NZ TAX rules on Redundancy compared with Australia

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Forums › Finance and wealth management › NZ TAX rules on Redundancy compared with Australia - We Suck --

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#2479217 8-May-2020 12:55

Someone I know whose an accountant at a NZ business that expanded to Australia has complained the rules and systems there are just so much more complicated and time consuming than the NZ system. He spends way more time doing tax work there yet they employ 5x as many people in NZ....

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boosacnoodle

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#2479257 8-May-2020 14:04

I've known people who have got their employer to pay out a nominal sum as redundancy or notice period, then the rest under ERA s123 as you were "hurt & humiliated". Public Ruling BR Pub 06/05 means that s123 payments are non-taxable.

Beccara

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#2479260 8-May-2020 14:14

At a principal level, Why shouldn't it be taxed? It's income that's going into your pocket is it not? If you want to argue for a tax free amount of the first x $$$ then that's a different argument but why should redundancy money not be taxed?

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#2479424 8-May-2020 16:57

If the tax on redundancy payments affect you or even if you just think it’s unfairly applied, particularly in the current circumstances, then the following petition to Parliament seeks to bring it to politician’s attention.

https://www.parliament.nz/en/pb/petitions/document/PET_97667/petition-of-michael-kenyon-refund-taxation-on-redundancy?fbclid=IwAR2YDKqkQsbbGYOJl55WxaKGXlGFDIqWG9M6t8m8zToYBY-9-GKg9qPIUuo

It mainly seeks to expedite the rebate of overtax to it being paid as a lump sum. The petition only has a couple of days before it closes.

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GV27

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#2479670 9-May-2020 11:34

Beccara:

At a principal level, Why shouldn't it be taxed? It's income that's going into your pocket is it not? If you want to argue for a tax free amount of the first x $$$ then that's a different argument but why should redundancy money not be taxed?

There used to be a specific tax credit available for people who had been mad redundant. It was repealed by National a while back.

I could have lived with that in principle, but over the past ten years many redundancy provisions have moved from the 'Four weeks + 1 week for every month of service' type arrangements that many older workers would have been familiar with to a flat four week provision. I believe my most recent contract has two week's redundancy.

That's a pretty big erosion that will have gone unnoticed by many due to our prolonged period of economic growth. Now that winter is here, those provisions will get smaller and more people will end up being affected by them.

Losing your job at short notice is bloody awful and a much bigger deal given the size of modern mortgages relative to incomes. Ironically, getting made redundant a few years ago and the resulting annual leave payout was the only way I was able to afford a house deposit. If I didn't have the annual leave payout, I would have been in real trouble.

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#2479744 9-May-2020 13:26

I should clarify my comment that I think AU’s tax system is better than ours.

I think it is more fit for purpose as they have lower tax rates at the low end, have a higher bracket and higher rate at the top end, lower GST rate with some exemptions. They have a form of CGT. This makes it more complex but fairer IMO.

I should also add that I am pretty far left on the political spectrum so to me these things are a positive. To others they will be a negative.

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#2479747 9-May-2020 13:28

Dingbatt
Thank you for the petition link.

PolicyGuy
Yes I appreciate the simplicity of the tax system, though I think this would not be a big impost to add this.

With limits and smaller sizes of redundancy clauses in employment agreements these days , its not a huge loss of tax for economy, but can be very big for someone needing to bridge financial arrangements.

Can even help people to not be a further burden on society.

With a limit per year service like Aussie do it preserves integrity of tax system.

Its way too late for me.
At the time I saw it was being looked at, but then it turned out to be just considering other bulk payments .
So perhaps I over-emphasized things when I saw it had not progressed, in my annoyance.

The disputes thing is existing partial workaround.
Though an employer making a group of people redundant may be concerned it opens them up to issues, vs a one off situation.

Key point for me is redundancy often comes unexpectedly.
Even a company that shares its financial situation usually tells workers they are working their way out of the poo.
In takeovers workforce is often given hope to keep things ticking ... Until...

antonknee

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#2479748 9-May-2020 13:29

GV27: Ironically, getting made redundant a few years ago and the resulting annual leave payout was the only way I was able to afford a house deposit. If I didn't have the annual leave payout, I would have been in real trouble.

