In a move aimed at providing tax relief for individuals and families, New Zealand has unveiled significant updates to its tax brackets 2024 as part of the Government Budget, announced on 30th May.

These changes, effective from 31st July 2024, (along with a wider range of tax changes for NZ) encompass increased income thresholds, enhancements to tax credits, and adjustments in family support measures. Here’s a breakdown of what this means:

• Rationale for Tax Changes
• Individual Tax Rates NZ 2024
• Tax Codes Explained
• Marginal Tax Rate Explained
• Enhancements to Tax Credits
• Implications for Taxpayers and Employers
• Other Considerations
• Changes in Family Support Measures
• Tax Changes NZ – For Employers
• Other Tax Adjustments
• No New Business Tax
• Discussion on Capital Gains and Wealth Taxes
• Funding for Tax Relief

Rationale for Tax Changes

The 2024 tax changes address wage growth since 2010, which has led to more individuals moving into higher tax brackets. By adjusting thresholds, the government aims to reduce the tax burden on middle-income earners and restore fairness in the tax system.

Updated Personal Income Tax Thresholds

The revised tax brackets are structured to better align with current economic realities and inflationary pressures:

Tax Rates NZ 2024

These adjustments to the tax brackets aim to ease the tax burden on lower to middle-income earners while ensuring higher earners contribute proportionately more.

Tax Threshold Changes Implementation Details

The changes take effect from 31 July 2024, with transitional composite thresholds applying for the remainder of the 2024/2025 tax year. Full application starts 1 April 2025.

Tax Codes Explained

Understanding tax codes is essential for determining correct deductions. For example:

• M: Main income, with standard deductions.
• ME: Main income but eligible for Independent Earner Tax Credit.
• SB: Secondary income, with different withholding rates.

Taxpayers can use the Inland Revenue tax code finder to ensure compliance.

Marginal Tax Rate Explained

New Zealand’s tax system is progressive, meaning income is taxed in tiers. Each portion of your income is taxed at the applicable rate for that bracket. For example:

• The first $15,600 is taxed at 10.5%.
• Income between $15,601 and $53,500 is taxed at 17.5%, and so on.

Example Calculation

An individual earning $80,000 annually:

1. $15,600 x 10.5% = $1,638
2. $37,900 x 17.5% = $6,632.50
3. $24,600 x 30% = $7,380
   • Total Tax Owed: $15,650.50

Enhancements to Tax Credits

Effective from the same date, changes to independent earner tax credits and family tax credits are also set to benefit eligible individuals:

Independent Earner Tax Credit (IETC):

Eligibility for the IETC extends to individuals earning up to $70,000 (previously $48,000). This provides up to $20 per fortnight in relief for those without dependent children.

FamilyBoost Initiative

Beginning 1 July 2024, low-to-middle-income families can claim up to $150 fortnightly as a partial reimbursement for early childcare costs.

Household Benefit Examples

• Couple with four children: Gains up to $7,042 annually from a mix of PIT, IWTC, and FamilyBoost adjustments.
• Sole parent earning $80,000: Benefits by $4,499 annually through PIT reductions and FamilyBoost.

Tax Changes NZ – Implications for Taxpayers and Employers

For taxpayers, these new tax rates mean potential changes in take-home pay and tax liabilities.

Employers are encouraged to update payroll systems promptly to reflect the new tax rates. If adjustments aren’t made by 31st July, any owed amounts will be settled during the annual reconciliation process.

Other Considerations

Secondary Tax Codes:

Those using secondary tax codes should review their income thresholds to ensure compliance with the updated rates.

Resident Withholding Tax (RWT):

Investors need to verify their RWT rates post-31st July to ensure accuracy.

Provisional Tax:

Taxpayers paying provisional tax should consult with their tax agents to discuss potential adjustments.

Tailored Tax Codes:

Those using tailored tax codes will receive recalculated certificates to reflect the new thresholds.

Changes in Family Support Measures

Effective from 31st July 2024:

Minimum Family Tax Credit (MFTC):

Eligibility thresholds increase, ensuring targeted support for families.

In-Work Tax Credit (IWTC):

Families with dependent children in paid work will receive up to $50 more per fortnight under the IWTC adjustments

Paid Parental Leave (PPL):

Updated tax thresholds will automatically adjust entitlements for paid parental leave recipients.

Tax Changes NZ – For Employers

Employers using payroll software will receive updates from their providers to ensure compliance with the new tax specifications.

Manual filers must incorporate the revised tax tables into their calculations to remain compliant with the updated rates.

Other Tax Adjustments

Changes to tax rules include:

• Fringe Benefit Tax (FBT) attribution.
• Employer Superannuation Contribution Tax (ESCT).
• Portfolio Investment Entity (PIE) rates. These adjustments start in April 2025, alongside new PAYE and Resident Withholding Tax (RWT) thresholds.

No New Business Tax

Budget 2024 introduces no new taxes on businesses, focusing solely on personal tax relief.

Discussion on Capital Gains and Wealth Taxes

Although no capital gains tax (CGT) or wealth tax was introduced, debates continue. The Tax Working Group previously recommended these taxes to enhance fairness, but they remain politically contentious.

Funding for Tax Reliefs

The $3.7 billion cost of tax relief is fully funded through savings initiatives, including closing outdated programs, baseline savings, and taxing online casino operators. This ensures no additional borrowing or inflationary impacts.

NZ Tax Changes

The adjustments to New Zealand’s tax brackets and credits under the 2024 Budget aim to create a fairer and more supportive fiscal environment for individuals and families.

By understanding these changes and taking proactive steps to adjust financial strategies where necessary, taxpayers can navigate the evolving tax landscape with confidence and ensure their financial plans remain robust and aligned with regulatory requirements.

Stay informed, stay prepared, and leverage these updates to optimise your financial position in New Zealand. You may also like to read our article on the wider range of important tax changes that are coming to NZ in 2024.

If you’d like further professional advice on any of the above matters, please contact us.