While the election result will not be officially known until 3 November, it is clear from the results that National will be in the position for form a government with ACT and, if required, NZ First. The tax policies of these parties were reasonably consistent, so we can anticipate the tax changes that are likely to occur in the coming year or so.
Tax cuts for individuals
National, ACT and NZ First all campaigned that the thresholds for the low and middle tax brackets should be raised as these had not been changed for over a decade.
I think we can assume that changes that will be adopted will be broadly in line with National Policy. They promised that the tax brackets for individuals would be changed as follows:
| Tax threshold adjustments |
| Existing threshold | Proposed threshold | Threshold rate |
| $14,000 | $15,600 | 17.50% |
| $48,000 | $53,500 | 30% |
| $70,000 | $78,100 | 33% |
National ruled out a reduction in the 39% top tax rate for individuals in the near-term.
National had campaigned that the tax cuts would apply from 1 July 2024. Hopefully, any tax bracket changes will occur from 1 April 2024 rather than the odd 1 July 2024 date that was in National’s pre-election policy. A mid-tax year rate change would bring the added complication of “composite tax rates” for 2024/25 tax year. Composite tax rates can create surprise tax bills for salary and wage earners whose income increases after the tax cuts take effect.
Property changes
National and ACT both campaigned that they would reverse some of the changes Labour made to the taxation/over-taxation of residential rentals.
Bright line
National proposes to change the bright line test back to 2 years from 1 July 2024. National originally introduced a 2-year bright line in 2015 to target property speculators. The outgoing Labour Government then extended it to 5 and then ten years; neither of these changes targeted speculators and as a result, numerous transactions involving families or relationship property have been unnecessarily taxed in recent years. This has also been a major barrier to investors looking to exit properties or restructure their affairs.
In National’s election policy, the bright line will be changed to 2 years from 1 July 2024 for new and existing rental properties. This will mean that all properties are subject to the same rules which is much better approach than what we have seen in recent years. If introduced in this manner, there will be a lot of people waiting until July next year to tidy up their affairs.
We note that ACT had proposed to scrap bright line altogether, but that seems very unlikely.
Interest denial rules
It seems that the denial of interest deductions for residential rentals is to be unwound over the next 3 years. These rules were a shambles that were introduced under the false guises of “closing a loophole” and have created unnecessary compliance costs for clients. These deductions never should have been denied and we welcome the unwind of the changes. We would prefer that full deductibility was restored immediately, however, the phasing back in is due to fiscal constraints, which is understandable. Unfortunately, the phasing back means that the additional compliance costs for investors will remain for the time being.
The election campaign promises were not detailed, but it seems that same rules will apply to all rental properties irrespective of purchase date and this would make sense. If this is correct, then this means that rental properties acquired after 27 March 2021 would get 50% deductions from the introduction of the changes. At present, there is no interest deductions for rental properties acquired on or after 27 March 2021 (unless the property is a new build).
Depreciation on commercial buildings
As a measure to help fund the tax cuts, depreciation will be removed from commercial buildings (again). It was National that removed deprecation on buildings last time (2010), so this is not a major surprise. No detail has been given around this change.
Foreign buyer tax
National promised to remove the outright ban for foreigners buying houses in NZ that cost $2m or more. However, foreigners would have to pay a 15% tax on purchase of such properties. The stated driver behind this is to help fund the tax cuts and changes.
Absolute speculation here…, but I wonder if any changes to the ban on foreigners buying houses in NZ would have the support of NZ First (if NZ First are required in Government).
GST on AirBNB and Uber etc in New Zealand
At present there is a rather complex GST change coming into force 1 April 2024 that affects the way GST applies to the likes of Airbnb or Uber where the underlying service provider (owner/driver etc) is not required to be GST registered because they earn less than $60k from the activity. National promised to repeal this change as it would not raise much tax but would have created high compliance costs for those affected. This would have to be repealed before 1 April 2024.
“Ute tax” / Clean car rebate in New Zealand
National and ACT promised to repeal the clean car rebate/fee scheme. All indications are that this will end 31 December 2023 (if not earlier).
It is fair to say that the pending removal of the rebates and fees is going to create an interesting environment in the motor vehicle sales industry. Certainty on the timing of this is needed ASAP.
Dealers will be looking to offload vehicles that qualify for rebates ASAP, and if you listen to the radio there is plenty of evidence of fear-based marketing already. For vehicles that attract a hefty fee (utes etc), dealers will probably have to offer hefty discounts to get customers to commit before the changes are made.
Tax for online gambling providers in New Zealand
Another measure to pay for the tax cuts and other changes highlighted here is a proposed tax for offshore entities offering online gambling services to NZ. Little is known about the mechanics of this at present, but plenty of work has been done in the GST space, so the Inland Revenue should be able to pull together something pretty quickly.
The big unknown… Trust tax rate in New Zealand
Labour introduced a Bill to increase the trust tax rate from 33% to 39% in Budget 2023. That Bill did not pass before the election and therefore it lapsed when Parliament dissolved prior to the election.
Therefore, at present the 39% tax rate change for trusts is not law, and would only become law if the new Government reintroduced the Bill once parliament resits. As far as I am aware, neither National or ACT have publicly commented on the 39% rate for trusts. Therefore, we do not know if they support it or not. We do know that the IRD supports the 39% tax rate to an extent, or more so they support the fact that there is alignment between the top personal tax rate and the trust tax rate.
Technically, it would not be a “tax cut” if they do not reintroduce the law to introduce the 39% rate.
If a National led government does stick with the introduction of a 39% trust tax rate, then it could be assumed that there would be some concessions to avoid unnecessary over taxation, but time will tell.
Hopefully, the status of the trust tax rate change will be clarified as soon as possible.
Looking beyond the signalled changes
I think it is fair to say that as a general rule, the outgoing Labour government did not have a great relationship with the business sector. As a result, the normal level of genuine consultation on proposed tax changes did not occur and this meant that some borderline changes were bulldozed through based on idealism rather than a genuine need. Hopefully, the change in government will mean a return to a more transparent tax policy process.
Since the early 90’s the NZ tax system has been working towards low compliance model. The trend through successive governments (National or Labour) was towards removing unnecessary taxpayer interactions with IRD, and where possible, simplifying things. It is fair to say that this trend was well and truly reversed under the outgoing government. The outgoing government made many changes (particularly for trusts and rental properties), that added a lot of additional compliance for very limited value/return. Hopefully, the new Government will follow through on its promise to remove red-tape and return to the well-tested model of keeping it simple.