At the time of writing this, over a week since the General Election was held on 14 October, we are still no closer to knowing the final form of the next Government.
The counting of special and overseas votes may swing some of the electorate results, and the results of the by-election in Port Waikato will not be known until 25 November.
We do know though that the new government will be a coalition of National/Act and potentially NZ First. As with any negotiation, talks between the coalition partners will involve some give and take on all sides so it remains to be seen what policies survive from the campaign stage on all sides. So let’s have a quick recap of the main tax policies of the likely coalition partners.
Income tax
National and NZ First both proposed to adjust the personal income tax brackets for inflation meaning anyone earning over $78,100 would benefit from a decrease in income tax of just over $1,000 a year.
Those on lower incomes would receive less direct income tax benefit from this change, but many would qualify for the additional support measures proposed by National such as FamilyBoost and changes to the Working for Families and In Work Tax credit levels – these make up the rest of the well-publicised up to $250 per fortnight benefits touted by National during the election campaign.
The 39% top personal tax rate for income over $180,000 looks set to stay under both National and NZ First policies.
Act also proposes lower tax rates, but via different means. Rather than adjusting rates for inflation, Act wants to simplify the tax system by reducing the number of tax rates from the current five down to only three and ultimately reducing the top personal tax rate to 33% from 2026.
Assuming National’s tax cuts are non-negotiable, National’s costings show the tax bracket changes taking effect from 1 April 2024. The bracket changes should also have flow-on effects on the thresholds for FBT, ESCT and RWT. Neither National nor Act have indicated that they will repeal the increase to the trust tax rate to 39% so that seems set to stay.
Land and property tax
Residential property owners have a few things to rejoice about with the incoming government. National, Act and NZ First have all supported restoring interest deductibility for residential rental properties.
Under National’s policy this won’t happen immediately, instead being phased in between April 2024 and April 2026. The bright-line test is expected to be reduced to 2 years (by National) or removed completely (Act and NZ First).
Commercial property owners however will fare less well with the ability to claim tax depreciation on commercial buildings expected to be removed from the 2024/25 tax year.
National has also pledged to remove the current ban on most foreigners buying residential property in New Zealand, for properties worth over $2m only, while at the same time introducing a 15% tax on these purchases.
GST
Labour’s policy of removing GST from fruit and vegetables is dead in the water now, although NZ First is keen to explore an exemption for basic foods.
It remains to be seen whether they have enough bargaining power to see this through the negotiation process, but as a GST specialist I hope that this does not eventuate.
Labour’s other major GST policy change was to pass the Platform Economy Bill, which would see GST charged via short-term accommodation and ride-share platforms such as AirBnB and Uber where the suppliers are not themselves GST registered. National has vowed to repeal this meaning it is unlikely to come into force on its intended implementation date of 1 April 2024.
FamilyBoost – childcare tax rebate
National has proposed a childcare tax rebate of 25% for households earning less than $180,000, with the rebate percentage reducing gradually for those earning more than $140,000. The maximum rebate payable will be $75 per week. As this is to be paid through the payroll system, payroll system providers will have some work to do ahead of the 1 April 2024 implementation date if this proceeds.
Final words
Until we finally have a government formed, and legislation introduced to effect these changes, we can’t be certain of what the next 3 years holds from a tax perspective. But we can be certain that there will be a significant level of change coming. Your accountant or tax adviser will be able to help you navigate what these changes mean for you and your business.
Related: Brick by brick: The (re)demolition of tax depreciation on commercial buildings
