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Election 2020: NZ’s Tax Psyche Set To Change

All things tax will get more attention from business owners, entrepreneurs and sole traders after Labour’s landslide win over the weekend, as the newly elected Government aims to raise the income tax rate from 33% to 39% for those earning over $180k.

The new tax threshold is intended to affect only 2% of the taxpaying population, and a large portion of those people are on salaries or wages with little ability to change how they earn their income, however, this “wealth tax” will have a significant and unexpected impact on the psyche of taxpayers in general.

While it’s unclear exactly when this new rate will come into force, the most likely date is 1 April 2021.

Greg Thompson, National Director of Business Advisory and Tax Services, Grant Thornton New Zealand

“The danger of this psyche shift we’re about to see is the poor decisions people will make to avoid higher taxes – many people, particularly entrepreneurs and sole traders will be thinking to themselves, ‘why should I bust my hump just to pay more tax?’” says Greg Thompson, National Director or Business Advisory and Tax Services at Grant Thornton New Zealand.

“Taxpayers need to seek the right advice as making assumptions and misunderstanding their obligations can actually cost more money.

“When the National Government returned the income tax rate to 33% in 2010, the business community deemed this as fair – and of course “fairness” is one of the fundamental pillars of an effective tax system.

“Subsequently, given this relatively flat structure, advisors around the country saw business owners’ focus shift away from how to effectively structure and save tax, to growing their businesses and generating wealth, which has beneficial flow on effects to their employees and the economy in general.

“Now, the change in the headline rate will bring tax back onto the agenda for many businesses, regardless of whether they actually face the increased tax charge or not.

“Naturally, most businesses want to maximise tax opportunities and minimise the amount they pay, but going forward after this election, it shouldn’t be the sole focus for contributing to healthy revenue generation.

“Businesses need to take a holistic approach by also focussing on meaningful revenue generating strategies and activity,” says Thompson.

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