Which New Zealand tax changes will affect your clients?

This article was current at the time of publication.

As the new National-led government takes up the reins, new tax legislation is being drafted. Several measures introduced by the previous government have been dropped, or are in the process of repeal, while others remain works-in-progress.

Andrew Dickeson FCPA, taxation services director at Auckland-based business advisory firm Baker Tilly Staples Rodway, says the change of government will lead to quite significant changes in some tax areas.

Relief for middle income earners

The government will introduce tax cuts for the “squeezed middle” via tax bracket adjustments taking effect from 1 July 2024, as detailed in National’s “Tax Plan”.

Dickeson says practitioners should consider that Labour’s increase in the trustee tax rate to 39 per cent is unaffected and takes effect from 1 April 2024.

Also unaffected is the top 39 per cent personal income tax rate as National and ACT want to target tax relief at middle income earners, Dickeson says.

Legislation will need to be introduced to give effect to the restoration of mortgage interest deductibility for landlords. In the government’s “mini Budget”, deductibility is detailed as 60 per cent in 2023-24, 80 per cent in 2024-25, and 100 per cent in 2025-26.

Depreciation on commercial buildings gone

Dickeson says a major tax change that “flew in under the radar” during the election campaign was National’s policy to eliminate depreciation on commercial buildings, a move which will partly fund income tax cuts.

Depreciation was reintroduced as a COVID-19 relief measure, Dickeson says, and its elimination will have a significant effect on entities with large commercial property portfolios.

The government also announced increased funding for IRD to allow it to conduct increased risk reviews and audits.

Digital platform tax comes into force

Some aspects of the “App Tax” come into force on 1 April 2024.

The legislation requires digital platforms such as Uber and Airbnb to charge, collect and remit to IRD GST on the services provided by those selling through the platform, even if those operators’ annual sales don’t exceed NZ$60,000.

The enabling Act aims to expand the tax net to capture new, digital means of selling goods and services, and specifically mentions short-term accommodation, ridesharing and food delivery platforms.

However, Deloitte pointed out in a September 2022 article that the legislation also requires platforms not trading in those three areas to provide information to IRD, with some uncertainty around who is caught, and with “substantial penalties” for non-compliance.

Multinationals’ digital services

The Digital Services Tax Bill has been reinstated and is set to undergo its first reading in the near future.

The Bill is intended to apply to multinationals with annual global digital services revenue of more than €750 million [NZ$1.334 billion] and at least NZ$3.5 million a year of services provided to New Zealanders.

“Digital services revenue” includes revenue relating to intermediation platforms, social media and content-sharing platforms, internet search engines, digital advertising, and user-generated data.

At present the Bill is intended to come into force on 1 January 2025, but that date may be extended to accommodate progress from the OECD’s “Pillar One” negotiations which have been formulated to rise to the taxation challenges of the digital economy.