Tax Updates: 4 June 2024

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

No surprises, no frills: Budget 2024

Well, the big news of the past week was Budget 2024. However, as my heading suggests, it was a ‘let’s steady the ship’, no surprises document, which I suspect most of us in the tax world already appreciated. The ‘pre-announced’ tax cuts were, in effect, simply a change in the threshold bands—arguably long overdue since they have not been inflation-adjusted for over a decade.

So, effective from July 31, 2024 (composite rates will apply for the 2024-25 income year, therefore), the new bands will be:

• $0 – $15,600 (prev. $14,000) = 10.5%

• $15,601 to $53,500 (prev. $48,000) = 17.5%

• $53,501 to $78,100 (prev. $70,000) = 30%

• $78,101 to $180,000 = 33%

• Over $180,001 = 39%

However, while easily said and done to amend the threshold bands, it is not so easy in practice to change the rates for consequential tax types, including FBT, RWT and ESCT.

To accommodate this issue:

1. The changes to the formula used to calculate a taxpayer’s FBT liability under the attribution method will take effect from April 1, 2024.
   
2. The changes to RWT will apply from July 31, 2024, alongside the personal income tax threshold changes. So, consideration may need to be given to whether you should notify those paying interest and dividends to you to reduce the applicable deduction rate after July 31.
   
3. Changes to other consequential tax types will apply from April 1, 2025, to avoid complexities arising from the need to calculate any composite rates or thresholds, or to recalculate the rates applicable to employees. This will involve changes to the thresholds of FBT, employer superannuation contribution tax, retirement scheme contribution tax, and prescribed investor rate.

In addition to the threshold band changes, other income-related amendments include:

• Independent earner tax credit (IETC) – a tax credit for individuals in paid work who don’t receive Working for Families, main benefits or Superannuation – eligibility extended to those earning up to $70,000 per annum (effective July 31, 2024).

• In-work tax credit (IWTC) – a tax credit for working families with dependent children. Tax credit will increase by up to $50 per fortnight per family (effective July 31, 2024, however, part-year amendments would apply from April 1, 2024. These allow the old rate and new rate to be used for different periods in the 2024–25 tax year).

• Minimum family tax credit (MFTC) – a tax credit for low‑income working families with dependent children (additional to the IWTC). The MFTC will increase to allow recipients to benefit from the personal income tax changes (effective July 31, 2024, however, part-year amendments would apply from April 1, 2024. These allow the old rate and new rate to be used for different periods in the 2024–25 tax year).

• FamilyBoost –families earning under $180,000 per annum with children in early childhood education (ECE) can claim a refund on fees – 25% of ECE fees refunded up to a maximum of $150 per family per fortnight for families earning under $180,000 per annum (effective July 31, 2024).

If you’d like all the goss and a few examples of how the changes may affect you or your clients, you can find everything here.

Finally, the Taxation (Budget Measures) Bill was introduced into the House on May 30, and passed and received Royal Assent on May 31.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.