Retirement scheme contribution tax rates

Schedule 1, part D and new schedule 6 of the Income Tax Act 2007; section 28C of the Tax Administration Act 1994

Amendments have been made to the Income Tax Act 2007 to align the retirement scheme contribution tax (RSCT) rates with the new personal tax rate structure from 1 April 2010.

Background

The retirement scheme contribution tax rules are an elective regime that allows a retirement scheme contribution, such as a taxable Māori authority distribution or a dividend made by a retirement scheme contributor to a retirement savings scheme, to be subject to a withholding tax called RSCT. The rules allow retirement scheme contributions that would be taxable in the hands of the person who benefits from the contribution to be subject to a final withholding tax instead.

Key features

The definition of "retirement scheme prescribed rate" has been replaced. The rates are now set out in new schedule 6, table 2 of the Income Tax Act 2007 as follows:

• 0% if the person is a non-resident at the time and the contribution is non-resident passive income; or
• 12.5% if the person:
  • has, in either of the two income years immediately before the year in which the contribution is made, taxable income of between $14,000 or less;
  • is a non-resident and the retirement scheme contributor is a Māori authority, and the distribution is $200 or less;
  • is a non-resident and the retirement scheme contributor is a Māori authority and the person supplies the Māori authority with a notice under section 28C of the Tax Administration Act 1994; or
• 21% if the person has, in either of the two income years immediately before the year in which the contribution is made, taxable income of $14,001 or more and less than or equal to $48,000; or
• 33% if the person has, in either of the two income years immediately before the year in which the contribution is made, taxable income of $48,001 or more and less than or equal to $70,000; or
• 38% in any other case.

The basic rates for RSCT in schedule 1, part D, table 5 have also been aligned with the new personal tax rate structure.

Section 28C of the Tax Administration Act 1994 requires a person who gives notice of a retirement scheme prescribed rate of less than the top personal rate to include their Inland Revenue number in that notice. The reference to 39% has been replaced with 38%.

Application date

The amendments apply from 1 April 2010.