From 31 July 2024, New Zealand taxpayers will experience adjustments in their after-tax income due to changes in personal income tax (PIT) thresholds and tax credits. These are part of the government’s effort to address “bracket creep” and provide support to families, particularly those in the middle-income bracket.

While these changes were highlighted in Budget 2024, it’s important to understand their practical implications for your clients.

Increased Personal Income Tax Thresholds

One of the most significant changes is the increase in PIT thresholds, which will result in reduced income tax for individuals earning over $14,000 annually. The current thresholds have been largely unchanged since 2010, leading to a higher tax burden as wages have grown. The new brackets are as follows:

• $0 - $15,600: 10.5% (Previously $0 - $14,000)
• $15,601 - $53,500: 17.5% (Previously $14,001 - $48,000)
• $53,501 - $78,100: 30% (Previously $48,001 - $70,000)
• $78,101 - $180,000: 33% (Previously $70,001 - $180,000)
• $180,001+: 39% (No change)

For most clients, these changes will be automatically applied for employees through payroll systems, requiring no additional action.

Extension of the Independent Earner Tax Credit (IETC)

The IETC of up to $20 per fortnight, is expanding its reach. Currently available to individuals earning between $24,000 and $48,000 annually, this tax credit will now extend to those earning up to $70,000.

For middle-income earners, this extension offers an opportunity for financial relief. Those earning between $24,000 and $66,000 will continue to receive the full IETC, with the credit gradually reducing for incomes up to $70,000. This change recognizes the impact of wage growth and ensures that more individuals can benefit from this tax credit.

Ensuring that tax codes are up to date is crucial for clients to receive the full benefits of the IETC throughout the year.

Increase in the In-Work Tax Credit (IWTC) for Families

Families with dependent children who are typically in paid work will benefit from an increase in the IWTC, which will rise by up to $50 per fortnight. This is aimed at helping low-to-middle-income families manage the rising cost of living. However, similar to the other changes, this increase may be offset by higher living costs, making it essential for families to plan their finances carefully.

Adjustments to the Minimum Family Tax Credit (MFTC)

The MFTC, which guarantees a minimum after-tax income for around 3,000 low-income working families, will be adjusted. The guaranteed minimum amount will be increased, ensuring that recipients benefit fully from the changes in PIT thresholds, alongside the $50 per fortnight increase in the IWTC.

Additionally, Family Boost, a new childcare payment designed to help eligible households cover the cost of early childhood education (ECE), begins on 1 July 2024.

Key considerations for tax agents

The tax changes taking effect from 31 July 2024 offer a mix of relief measures, but the impact will vary widely among clients. Here’s what you should keep in mind:

• For many taxpayers, the financial gains will be relatively small, capped at around $1,042 per year (less in the current income year) from the PIT threshold changes. However, average-income families could see an increase of up to $252 per fortnight if they qualify for the full Family Boost contribution.
• There have been no changes to the provisional tax rules, which may lead to a slight overpayment if based on uplift from prior years and income levels remain relatively stable.
• The new Family Boost program will allow family clients to claim reimbursements for ECE fees quarterly where eligible, with the first payments starting from 1 October 2024. For self-employed clients, it’s crucial that they can determine their family income with a reasonable degree of accuracy, especially if it is likely to be in the income range of $140,000 to $180,000 where the benefit abates. If their family income exceeds $180,000, they will be ineligible for Family Boost.