Budget 2024 included some significant adjustments to personal income tax thresholds. The changes are aimed at providing the tax relief for Kiwi families promised by the National Party on the campaign trail last year. All relatively straight forward you would think – or is it?

Because the changes to the tax thresholds take effect from 31 July, part way through the current tax year, the impact is potentially a little trickier to manage for employers.

For payroll purposes, thresholds should adjust from 31 July, but the 2024/25 tax year will be considered a “composite” year. This means that tax reductions will effectively be averaged across the year when it comes to working out end-of-year tax obligations.

 

Changes to tax thresholds

From 31 July 2024, the income tax thresholds in New Zealand will be adjusted as follows:

Current threshold
New threshold (31 July 2024)
Tax rate
$0-$14,000 $0-$15,600 10.5%
$14,001-$48,000 $15,601-$53,500 17.5%
$48,001-$70,000 $53,501-$78,100 30%
$70,001-$180,000 $78,101-$180,000 33%
$180,001 upwards $180,001 upwards, no change 39%

 

Composite tax thresholds and rates

For the 2024/25 tax year only.

Composite tax threshold
Composite tax rate
$0 to $14,000 10.5%
$14,001 to $15,600 12.82%
$15,601 to $48,000 17.5%
$48,001 to $53,500 21.64%
$53,501 to $70,000 30%
$70,001 to $78,100 30.99%
$78,101 to $180,000 33%
$180,001 + 39%

 

What employers need to do

There are several things employers should be aware of and plan for:

  1. Payroll adjustments in payroll software: You must ensure your payroll software is updated to accommodate the new thresholds by 31 July 2024. This might involve coordination with payroll providers to ensure seamless transition. Cloud-based payroll systems should update to the new thresholds and composite rates automatically. However, we’d strongly recommend confirming this with your provider well before 31 July.

          If you file your payroll manually – make sure you use the new tax tables in your calculations.

  1. Fringe Benefit Tax (FBT): New FBT thresholds will take effect from 1 April 2025, except where an employer chooses to calculate FBT using the attribution method for the 2024/25 year (for which the composite rates and thresholds can be used).
  1. Employer Superannuation Contribution Tax (ESCT): The proposed ESCT thresholds will also change from 1 April 2025 meaning employer KiwiSaver contributions will not benefit from these changes until the 2025/26 year.

 

Are you prepared for the tax threshold changes?

The changes to the tax thresholds should have a positive effect for Kiwi families struggling with the rising cost of living. However, it may mean a little extra work for employers in the short term (and potentially some confusion), while they prepare and make sure they’re using the correct tax rates at the correct time.

 

We can help

If you’re feeling unsure or have any questions about the changes and how they might impact your business, just reach out to our team. We’re here to help you get it all sorted.

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