What to expect and when to expect it: the 2024 Tax Policy Guide

By Joe Sothcott, Amy Sexton & Robyn Walker

With the new year well and truly underway, it’s time to have another look at the tax changes to expect in 2024. A new government means a slate of tax changes to keep track of. But with various possibilities and commencement dates, you could be forgiven for having missed a few.

So first of all, what’s the current state of play?

Currently, two tax bills are passing through the House. The Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill (the Annual Rates Bill), is still in the Select Committee stage with the final report from the Finance and Expenditure Committee (the FEC) due back in March. Two notable items in the Bill are the increase of the trustee tax rate to 39% and the introduction of the OECD Pillar Two Global Minimum Tax Rules (which only applies to multinationals with revenue over €750million).

The other is the Digital Services Tax Bill which, at the time of writing, was still awaiting its first reading. The Bill is an alternative to the OECD’s Pillar One solution to the tax challenges that arise from the digitisation of the economy. Pillar One is intended to help countries tax large multinationals with no “taxable presence” in a country, but who still generate revenue from that country, by reallocating taxing rights. However, Pillar One has not yet been implemented and the timetable has been extended, with the proposed signing ceremony now pushed out to June 2024.

The proposed Digital Services Tax (DST) exists to provide an alternative for New Zealand if Pillar One does not progress in a timely fashion. The DST Bill was tabled in the last days of the previous Government, and while it has been reinstated by the new Government, it is unclear what the position is of the new Government.

Other notable tax-adjacent changes from the Government are the discontinuation of the Clean Car Discount on 31 December 2023 and the announcement that the Government will repeal the Business Payment Practices Act 2023 before many of its provisions come into force on 1 May 2024.

So that’s the current state of play, but these are by no means the only items in the works. Here’s what else to expect and when to expect it.

Income Tax rates

Finance Minister Hon Nicola Willis has reiterated the Government’s intention to adjust the individual income tax thresholds to reduce the effects of bracket creep. These are expected to come into force from 1 July 2024. National proposed the following brackets during the election:

But these changes are by no means a certainty. The National/ACT Coalition Agreement also states: “Ensure the concepts of ACT’s income tax policy are considered as a pathway to delivering National’s promised tax relief, subject to no earner being worse off than they would be under National’s plan.”

The ACT income tax policy includes removing the 10.5% rate and instead having the 17.5% rate apply from $0 - $60,000, a 30% rate from $60,001 - $70,000, and the existing 33% and 39% rates left unchanged and applying from $70,001 and $180,001 respectively. The ACT party also proposed a low and middle-income tax credit to compensate those who previously were taxed at a lower marginal rate. 

Because any bracket change is likely to only be confirmed when the Budget is announced on 30 May 2024, clarity on what these new brackets will look like is probably still a while away. A change in tax rates with effect from 1 July, while likely to be welcomed by workers, will result in employers, payroll software developers (and Inland Revenue) having to make changes to payroll systems in a very short timeframe. Having a ‘composite’ tax year will bring a sizeable number of complications for calculating tax across the whole income year.

Finally, a sneaky change to be aware of is the impact that changes to income tax rate thresholds have on other taxes. These include fringe benefit tax (FBT), employer superannuation contribution tax (ESCT), resident withholding tax (RWT) and prescribed investor rates (PIR). Any change to the income tax thresholds will also result in corresponding changes to the thresholds for these taxes.

Trustee Tax rate increase

One of the big announcements out of Budget 2023 was the then Labour Government’s proposal to align the trustee tax rate with the top personal tax rate of 39% from the 2024/25 income year. The National Government had stated they would be progressing with the trustee tax rate increase during the election, albeit this was not an overtly highlighted part of their election tax policy. 

End of story? Not quite.

In late February, the Finance Minister was reported as saying the Government was considering “carve-outs” and a “de minimis rate.”The suspicion is that a two-rate system may be in the works. This would see high-income earning trusts paying a 39% rate, while low-income earning trusts continue to pay a 33% rate. 

Interest Deductibility

The Trustee Tax rate is not the only area facing uncertainty. 

Under the National/ACT Coalition Agreement, there is a commitment to restore residential rental property interest deductibility, starting at 60% in the 2023/24 tax year, 80% in 2024/25, and 100% in 2025/26. But the problem is that the proposed change to the 60% deduction amount would start in the current tax year, meaning retrospective tax cuts could be on the cards for many taxpayers (depending on their balance date). Retrospective law changes are generally considered poor law-making. In a release during the December 2023 ‘mini-budget’ it was stated that interest deductibility would change from 1 April 2024 – indicating that potentially there won’t be the retrospective change included in the National/ACT Coalition Agreement. 

Building Depreciation

The ability to claim commercial building depreciation deductions is to be removed, likely from the start of the 2024/25 income year (1 April 2024 for standard balance date taxpayers). While the exact details of the removal are still uncertain, that doesn’t mean you should ignore it. When the previous removal of building depreciation occurred in 2010, the cost to businesses was huge, especially in the initial stages. We can likely expect similar teething issues while the finer details of this policy are ironed out. In the meantime, check out this Tax Alert article from September 2023 which includes a handy questionnaire to help prepare for the change. 

Bright-line test

Late last year the Finance Minister confirmed that the residential property bright-line test is to be reduced from ten years to two years on all properties from 1 July 2024. There is uncertainty on the specifics of this change, for example, if it will apply to all disposals post-1 July 2024. 

“The App Tax”

Despite National and ACT arguing against its introduction while in opposition, the so-called “App Tax” is now here to stay and will be introduced from 1 April 2024. The effect of the change is that online platforms that offer ridesharing, food delivery or short-term accommodation services will now need to charge GST, even if the underlying owner/driver is not GST registered and makes under $60,000 per year. An overview of the changes can be found in the December 2023 edition of Tax Alert. 

Budget 2024

Budget day in 2024 has been set down as 30 May. As highlighted above, this is likely to be the day that we find out new personal tax rate thresholds. It will also be the day when we understand the direction the new Government wants to tax taxes. Each Budget includes a “revenue statement” which sets out the intended approach to tax. We’d also expect that shortly after the release of the revenue strategy we’ll see the release of the tax and social policy work programme.  The work programme will set the scene for what tax policy development will focus on over this Parliamentary term. 

It's understood that Inland Revenue has received direction to focus on enforcement of tax laws and reducing compliance costs. 

Please contact your usual Deloitte advisor if you have any questions.