Tax Rate	Old Threshold	New Threshold
10.5%	$14,000	$15,600
17.5%	$14,001 – $48,000	$15,601 – $53,500
30%	$48,001 – $70,000	$53,501 – $78,000
33%	$70,001 – $180,000	$78,001 – $180,000
39%	$180,001 & above	$180,001 & above

 

The Government has also increased the threshold at which the independent earner tax credit abates from $48,000 to $66,000. The credit abates at 13 cents for every dollar earned over $66,000. A taxpayer is eligible for this credit providing they have at least $24,000 of income and:

 

1. Neither the taxpayer nor their partner are in entitled to working for families tax credits and
2. The taxpayer does not receive an income tested benefit
3. The taxpayer does not receive NZ superannuation
4. The taxpayer does not receive a veteran’s pension
5. The taxpayer does not receive the overseas equivalent of any of the above

 

Re-Instatement of Interest Deductibility in Relation to Money Borrowed for Residential Rental Property

As promised the coalition Government is unwinding the interest limitation rules in relation to residential property as follows:

 

	2023/24 Inc Year	2024/25 Inc Year	2025/26 Inc Year
Percentage Deductibility	50%	80%	100%

 

Changes to the Taxation of Income of Residential Land

 

Bright Line Period Reduced:

The bright line period which was increased by the previous Government from two years to five years and then 10 years has been changed to two years in relation to all dispositions of residential land where a contract of sale has been entered into on or after the 1st July 2024.

 

Main Home Exemption Amended:

The exemption for the taxpayers main home has also been amended so that the new section CB 16 A ITA 2007 provides an exemption where the residential land has been used predominantly during the bright line period for a dwelling that was the main home of the taxpayer or where the land is held in trust, by a beneficiary of the trust, providing either the principal settlor of the trust does not have a main home or alternatively the home that has been disposed of has been occupied by the principal settlor as their main home. This exclusion for the main home does not apply where the exclusion has been used by the person twice within the two years immediately preceding the bright line end date or the person has engaged in a regular pattern of acquiring and disposing of residential land which is been used as their main home.

 

Rollover Relief:

Effective from the 1st July where residential land is transferred within the bright line period to a person who is associated with the transferor at the date of transfer and also for at least two years before that date or alternatively to a trustee of a trust in which all beneficiaries are associated with a transferor at the date of transfer and for at least two years before that date, then the transferee is treated for the purposes of bright line test as having acquired the land at the date the transferor acquired the land. The transfer is treated as a disposal and acquisition for an amount equal to the cost of the residential land to the transferor. It should be noted that if a taxpayer transfers residential land which is not within the bright line period to say a family trust, then no roll over relief is available i.e., the bright line start date will re- set.

 

Commercial Building Depreciation

 

Effective from the commencement of the 2024/25 income year, depreciation on commercial buildings has been abolished. However, where the commercial building was acquired in the 2010/11 or an earlier income year and the person has never had a deduction for commercial fit out that was acquired at the same time as the building then 15% of the tax written down value of the building at the end of the 2010/11 income year less the written down tax value at the end of 2010/11 income year of any commercial fit out that relates to the building and was incurred in that income year qualifies for a 1½% annual deduction on a straight line basis.

 

Unlike the previous fit out allowances which were not taken into account for the purposes of calculating any depreciation recovery on the sale, all fit out deductions including those allowed under former section DB 65 ITA 2007 between the 2010/11 income years and the 2020/21 income years can now be clawed back on disposal.

 

Change to the Trustee Tax Rate

Effective from the 1^st April 2024 the trustees tax rate has been increased from 33% to 39% except for:

 

1. A disabled beneficiary trust;
2. An estate for the year of death and the following three income years
3. A de-minimus trust e., a trust with trustee income of no more than $10,000.

 

This $10,000 limit does not include any income deemed to be trustee income as a result of the minor beneficiary rule or beneficiary income distributed to an associated close company, or a company where shares in that company are held by a person for whom the settlor of the trust making the distribution has natural love and affection. Where trusts have substantial income which is accumulated each year, consideration should be given to selling assets to a wholly owned corporate to take advantage of the significantly lower corporate tax rate.

 

Moving to Australia

Taxpayer’s contemplating moving to Australia who have established trusts in New Zealand should be careful to take advice before moving because Australia will tax a trust if it has a trustee resident in Australia or alternatively is controlled by an Australian resident. We have recently become aware that distributions from trusts prior to an individual becoming a resident in Australia will be taxable in Australia if those distributions were received in the income year in which the beneficiary becomes a resident of Australia. This does not apply to temporary residents.

 

Practice Changes

Following the admission of Shane Zhou as a principal in the practice we have re-branded the business to Roberts Evans & Zhou Ltd to more adequately reflect the make-up of our business.

 

Earlier this year Catherine Kemp and Wai Yoong left our employ and we wish them the best in their new employment.

 

We have been joined by Hector Jesudason, a former sole-practioner and Zervena Clague who was formerly a partner in a medium sized firm down town.