The tax changes on the horizon come April 1

Upcoming tax changes to be aware of include adjustments to trustee tax rates, phased interest deductions for rental properties, and personal tax reductions.

Tax rate changes to trusts: Family trusts are popular in New Zealand, and for good reason. Currently, dividends paid out to trustees are taxed at 33 per cent, which is below the top personal tax rate (39 per cent) set in 2021. But, last year’s Budget announced that the trustee tax rate would increase to 39 per cent with effect from the 2024/2025 tax year (generally, April 1, 2024), aligning it with the top personal tax rate.

So, after April 1, any income that is retained in the trust as trustee income and not distributed to the beneficiaries will then be taxed at 39 per cent. A lot of trusts would have already distributed income to the beneficiaries to benefit from the lower tax rates for an individual, therefore not incurring the higher tax rate.

This change won’t materially impact most trusts as only a small proportion of the 400,000 registered trusts in New Zealand will pay most of the additional tax.

If your trust holds shares in your company and your company holds a significant balance in the companies Imputation Credit Account, you may want to think about declaring a dividend before March 31, 2024. If you are in this position, I suggest you discuss this matter with your accountant as soon as possible.

Interest deductibility on rentals: Changes to the interest deductions will have a substantial impact on borrowers with rental properties. Interest deductions are being phased out to the stage where from April 1, 2026 you will not be able to claim any of the interest costs on the borrowings.

The current Government under the coalition agreement has committed to phasing in interest deductibility, but over a period:

60 per cent deduction in the 2023/2024 FY.

80 per cent deduction on the 2024/2025 FY.

100 per cent deduction in the 2025/2026 FY, where all the interest costs are then claimed. Personal tax reductions:

The last tax change is for individuals where the personal tax reduction will come into effect from July 1, 2024.

The actual amount of these reductions hasn’t been announced yet, but you can go to the National’s Back Pocket Boost on its website and enter your income levels to calculate the amount you will get. This is to help what was called the “squeezed middle”.

The calculation is based on the following proposed income tax bracket changes.

Current earning brackets: National brackets: Tax rate:

Current earning bracket: Earnings to $14,000. National bracket: Earnings to $15,600. Tax rate 10.5 per cent.

Current earning bracket: From $14K to $48K. National bracket: From $15.6K to $53.5K. Tax rate 17.5 per cent.

Current earning bracket: From $48K to $70K. National bracket: From $53.5K to $78.1K . Tax rate 30 per cent.

Current earning bracket: From $70K to $180K. National bracket: From $78.1K to $180K. Tax rate 33 per cent.

Current earning bracket: From $180K+. National bracket: From $180K+. Tax rate 39 per cent.

It’s important you’re aware of how these tax changes will impact your specific circumstances, and the sooner you speak with your accountant to prepare, the better.