The core of the 2024 New Zealand Budget is tax relief for working families and restrained public spending. Households anxious about cost of living and job security make cautious consumers. Businesses coping with rising overheads and shrinking retail spends tend to tighten up to maintain cash flow. Changes to the bright-line test and interest deductibility made it easier for property investors but removal of the First Home Grant makes it harder for first home buyers. If we can cool inflation during the second half of the year, interest rates might cool too. It is hoped that the boosts to the back pocket and to families will inject a bit more optimism in the meantime.
The Back Pocket Boost
Changes to personal income tax thresholds take effect from 31 July.
|
Income threshold (current)
|
Income threshold
(from 31 July 2024)
|
Tax rate
|
|
0 – $14,000
|
0 – $15,600
|
10.5%
|
|
$14,001 – 48,000
|
$15,601 – 53,500
|
17.5%
|
|
$48,001 – 70,000
|
$53,501 – 78,100
|
30%
|
|
$70,001 – 180,000
|
$78,101 – 180,000
|
33%
|
|
$180,000+
|
No change
|
39%
|
This is designed to give New Zealanders some breathing space after several years where higher wages dragged them into higher tax brackets due to inflation.
Tax threshold changes and your business
Businesses need to note that the current thresholds apply for the first 3 months and 30 days of the 2024–25 tax year; the new thresholds for the remaining period. For the 2024-25 year only, composite tax rates will apply:
|
Taxable Income
|
Composite tax rate
|
|
0 – $14,000
|
10.5%
|
|
$14,001 – 15,600
|
12.82%
|
|
$15,601 – 48,000
|
17.5%
|
|
$48,001 – 53,500
|
21.64%
|
|
$53,501 – 70,000
|
30%
|
|
$70,001 – 78,100
|
30.99%
|
|
$78,101 – 180,000
|
33%
|
|
$180,001+
|
39%
|
Employers need to ensure their payroll providers make the necessary changes to their systems for 31 July.
The tax threshold changes have a knock-on effect on fringe benefit tax (FBT), employer superannuation contribution tax (ESCT), retirement scheme contribution tax, RWT and prescribed investor rates.
The new thresholds for FBT which effectively apply from 1 April 2025 are (noting that for the year beginning 1 April 2024 a new attribution method formula effectively accounts for the newly introduced income tax thresholds):
|
Range of dollar in all-inclusive pay
|
Tax rate
|
|
0 – $13,962
|
11.73%
|
|
$13,963 – 45,230
|
21.21%
|
|
$45,231 – 62,450
|
42.86%
|
|
$62,451 – 130,723
|
49.25%
|
|
$130,724+
|
63.93%
|
The proposed thresholds for ESCT applying from 1 April 2025 are:
|
ESCT threshold amount
|
Tax rate
|
|
0 – $18,720
|
10.5%
|
|
$18,721 – 64,200
|
17.5%
|
|
$64,201 – 93,720
|
30%
|
|
$93,721 – 216,000
|
33%
|
|
$216,001+
|
39%
|
RWT is affected from 31 July 2024. Taxpayers who pay RWT on interest and dividend income should consider whether they should change their elected RWT rate to align with increases to the personal income tax threshold.
Contact us if you would like to discuss the impact on your business systems, including your FBT programme. If you earn interest or dividends or if you pay business related interest to family and friends, please talk to us.
Other tax credits and FamilyBoost
Comparable to the extension of the personal income tax rate thresholds is the change to the independent earner tax credit (IETC). It’s currently available for people earning between $24,000 and $48,000 per year (providing a tax credit of up to $20 per fortnight). From 31 July 2024, the upper income limit will be extended from $48,000 to 70,000 per year, although it starts to be reduced when a person earns more than $66,000 per year.
The in-work tax credit supporting low-to-middle income working families with children will also increase by up to $50 fortnight from 31 July 2024.
From 1 July 2024, FamilyBoost, a new childcare rebate, will be administered by Inland Revenue. Eligible families will be able to obtain a reimbursement for up to 25% of their early childhood education (ECE) fees, up to a maximum of $150 per fortnight (taking into account the 20 hours of ECE and the Ministry of Social Development’s childcare subsidy). The maximum amount per fortnight reduces for families with incomes over $140,000 per year. Families with incomes over $180,000 are not eligible.