Tax Matters 31 March 2024 – Key Updates and Tax Pooling

With the end of the financial and tax year fast approaching - we wanted to ensure you were aware of the various recent key tax changes coming through. We have also included below a list of various income tax due dates falling due soon as a reminder of some key dates coming up.

In addition, Easter is also just around the corner and so we would like to wish all our clients and contacts a very restful and relaxing time over the Easter holiday period.  
 

There have been a number of recent changes in the tax landscape, particularly in relation to the new coalition government, which we have summarised below for your reference. The government issued an amendment paper to the current Annual Tax Bill - which proposed several changes, of which some are listed below. These changes are expected to be confirmed by legislation enacted before 1 April 2024.

Covisory Partners Limited, have recently commented to us on several tax matters which we have included in this Advisory Update.

We hope you find the enclosed update helpful – and do please feel free to contact us at any time if you need assistance with any tax or end-of-year financial matters. 

Residential Investment Property
The government have announced they will phase back in, the ability to claim interest deductions on residential property investment. 
Effective from 1 April 2024, 80% of the interest incurred on residential investment properties will be deductible, moving to 100% from 1 April 2025.

The restrictions on interest deductibility for residential investment properties remain in place for the 2023-2024 income year (50% for properties acquired prior to 27 March 2021 and 0% for properties acquired after that).

Bright Line Test

The current Bright Line Tests for the sale of residential land is to be repealed.
A two-year test period replaces the current 5 year and 10 year restrictions. The two-year test proposes to apply from where the bright line end date (generally the date a binding contract to sell is formed) occurs on or after 1 July 2024.

Other Changes

Some other recent changes introduced by the government include:

• Depreciation deductions for commercial and industrial buildings are to be removed from the 2024 – 2025 income year.
• The trading stock provisions are to be amended to allow business to give trading stock away for charitable purposes and not be deemed to sell at market value.
• An amendment to the application of the new GST rules for listing intermediaries and electronic marketplaces on contracts for short stay and visitor accommodation. The amendment ensures these entities do not have to return GST on contracts for short stay accommodation entered into prior to 1 April 2024. 

The proposed Trusts tax rate of 39%

The government have accepted Parliament’s Finance and Expenditure Committee recommendation that the proposed blanket 39% trust tax rate is not implemented and instead replaced with a two-tier rate structure for trusts , with a lower ‘de minimis’ tier of $10,000, where trusts with income over that figure would be taxed at 39%.

This means if the trust’s total net income (after expenses) is $10,000 or less, the current 33% trust tax rate will continue to apply. For trusts with net income above the threshold, the new 39% tax rate will apply to all income (not only income exceeding the threshold). 

As a result of this change, it is estimated that approximately only 49,000 of the 400,000 trusts in New Zealand are expected to be impacted by the change to the top tax rate. These changes to the proposed Tax bill will be returned to the House for its second reading during March.

Minimum wage increase

The adult minimum wage will increase to $23.15 per hour effective from 1 April 2024. This represents a 2% increase from the current rate of $22.70 per hour.

The Starting-Out and Training minimum wage rate will increase to $18.52 per hour, remaining at 80% of the adult minimum wage.

May 2024 Budget date announced

The Minister of Finance, Hon Nicola Willis, has announced that the 2024 Budget will be delivered on 30 May 2024. The Budget is expected to provide further information on the tax commitments made in the government’s coalition agreement including its proposed tax cuts for individuals. The government’s budget priorities will be set out in the release of its Budget Policy Statement on 27 March 2024.

The advantages of Tax Pooling

Tax Pooling has been available for many years following its approval by the Inland Revenue when the scheme was first introduced in 2003, established to help taxpayers meet their provisional tax obligations.

Taxpayers pay their provisional income tax into a ‘pool’ rather than paying direct to Inland Revenue.  Taxpayers can sell any surplus they hold (for a return) in the pool to another taxpayer. Taxpayers faced with an underpayment can acquire those surpluses for a fee (less than the IRD debit interest rate). 

Tax pooling has evolved beyond the sale and purchase of tax. It allows taxpayers to mitigate their exposure to use-of-money interest costs as a result of the uncertainty they faced in trying to estimate their provisional tax obligations. This is effectively delivered by the sale and purchase of tax in a tax pool.

Tax pooling is a platform for taxpayers to transfer tax between each other at the original dates that they were paid. So, if you’ve paid too much tax on a particular date and another taxpayer hasn’t paid enough, you can sell them your credits for a gain in interest.

Tax pool intermediaries act as the middleman for that transaction so you’re not actually dealing with another taxpayer. It is an IRD-approved scheme and as far as the IRD are concerned, you have paid your tax on time. There are multiple tax-pooling intermediaries, but we have generally dealt with Tax Management New Zealand. You can’t use tax pooling for all tax types, just income tax unless you’ve had a reassessment and in that case you might be able to use it for GST, FBT etc.

If you would like to know more about Tax Pooling please contact us – it’s a great way of smoothing your cash flow and removing you from costly IRD penalties and use-of-money interest charges.

Income Tax – upcoming filing and payment dates

Please note the following filing and payment dates falling due over the coming months if you have a 31 March balance date and are linked to a Tax Agent. If you are unsure as to your tax filing or payment obligations, please feel free to contact us.

8 April 2024    Terminal tax payment for 2023 income tax due

7 May 2024    Provisional tax instalment due (all income taxpayers)

28 June 2024    Provisional tax instalment due (those who use the ratio method)

7 July 2024    Income tax 2024 return due (those who do not have tax agent or extension of time)

28 Aug 2024    Provisional tax instalment due (all income taxpayers)     

We are here to help

Lynch & Associates are here to assist you in any way to ensure you meet your various tax obligations including filing of returns and payment of tax.

We are always available to assist you with any questions, queries or help you may need – please do contact us if you need any help.