Rimutaka MP welcomes redundancy changes

11 December 2007

Rimutaka MP Paul Swain has welcomed today’s announcement of forthcoming law changes to make the taxation of redundancy payments fairer to people who find themselves in a higher tax bracket as a result of receiving a payout.

“I’m very pleased that the government has found a pragmatic solution to this long-standing problem,” Mr Swain said.

“The current tax rules can push laid-off workers into a higher tax bracket, even though they may have been on a lower tax rate before they lost their job, because their normal income and redundancy are treated as total income for that tax year.

“They then may return to that lower tax rate when they start a new job.

“There is no one right way to tax all redundancy payments because the amount of tax payable on them depends on the recipients’ personal circumstances – such as when in the tax year they were made redundant, how much income they earned in that same tax year after they were made redundant, and what their last year’s income was.

“The new redundancy payment rebate is a practical and straightforward solution. The tax on redundancy will be rebated at 6 cents on the dollar up to a limit of $60,000 redundancy. Once the system is up and running, from 1 April 2008, all people will have to do is fill in a rebate form when they receive their redundancy payment. It will be even easier when Inland Revenue’s automated system is developed.”

"The tax rebate will apply to redundancy payments made on or after 1 December 2006."

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