Kia ora NZ Accounting fans!
With the new budget 2024 announced last week by the government, the big question on everyone’s mind is:
How much will I have to pay in taxes?
Over at The Comic Accountant, we’ve gone through all the official releases and have prepared a nice summary for you.
Here’s our take on Budget 2024 tax! Let’s go!
Budget 2024 Tax: Income tax brackets shifted
The biggest piece of tax news is the shifting in the income tax bracket. These changes will be effective from 31 July 2024.
The tax brackets are currently as follows:
After 31 July 2024, they will look like this:
How does this affects you?
Great question!
Let’s take the average household income of $110,451 per annum as a benchmark (assuming its all earned by one individual) and run some numbers:
Under the current system, you’d be paying taxes of $27,368.83:
With the new system, this amount reduces to $26,326.33:
This is a reduction of $1,042.50 for the whole year.
For this financial year (FY ending 31 March 2025) things will be a bit tricky as the old tax brackets apply for up to 31 July, then its onto the new brackets for the remaining 8 Months of the financial year. Since your PAYE deductions will change partway through the year, it may be worth checking your tax account on MyIR after 31 March 2025 to make sure you don’t have any tax shortfalls to pay.
Is this a good change for you?
Well, yes. Even a small reduction in tax is better than no reduction. So it’s best to take whatever relief you can get. If you own a company, then your tax situation doesn’t change much. You may want to have a discussion with your accountant about adjusting your shareholder salary under the new tax brackets to maximise the tax relief you can receive.
Budget 2024 Tax: Independent Earner Tax Credit (IETC) extended
The IETC is, for the lack of a better description, a ‘freebie’ from the IRD. It is a tax credit that all individuals earning between $24,000 to $48,000 can receive. The maximum tax credit that you can receive under the IETC is $520.
Under the new budget, the government is looking at expanding the threshold for IETC from $48,000 to $70,000. This means that all individuals earning between $24,000 to $70,000 will be eligible for IETC. Those earning $24,000 to $66,000 per annum receive the full credit, with entitlements gradually reducing as income increases, up to the limit of $70,000.
How does this affect you?
It only affects you if you’re earning within the $24,000 to $70,000 band. Even then if you’re earning upwards of $66,000, the effects are minimal. Individuals on minimum wage will experience the greatest gain. To illustrate, let’s say you’re earning $48,152 a year working 40 hours a week on minimum wage ($23.15 an hour as of June 2024).
Under the old system, you’d be paying tax of $7,465.60 with no IETC to claim (since you’re earning above $48,000):
Under the new system, you’d be paying a base tax of $7,334.60 LESS an IETC credit of $520. This means you’re only paying $6,814.60 of taxes. This translates to savings of $651 a year. Which isn’t bad:
Is this a good change for you?
Only if you’re earning within the threshold. If you’re earning above or below the threshold. You don’t get any IETC. Note that you may have to opt into IETC at the end of the financial year of 31 March 2025. It is always a good idea to login to your MyIR and file your annual return so that you can check the box that says you’re eligible for IETC (if your income is within the threshold).
Please note that the eligibility rules for the IETC still haven’t changed at this stage. This means that you still cannot get the IETC if:
- you or your partner are entitled to Working for Families Tax Credits
- you receive an income-tested benefit
- you receive New Zealand Superannuation
- you receive a Veteran’s Pension
- you receive an overseas equivalent of any of the above.
You can read more about the IETC on the IRD page here.
Budget 2024 Tax: Other changes
Increase the In-work tax credit (IWTC)
This only affects families with dependent children who are normally in paid work. The IWTC increase of $50 per fortnight helps low to middle income families. Eligibility for the IWTC can depend on your eligibility for the Working for families tax credit.
Familyboost
Families with combined incomes of less than $180,000 annually can apply for a partial reimbursement of their Early Childhood Education fees. This makes sending children to daycare more affordable.
Families with children not in early childhood or are making more than $180,000 don’t get anything.
Budget 2024 Tax: Overview
Shifting the tax brackets was long overdue. However, the overall tax savings have been a bit underwhelming. But, its better than nothing. At least now the new tax brackets are more reflective of the increase in the average household income for Aotearoa.
Expanding the eligibility for IETC is great. This will greatly benefit minimum wage workers who under the old system couldn’t apply for IETC. You just need to remember to check that you’re enrolled in IETC after the end of this financial year.
The IWTC increase and Familyboost will mostly benefit low income families with small children. Those with older or adult children won’t see any benefit from these new policies. From a business tax point of view, these policies have the lowest impact on your tax situation.
What’s next?
It’s a good time to talk to your accountant! If you run a business, you will want to know if your income this year will fall under the IETC threshold. You’ll want to take note that your income from 1 April 2024 to 31 July 2024 will be taxed on the old system. After that, it will be taxed under the new system. But your accountant should sort this out for you (that’s what you pay them for!).
The budget 2024 tax relief is modest. But any relief is better than no relief. In the meantime:
Stay positive!
For more information, you can check out the Government’s Budget 2024 tax page here