Tax Updates: 8 July 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 [email protected].

Budget measures special report

Well after the passing of the Budget Day legislation, Inland Revenue (IR) has issued a special report on the changes. The report covers the amendments to the personal income tax thresholds and the independent earner credit, increases to the Working for Families tax credits, and a remedial amendment to the Research and Development Tax Incentive rules.

So, as a reminder to those of you who may have missed my earlier edition of AWIR covering the changes, the 2024 Budget saw:

Changes to the in-work tax credit (IWTC) – an instrument to ‘make work pay’, supporting low to middle income working families whose members take up and stay in employment rather than remaining on a benefit. It achieves this by boosting the family’s income once members begin working. The amendment applies from 31 July 2024 (so a rate mix for the 2024-25 tax year):

• The IWTC base rate has increased from $3,770 to $5,070 per year. This represents a $25 increase in weekly income.

• The maximum weekly entitlement for a family of up to three children has increased from $72.50 to $97.50.

• The additional child rate remains at $15 more per week.

Changes to the minimum family tax credit (MFTC) – the purpose of the MFTC is to incentivise people at the margin with dependent children to move off the benefit and into full-time work. The MFTC achieves this by ‘topping up’ the incomes of working families to an amount that is more than what they could potentially receive on a benefit. The amendment applies from 31 July 2024 (so a rate mix for the 2024-25 tax year):

• The MFTC threshold has been increased from $35,204 per year (after tax) to $35,316 per year (after tax). This represents a $2.15 increase in weekly income.

• This change, in conjunction with the increase to the IWTC, will increase recipients’ income by approximately $27.15 per week.

Changes to the personal income tax thresholds – with effect from 31 July 2024 (so composite rates for the 2024-25 tax year):

Since the movement in the personal income tax thresholds will have consequential changes for other tax types like Resident Withholding Tax (RWT) and Fringe Benefit Tax (FBT), there will be two effective dates:

1 April 2024 for:

o composite personal income tax rates and thresholds, and

o the formula to calculate FBT.

31 July 2024 for:

o RWT,

o certain tax codes and rates, and

o reporting of income information by individuals and treatment of certain amounts.

Changes to the independent earner tax credit, with effect from 31 July 2024 (so a composite rate for the 2024-25 tax year):

A change to the Research and Development Tax Incentive (RDTI) rules allows a person to apply to IR and to amend an ‘approval’ in the incorrect entity name. For a person to be able to claim a tax credit through the RDTI regime, they must apply for approval (either a general approval of their activities or a criteria and methodologies approval) and then submit a supplementary return containing their Research and Development (R&D) expenditure for the year. In a wholly-owned group situation, approval must be in the name of the entity undertaking the R&D. So effective for the 2021-22 and later income years:

• A person can apply to the Commissioner to amend the name of an entity in an RDTI approval if they have incorrectly named another entity within the same wholly-owned group in the approval.

• If a person has an application to amend a name in an RDTI approval accepted, they have 30 days to subsequently file a supplementary return in the correct entity’s name.

The special report is 16 pages in length if you’d like to take a read yourself.

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.