Top tax rate change – business considerations

With the election less than two weeks away, the business community is discussing the various parties’ policies and considering the potential impact on their business.

Of particular interest is the Labour Party’s proposal to reintroduce a top personal tax rate of 39%. With taxpayers looking to maintain tax efficiencies, we expect the IRD will closely monitor any changes in tax behaviour with anti-avoidance principles (Penny & Hooper) being brought to the forefront.

Here are a few practical considerations for business owners to consider prior to the personal tax rate increase (should it happen):

• Pay out retained earnings – if your company shares are held in your personal names, consider declaring a dividend prior to the tax rate increase. This will mean the top tax rate you pay is 33%. To achieve this, you may need to pay provisional tax earlier than required to ensure that you have sufficient imputation credits available.
• Market salaries – are you paying yourselves market salaries for the work being done? Have you reviewed these against market information?
• Review your current structure – it is prudent to review your business/investment structure regularly to ensure that it is fit for purpose. There are other changes coming into effect, such as the Trust Act 2019, that you should also review and consider.

Any changes made to your structure need to be commercial, not tax driven. Changes to legislation are however still a good time to consider your structure and determine if there is any future proofing required.

While the Labour government is targeting an extra $550m in tax revenue, we envisage the tax take to be less than expected.

If you are unsure how the proposed tax rate change may impact you, please contact your Hayes Knight advisor to discuss further.