Surprise tax bill? Here are six possible reasons

Surprise tax bill

Did you, or someone you know, get a surprise tax bill they weren’t expecting?

Several Kiwi’s have recently been in touch after having received tax bills that took them by surprise, and they’ve been asking Inland Revenue what’s going on.

An Inland Revenue spokesperson has provided six likely reasons that more people seem to have been caught out this year:

  1. Last year, tax bills below $200 were written off as part of the pandemic support measures. This year, it’s back to the usual write-off threshold of $50.
  2. Inland Revenue is now doing tax assessments for everyone, so some people are getting bills or refunds who never have before, including some children with KiwiSaver funds or other investments.
  3. Anyone paid 27 fortnightly wage packets may have underpaid their tax – that can be fixed once IR has the correct information.
  4. Many incorrect tax codes were corrected last year, and for a few people (mainly aged over 65) the IRD made errors which they are correcting.
  5. Pension tax code changes were delayed, leading to some undertaxing which is now being rectified.
  6. Some people’s tax codes are still incorrect.

We can sort out any surprise tax bill issues

Ultimately, the Inland Revenue calculates your tax based on the information they have about you and your business. If they have the wrong information, you may be paying too much tax or too little tax.

We can look at your surprise tax bill and help you work out what’s gone wrong. We can also deal with Inland Revenue on your behalf to give them the right information and ensure you’re paying exactly what’s required and no more. We’ll work with Inland Revenue to get your refund sorted out or to come up with an affordable payment plan.

Get in touch – our tax specialists at SME Financial are here to help.

What will the new top tax rate mean for you?

Tax Rate Changes

If you’re one of the 2% of Kiwis who earn more than $180,000 a year, it’s time to review your financial situation. From April 1, 2021, a new marginal tax rate will apply: for every dollar you earn over $180,000, Inland Revenue will now keep 39 cents instead of 33. This is expected to generate $550 million in extra income for the Government in FY2021, and brings the highest threshold into line with Australia’s, although our new top tax rate is lower than Australia’s 47%.

How much more tax will you pay?

Here are some examples of what extra tax you might pay at various income brackets:

  • If you earn $200,000, you will pay an extra $1,200 a year in tax under the new system.
  • If you earn $300,000, you’ll pay an extra $7,200.
  • If you earn $400,000, you’ll pay an extra $13,200.
  • If you earn $500,000, you’ll pay an extra $19,200.

If you’re an employee, your employer will also pay less into KiwiSaver.

Should you declare a company dividend?

You may need to declare a dividend from your business in this financial year, if profits are likely to be paid out to you next financial year and you’ll earn the top tax threshold. There will be an additional 6% in tax to pay if you miss out on declaring a dividend, so get in touch immediately. We’ll work out if this could apply to you and the extra tax won’t need to be paid.

Do you need to restructure?

If you own a business or other assets, we can help you review your structures. It’s possible these are not set up to make the most of your income under the new tax rate. The 39% top rate is out of line with other rates, such as the 28% maximum rate in a PIE fund investment or the 33% trust rate. By restructuring, we may be able to help you reduce your tax obligations. You should talk to us soon so we have time to get your new structures set up before March 31.

Inland Revenue is watching!

Restructuring your affairs is not a DIY operation. The Government has clearly signalled that it will be looking out for anyone who is intentionally restructuring solely to avoid paying the new higher tax rate. Other taxes are also being tweaked to bring them in line with the new rates, so there are lots of complexities to consider. We can help you review your structures, make changes and ensure those changes are clearly justified.

Give us a call, drop us a note or stop by our offices – we’re happy to help.