The new 39% tax rate and...
Anyone earning over $180,000 a year now pays a 39% tax rate on income over that threshold. The new rate came into effect on 1 April 2021.
Employers
If you have employees earning over $180,000 then you will need to ensure that the PAYE that you deduct from their wages is adjusted accordingly. This may be particularly relevant when paying bonuses, backpay, redundancy and retirement payments. Payroll software supplied by all the major vendors will automatically calculate PAYE using the new tax rate. Employers who have set up automatic payments for employees salaries will need to ensure that the payments are adjusted accordingly.
There is also a new secondary tax code of SA with a corresponding tax rate of 39%. The new tax code applies to secondary employment earnings for an employee whose total PAYE income payments are more than $180,000.
FBT
A new Fringe Benefit Tax (FBT) rate of 63.93% applies for all-inclusive pay above $129,681 and also for the single rate used for pooling of non-attributed fringe benefit calculations. The 42.86% rate for non-attributed benefits will no longer apply. Talk to us about your current FBT profile and we can review it together.
RWT
There is a new RWT rate of 39% for individuals who receive interest income. People who expect to have income over $180,000 should use this new rate.
RLWT
Residential land withholding tax (RLWT) applies to sales of residential property by offshore persons made within five years of acquisition. From 1 April 2021 the RLWT rate increased to 39% (except where the vendor is a company).
Property or Shares
If you are looking to purchase assets such as property or shares, or already have such investments, it would be prudent to assess your overall investment strategy so that it meets your commercial and personal goals, including your tax profile.
Such investments are able to be held in a company or a trust, which have tax rates of 28% and 33% respectively. Company distributions in the form of dividends will, however, be taxed at the individual's tax rate. Trusts will be able to make capital distributions to beneficiaries that are non-taxable to the beneficiary, effectively limiting the tax paid to the Trust tax rate of 33%.
Beneficiary Income from a Trust
If you receive beneficiary income from a trust let us know if you’d like to know more about your tax position.
A strong note of caution - the main reason for any restructuring of your investments should not be due to any perceived tax benefits arising out of the restructure. Any restructuring should be focused on achieving key objectives such as successful commercial, risk, succession, and asset protection outcomes. Talk to us so that we can review and assist you with planning to meet your objectives.
Portfolio Investment Entities
The Portfolio Investment Rates (PIR) have not changed and the top PIR rate is still 28%. This makes investing in Portfolio Investment Entities (PIEs) even more attractive for people with Taxable Income over $180,000.