NZ 2024 TAX CHANGES: WHAT YOU NEED TO KNOW

Jun 13, 2024

Income Tax

NZ 2024 Tax Changes: What You Need To Know

NZ 2024 tax changes: what you need to know. As New Zealand gets into the new financial year (which started on April 1, 2024) significant tax changes took effect/are set to take effect. These updates will impact individuals, trusts, and property owners, reflecting the government’s aim to ensure a fair tax system and bolster economic recovery. (This is an update of an earlier blog post on this subject). Here’s a detailed overview of these upcoming changes to help you stay informed and plan accordingly.

New Personal Income Tax Rates

One of the major changes is the revision of personal income tax rates. Effective April 1, 2024, the new tax brackets are as follows:

  • Income up to $15,600: Taxed at 10.5%
  • Income from $15,601 to $53,500: Taxed at 17.5%
  • Income from $53,501 to $78,100: Taxed at 30%
  • Income from $78,101 to $180,000: Taxed at 33%
  • Income above $180,000: Taxed at 39%

These adjustments are designed to promote a progressive tax system, ensuring that higher incomes contribute more significantly to public revenues. The changes also aim to support social welfare initiatives and economic recovery efforts post-pandemic. Apart from 2024 tax changes to personal rates, what else do you need to know?

Trust Tax Rate Changes

In alignment with the new top personal tax rate, the tax rate on trusts increased from 33% to 39%, effective April 1, 2024. This change aims to prevent tax avoidance through the use of trusts and ensure that high-income earners pay their fair share. Note that distributions to companies are taxed at the same rate, whereas distributions to natural persons are taxed at the personal tax rate of the recipient.

Restoring Interest Deductibility on Residential Rental Properties

A significant shift is the restoration of interest deductibility on residential rental properties. Starting April 1, 2024, the government phased in this deductibility:

  • From April 1, 2024: 80% of interest on loans for residential rental properties will be deductible.
  • From April 1, 2025: 100% of interest will be deductible.

This move is expected to stimulate investment in the housing market, balancing supply and demand dynamics and addressing affordability issues.

Amendments to Brightline Rules

The Brightline test, which determines tax liability on gains from residential property sales, will revert to a two-year period effective July 1, 2024. This change simplifies the current system and aligns with historical standards. However, exceptions remain for the main family home, inherited properties, and properties sold as part of relationship property settlements.

Removal of Depreciation on Commercial Buildings

Another notable update is the removal of depreciation deductions for non-residential buildings, effective April 1, 2024. Initially reintroduced in 2020 as a temporary COVID-19 relief measure, this change signals a return to the pre-pandemic tax treatment of commercial properties. While this may increase tax liabilities for owners of non-residential buildings, it is part of a broader strategy to streamline tax benefits and focus on other economic supports.

Implications and Strategic Considerations

These tax changes have broad implications for everyone in NZ:

  • Individual Taxpayers: Higher income individuals will face increased tax liabilities, particularly those earning above $180,000. It’s crucial to review income strategies and consider any potential tax planning measures to mitigate higher taxes.
  • Trusts: Trustees must prepare for the increased tax rate, potentially reviewing trust structures and distribution strategies to optimize tax outcomes.
  • Property Investors: The phased return of interest deductibility offers a significant financial relief. Investors should plan for the phased implementation and adjust their investment strategies accordingly. The shorter Brightline test period might encourage quicker property transactions to avoid extended tax liabilities.
  • Commercial Property Owners: The removal of depreciation deductions will impact the net income from non-residential buildings. Owners may need to reassess their investment and operational strategies to accommodate this change.

Preparing for the Changes

To navigate these changes effectively, consider the following steps:

  • Consult with a Specialist Property Tax Advisor: Professional advice is invaluable in understanding the specific impacts of these changes on your financial situation and in devising effective tax strategies.
  • Review Financial Plans: Reassess your income, investments, and trust distributions in light of the new tax rates and rules.
  • Stay Informed: Keep up with further announcements and detailed regulations as they are released, particularly concerning the Brightline test and other property-related provisions.

Conclusion

Well, that wraps up our summary re NZ 2024 tax changes: what you need to know. The upcoming tax changes in New Zealand for 2024 represent significant adjustments aimed at ensuring a fair tax system and supporting economic recovery. By understanding these changes and taking proactive steps, individuals, trustees, and property owners can navigate the new landscape effectively. For detailed advice and personalized strategies, consulting with tax professionals is highly recommended. Stay informed and prepared to make the most of the evolving tax environment.

For further information, you can visit the IRD website or Contact Us for professional guidance and support.

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