What we now know so far 

Now that we know the shape of our new Coalition Government, and following the re-introduction of a range of Bills on the first sitting day of Parliament, we explore what tax changes are expected from the new Government. While the new Government has promised some tax relief, it’s not all good news.

Taxpayer-friendly measures

As part of National’s election promises during the election campaign, several taxpayer-friendly measures will go ahead. They key ones are personal income tax cuts, changes to residential property rules, and the removal of Auckland’s regional fuel tax.

Personal income tax cuts

National’s proposed threshold adjustments before the election will be enacted, applying from 1 July 2024, The National-ACT Agreement provides that there will be no ongoing commitment to income tax changes, including threshold adjustments, beyond those to be legislated in 2024. As per the National-New Zealand First Agreement, by or before 2026, the Government will assess the inflation impacts on average tax rates of income earners. The new personal income tax rates that will apply are:

• 10.5% up to NZ$15,600
• 17.5% on NZ $15,601 to NZ$53,500
• 30% on NZ$53,501 to N $78,100
• 33% on NZ$78,101 to NZ$180,000
• 39% on NZ$180,001+

Residential property

Considered a win for ACT, National will partially adopt ACT’s policy to speed up the phasing in of interest deductibility compared to what National has initially proposed. 

Interest Deductibility will be restored to property investors over the next couple of years as follows:

• 2023/24 income year (i.e. the current year): 60% of interest costs will be deductible
• 2024/25 income year: 80% of interest costs will be deductible
• 2025/26 income year: 100% of interest costs will be deductible

Further, the roll-back of the bright-line test from 10 years to 2 years will go ahead. Properties acquired before July 2022 if sold after July 2024, are not expected to be subject to the bright-line test.

Elimination of regional fuel tax

Consistent with National’s pre-election campaign to address the cost of living crisis, the Government will remove Auckland’s regional fuel tax which adds 11.5 cents per litre of petrol sold within the Auckland region.

Taxpayer-unfriendly measures

The Government still has to balance the books though and so a number of new revenue raising measures are needed to fund the tax relief. These measures include the increase of the trustee tax rate to 39%, removal of depreciation on commercial buildings, retaining the “App Tax” on digital platforms and proceeding with the introduction of a digital services tax (“DST”).

Trustee Tax Rate increase to 39%

The trustee tax rate is set to increase from 33% to 39% from 1 April 2024. The May 2023 Tax Bill introduced by the previous Labour Government included not only the increased trustee tax rate but also associated changes such as a 12-month exemption for deceased estates and (somewhat controversially) distributions to certain close companies being taxed at 39%, not at 28%. The same May 2023 Tax Bill has been re-introduced by the new Government, so the increase in trustee tax rate will proceed as anticipated.

Depreciation of Commercial Buildings

Non-residential buildings will once again become non-depreciable for tax purposes. Depreciation of non-residential buildings was re-introduced in 2020 as part of a temporary COVID-19 relief for businesses. Interestingly, the Labour Government also went into the election with the same policy. As expected, the repeal of depreciation on commercial buildings will proceed.

Retaining the “App Tax”

In a reversal of an election pledge by National, Labour’s “App Tax” on services like Uber and Airbnb will proceed. The App Tax levies GST on the platform economy – such as Uber drivers and Air BnB hosts and catches suppliers earning under NZ $60,000 a year who are not required to register for GST. The new regime is set to apply from 1 April 2024.

Digital Services Tax re-introduced

Although not included in National’s pre-election plans, the Government has re-introduced Labour’s DST Bill. If passed in its current form, the DST Bill may come into force on either 1 January 2025 or a later date up to 1 January 2030 (if an OECD multilateral solution is not implemented). The DST Bill is proposing to tax in-scope digital services of companies that meet the global revenue threshold of €750 million and a NZ-specific revenue threshold of NZ$3.5 million. Revenues from these digital services will be taxed at 3%.

Final thoughts

There’s a mixed bag of some tax relief but also some tax increases and new measures. This is hardly a surprise given the apparent poor state of Government books and the significant funding needed for the personal income tax cuts. We now wait and see what these changes could mean for the overall state of the economy in the mini-Budget to be released on the 20th of December and whether this announcement will contain any pre-Christmas surprises.