Everything you need to know about the tax changes | Government Budget 2024 | Deloitte New Zealand (2024)

Was it a block of cheese Budget?

Those who follow government budgets know that the media have a habit of assigning nicknames to them (likely to the disdain of Ministers of Finance). Some of the more infamous budgets from a tax perspective include the 2005 “chewing gum budget” where some taxpayers would be 67c better off a week… in three years’ time, and the 2008 “block of cheese Budget”, which offered $16 a week to the average worker.

At the time of writing, it’s not known what moniker has been assigned to Budget 2024, but through a combination of measures an average worker stands to be around $25 better off per week, enough to fund a 1kg block of cheese, some butter and a loaf of bread, with some change to spare, perhaps for some chewing gum. The announcements in Budget 2024 are consistent with the “Back Pocket Boost” package that the National Party campaigned on last year. Who gets how much will vary based on their level of income, and other circ*mstances (such as number of children) with middle-income earners the biggest benefactors of the tax changes. While the tax relief is modest, it will be welcomed by taxpayers who have been feeling the effects of bracket creep since the last tax threshold changes in 2010.

Of relevance to businesses is that there are no substantial business-tax changes included in Budget 2024 – perhaps a relief for businesses who are still busy dealing with previous tax changes from the 2023 “mini-Budget”.

What was announced

Threshold changes

It was no surprise that “tax cuts” were part of the Budget. What we have seen is a movement of the tax threshold bands rather than changes to tax rates. These changes are to help correct the “bracket creep” that has arisen from wage inflation pushing workers into higher tax brackets since the last substantive rate changed in 2010.

These new thresholds will apply from Wednesday 31 July 2024, so the countdown now begins for employers and payroll software developers to be ready for this change. Changes were originally earmarked for a 1 July start, but this date has been pushed out slightly on the advice that payroll providers would require more time to make necessary software changes. A last day of the month, mid-week start date may leave some scratching their heads.

The maximum annual benefit for taxpayers under the threshold changes is $1,043 (or $20 per week).

Independent earner tax credit

Less talked about in the lead up to Budget was adjustments to the Independent Earner Tax Credit (IETC). The IETC currently provides up to $10 per week to individuals earning between $24,000 and $48,000 (with the benefit currently abating once someone earns $44,000). The upper threshold for this credit has been extended to $70,000 (with abatement beginning at $66,000) meaning an anticipated additional 420,000 taxpayers will be eligible. The IETC exists to provide tax relief to middle-earners who don’t otherwise receive benefits such as Working for Families, New Zealand Superannuation.

FamilyBoost

Not technically a tax change, but to be administered by Inland Revenue, is “FamilyBoost”. FamilyBoost was announced in March and will allow parents to claim back up to 25% of weekly early childcare costs, to a maximum of $75 per week. FamilyBoost will be available from 1 July 2024, with parents required to upload invoices to Inland Revenue on a quarterly basis. Only households with total income below $180,000 will be eligible (with abatement applying from $140,000), and this will be assessed by Inland Revenue using real-time pay data.

Consequential changes

Far from the Budget headlines is some of the technical detail that sits behind changes to tax thresholds, this will be included in Budget legislation. A change to personal tax rates has consequential impacts on other taxes, and the implementation of a change in thresholds four months into the tax year means that in effect there will be “composite” thresholds in place until 31 March 2025, with the new thresholds only truly applying from 1 April 2025.

Budget legislation has been tabled in Parliament which:

• Introduces composite thresholds for the 2024/25 income year(this results in there being 8 tax thresholds in the current tax year)
• Introduce new thresholds for the 2025/26 income year
• Change PAYE M and ML and secondary tax codes from 31 July 2024
• Change extra pay rate thresholds from1 April 2025
• Amend the manner that FBT attributions are calculated from the 2024/25and to change FBT rate thresholds from 1 April 2025
• Change thresholds for employer superannuation contribution tax (ESCT) from 1 April 2025
• Change thresholds for prescribed investor rates (PIRs) for investors in portfolio investment entities (PIEs) from 1 April 2025
• Change resident withholding tax (RWT) thresholds from 31 July 2024.

Inland Revenue funding

As predicted, Inland Revenue have been allocated additional funding for “greater investment in tax compliance.” Inland Revenue have been allocated an additional $116 million over four years ($29 million per annum), which is anticipated to yield a net $150 million in additional tax revenue each year. The funding has not been earmarked to any specific sector or tax type, however there is reference to compliance activities in relation to overseas-based student loan borrowers, and 10% of the funding is allocated to debt management and chasing unfiled returns. The anticipated return is conservative given Inland Revenue reported it had a $8.92 return per $1 of compliance activity in its most recent annual report.

Digital Services Tax (DST)

On its very last sitting day (31 August 2023), the 53rd Parliament introduced the Digital Services Tax Bill (the Bill). The Bill proposes taxing large digital services companies (revenue exceeding EU750 million per year) 3% on digital services revenue provided to New Zealand users. We detailed the mechanism of the Bill in our earlier article.

The coalition Government re-tabled the Bill in December – but it has not yet had its first reading (nor is it clear if it will even get to that stage). The Budget confirms:

“The current Government is still to decide whether or how to progress the DST. The forecasts currently assume a 1 January 2025 implementation and include revenue of $320 million over the forecast period in relation to the DST with an additional $98 million per annum expected beyond the forecast period. The OECD solution might be agreed and adopted (or otherwise make satisfactory progress towards implementation) instead of the proposed DST, which would generate different revenue than a DST.”

What this means is that the Government will still need to decide whether to forge ahead with a DST, as revenue raised from the proposal remains booked into the accounts with effect from 1 January 2025. This is optimistic given the number of steps still required to legislate and implement a new tax within the next seven months.

Crypto-Asset Register

Inland Revenue have received additional funding for the development of a Crypto-asset Reporting Framework (CARF), which is an OECD initiative. The CARF intends to ensure that tax laws can be enforced on taxpayers deriving income from crypto-assets, with additional revenue expected to arise from 2027/28 onwards.

Revenue Strategy

Each year the Budget sets out a “revenue strategy” which gives us a hint about the Government’s overall approach to tax. Key highlights of the 2024 revenue strategy are:

A statement on what make a “good tax system”:

• Finances public expenditure in a fair and efficient way
• Minimises bias in economic decisions
• Limits the number of tax provisions that provide preferential treatment to certain activities or sectors
• Rewards effort and individuals’ investment in their own skills
• Has low compliance and administrative costs, and
• Minimises opportunities for tax avoidance and evasion.
• The Government will operate a stable, predictable revenue system and with prudent control of spending, the Government does not see the need to seek major additional sources of revenue.
• The Government will remain transparent and open in its tax policy processes. It is committed to public engagement in the design of tax policy including through the Generic Tax Policy Process. Public consultation ensures that the perspectives and expertise of those affected by proposals are considered, and plays an important role in sustaining a tax system that is durable and widely accepted by taxpayers.

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