1986. The new rate, which is in line with the increase in the company tax rate (see below), is to apply to fringe benefits provided on or after 1 April 1986. It will thus first apply to payments of fringe benefit tax made in respect of the quarter which ends on 30 June 1986.

Section 4 - Company and Company-Related Tax Rates

This section provides that, as announced in the August 1985 Statement on Taxation and Benefit Reform, the rates of income tax payable by companies and certain other taxpayers are to be increased from 45 and 50 percent to 48 and 53 percent respectively with effect from the income year that commenced on 1 April 1986. It also provides that those increases are to be taken into account in calculating the provisional tax payments that will be required in the 1986/87 tax year. Each subsection is explained in detail below.

Subsection (1)

Paragraph (a) provides that the income tax rate will increase from 45 cents in the dollar to 48 cents in the dollar for:

• Companies resident in New Zealand.
• Public authorities.
• Trustees of "category 3" superannuation schemes.
• Trustees of group investment funds in respect of "category A" income.
• Non-resident mining operators with respect to income derived from mining operations.

Paragraph (b) provides that the income tax rate will increase from 50 cents in the dollar to 53 cents in the dollar for:

• Companies not resident in New Zealand.
• Non-resident insurers and non-resident insurance underwriters.
• Non-resident mining companies with respect to income derived from activities other than mining operations.

Subsections (2) and (3)

These subsections provide that the above increased rates of tax are to be taken into account in calculating the amounts of provisional tax that are to be paid for the 1986/87 income year.

Although these subsections refer to provisional tax amounts otherwise determined being increased by 6 2/3 and 6 percent respectively (these amounts representing the respective 45 to 48 and 50 to 53 percent increases), in practice all that will be required will be for taxpayers to multiply their 1986/87 provisional income (which will usually be the taxable income derived during the 1985/86 year) by the new 48 or 53 percent rates.

Subsection (4)

This is the application date subsection. It provides that the increased income tax rates contained in subsection (1) are to apply with effect from the income year commencing on 1 April 1986.