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Tax back on redundancy payments By Lawrence JohnstonPEOPLE who are pushed into a higher tax bracket when they receive lump sum redundancy payments, should benefit from new legislation. In a joint statement to introduce the legislation, Finance Minister Michael Cullen and Revenue Minister Peter Dunne said that under current tax law, lower and middle-income people could be over-taxed when their redundancy pay pushed them into a higher tax bracket. "Redundancy payments are employment income, and it is fair that they are taxed. However, taxing these payments at a higher rate of tax without taking into consideration the recipient's personal tax rates before and after redundancy, has led to many cases of over-taxation. When that happens it can come at what is already a very difficult time for most people," they said. To resolve the problem and keep complexity and compliance costs to a minimum, the government would introduce a simple tax rebate that would apply to redundancy payments made on or after December 1, 2006. "Calculation of the rebate will be based on the flat rate of six cents per dollar, up to NZ$60,000 per redundancy. That means, for example, that someone who receives a redundancy payment of NZ$20,000 will be able to claim a NZ$1,200 rebate. Someone who receives a NZ$60,000 payout can claim a rebate of NZ$3,600. "Because the maximum redundancy payout that qualifies for a rebate is NZ$60,000, the rebate itself is capped at NZ$3,600, so someone who receives a payout larger than NZ$60,000 will be eligible for a NZ$3,600 rebate. "The process for obtaining a rebate will be straightforward. Once the system is in place, from April 1 next year, recipients will be able to claim a rebate immediately after receiving their redundancy payout by completing an Inland Revenue form. Over time an automated system will be developed to reduce compliance costs further," the ministers said. The government was pleased to have found a solution to a complex tax problem that had been of concern to workers and unions for some time. "The changes announced today will make the taxation of redundancy pay fairer to all concerned," they said. The changes were being added to the taxation bill currently before Parliament. The redundancy payment rebate is a flat six cents in the dollar for every dollar of redundancy payment, up to a cap of NZ$60,000 of payments received in relation to each redundancy. |
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