On 30th August 2023 National announced its tax plan ahead of the upcoming election labelled “Back Pocket Boost – Tax Relief for the Squeezed Middle”.

As in the name, the focus is on middle New Zealanders, aiming at putting cash back in the pockets. The plan is to provide $14.6b income tax relief over the next four years and will not require any borrowing.

Johnston Associates’ Tax Manager Fraser Proctor has highlighted some of the key points below, including a focus on the tax issues which will impact our clients in particular.

Income tax bracket adjustments

• The existing income tax brackets have been in place since 2011
• Inflation has seen the average New Zealand income rise significantly over this period resulting in many individuals being taxed at higher marginal tax rates
• The proposed changes in the table below result in less tax being paid on the dollar for all earnings under $78,100 (even for individuals who receive a higher total income than this)

Independent Earner Tax Credit (IETC) threshold increase

• Currently this provides up to $520 in tax credits for earners on less than $48,000 per year (and over $24,000)
• The eligibility for this credit will be lifted to those earning up to $70,000, which is estimated to benefit 380,000 working New Zealanders

Other assistance for individuals and families

• Increasing the value of the in-work credit by $25 a week from 1 April 2024
• Introducing a FamilyBoost childcare tax credit worth up to $150 per fortnight for families with young children
• Increasing Working for Families tax credits for working families from 1 July 2024
• Increasing NZ Super payments every year they are in office

Brightline period on residential property

• National will reduce the Brightline period from 10 years to two years
• The rules are to take affect from July 2024
• Currently any gain on the sale of a property purchased from 27 March 2021 onwards can be subject to tax up to ten years from sale (five years for qualifying new builds)

Interest deductibility for rental properties

• Restoration of the interest deductibility for rental properties
• This measure will be phased in with deductibility kept at 50% from April 2024, 75% from April 2025 and fully restoration from April 2026

Commercial building depreciation

• Depreciation on commercial buildings will be scrapped
• This measure was re-introduced by Labour in response to COVID-19 following its previous removal from the 2012 income year onwards
• Labour have also confirmed they would cease this policy to fund other tax measures so it is all but certain to be removed

Foreign buyer tax

• Introduction of a 15% foreign buyer tax for purchases of homes of $2m or more by people who do not hold a resident class visa in NZ
• The foreign buyer ban will remain for homes worth less than $2m
• It is assumed that Australian and Singapore citizens will not be affected by this tax as they not currently affected by the foreign buyer ban

Other updates

• Removal of the Auckland Regional Fuel Tax (11.5c per litre)
• No increases to fuel taxes in the first term (i.e. in opposition to the proposed Labour increase of 12% from 2024)
• Reversing Labour’s App Tax (Digital Platforms) which ensures businesses earning $60,000 or less are not required to register for GST (e.g. ride-share services, food deliveries, etc)
• Reduction in back-office spending of $594m in government departments and reduction of $400m in government contractor and consultancy costs
• Removal of a tax loophole for offshore gambling providers who may now be required to return income tax and GST in NZ
• Introduction of a Climate Dividend, returning taxes raised on climate polluters to Kiwi families rather than giving subsidies to large corporates
• Introduction of a new ‘user-pays’ immigration system

There is a much welcome increase in the individual income tax brackets. These thresholds have been untouched since the 2011 income year leading to huge lag behind inflation rates. This catch-all will ensure a direct benefit is received by all income earners. Although it should be noted these increases are well overdue and do not come close to matching the inflation rate since the original inception of these thresholds in 2011. Interestingly, National have not reduced to the top income tax bracket of 39% for individuals who earn income in excess of $180,000

The changes to residential rental properties rules are sure to shake up the property industry. Although fully expected, the Brightline period reduction to two years will be welcome news to property investors and speculators. Although interest deducibility will be restored, this will not take full effect until the April 2026 (the 2027 income year). It will be interesting to see how the market responds given house prices were expected to fall by 5% in a recent Treasury prediction…

The foreign buyer tax for high-value properties in conjunction with the existing foreign buyer ban shows National are targeting the wealthy to ignite the economy. Under these rules a $3m property sale would attract tax of $450k which would go straight into the government kitty

Perhaps surprisingly, there are no updates regarding the trustee tax rate of 39% which was recently introduced by Labour. This 39% rate looks set to take effect from 1 April 2024 irrespective of which party is in power post-election. This is a kick in the teeth for those who operate businesses via trust ownership as any income not distributed to beneficiaries will be taxed at the new 39% trustee rate. It is likely to result in serious considerations around restructuring in the coming months

There was talk around potentially scrapping tax exemptions for churches and charities. Although this has been ruled out for the time being, it has not been ruled out down the line. It is important to note that a lot can change in short period of time in politics. Therefore, should National be elected, further changes or tweaks to these policies may be made