Says more about the shocking state of the housing market in NZ than it does pitiful redundancy protections.

Totally agree with you there’s been an erosion of redundancy payouts. Having been made redundant a few times I’ve noticed this too overall. My current contract though is oddly and surprisingly generous at 6 weeks plus 2 per year of service (Australian company, might have something to do with it).

BlinkyBill

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#2479822 9-May-2020 16:53

I wonder how many employed people in NZ are on either zero-hour contracts, outright contractors or otherwise self-employed? In other words, what proportion of employed people could potentially attract a redundancy provision. And then how many people are employed at the same business paying redundancy for more than a couple of years tenure?

Gig economy and all that.

If NZ changed the income tax rate on redundancy payments, to say the base rate, I might make myself redundant every year, so as to attract a lower rate of income tax. Anyone effectively self-employed might think about doing that.

GV27

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#2480091 10-May-2020 09:10

BlinkyBill:

If NZ changed the income tax rate on redundancy payments, to say the base rate, I might make myself redundant every year, so as to attract a lower rate of income tax. Anyone effectively self-employed might think about doing that.

Pretty sure it's still taxed at the base rate and that it comes out in the wash at the end of the tax year. There's a distortion effect from receiving so much income in one hit which means it gets taxed at a higher rate at the time it gets paid out. It's been a while since I was made redundant though (thank God).

blackjack17

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#2480116 10-May-2020 10:02

BlinkyBill:
I wonder how many employed people in NZ are on either zero-hour contracts, outright contractors or otherwise self-employed? In other words, what proportion of employed people could potentially attract a redundancy provision. And then how many people are employed at the same business paying redundancy for more than a couple of years tenure?

Gig economy and all that.

If NZ changed the income tax rate on redundancy payments, to say the base rate, I might make myself redundant every year, so as to attract a lower rate of income tax. Anyone effectively self-employed might think about doing that.

Which would be tax evasion which is illegal

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#2480182 10-May-2020 10:25

It is the same when a company goes into receivership (well certainly was last time it affected me). The workers, who probably need the money than most, are way down the queue with all the unsecured creditors.

Once the IRD, liquidator and banks have had a go at the carcass there is often only cents in the dollar left for the workers. While that is just a fact of working life normally, we are constantly told we are in ‘unprecedented’ (I’ve come to despise that word through overuse) times. Over the next couple of months with more businesses folding up their tents this will probably rear its head in major way. Maybe that needs to be looked at as well as the way redundancy lump sums are taxed.

Ultimately the government is just going to have to give the tax back in the form of income support, after its value has been decreased by passing through the IRD and MSD on its way back to you.

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BlinkyBill

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#2480262 10-May-2020 10:36

blackjack17:

Which would be tax evasion which is illegal

Why would it be tax evasion?

blackjack17

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#2480309 10-May-2020 10:48

BlinkyBill:

blackjack17:

Which would be tax evasion which is illegal

Why would it be tax evasion?

Correct me if I am wrong but you were suggesting a hypothetical situation where redundancies are taxed at the lowest tax rate of 10.5%. You then suggested that you would make yourself redundant each year to give yourself what is essentially a bonus taxed at the lowest tax rate. This would be tax evasion rather than mitigation as you aren't actually making yourself redundant.

Edit: Not an accountant so I might be wrong

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BlinkyBill

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#2480358 10-May-2020 11:09

blackjack17:

Correct me if I am wrong but you were suggesting a hypothetical situation where redundancies are taxed at the lowest tax rate of 10.5%. You then suggested that you would make yourself redundant each year to give yourself what is essentially a bonus taxed at the lowest tax rate. This would be tax evasion rather than mitigation as you aren't actually making yourself redundant.

Edit: Not an accountant so I might be wrong

It would be evasion if the regulation amendment setting the tax rate at 10.5% or anything else is accompanied by conditions around who made who redundant, and when. Otherwise my cunning plan exploits a loophole. Doing something illegal and prohibited is tax evasion; exploiting a loophole is tax avoidance, and not illegal.

My main point, though, is that changing tax rates for redundancy payments a) would affect far fewer people than many might suspect, b) introduces the potential for loopholes and exploitation, and c) is unfair on those who are taxed at lower rates.

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