Budget 2024 - tax thresholds changes and impacts for employers

Last week’s Budget contained the Government’s changes to personal tax thresholds and other tax relief measures (such as an increase in the abatement threshold for the independent earner tax credit and changes to Working for families and other in-work tax credits). These were largely as proposed in the National Party’s election tax policy.

The new tax thresholds will be $15,600 (up from $14,000 for the 10.5% rate), $53,500 (up from $48,000 for 17.5%) and $78,100 (up from $70,000 for 30%).

However, because the changes will take effect from 31 July 2024, there will be both composite tax rates and composite tax thresholds for the 2024/25 tax year.

Composite tax threshold	Composite tax rate
$0 to $14,000	10.5%
*$14,001 to $15,600*	*12.82%*
$15,601 to $48,000	17.5%
*$48,001 to $53,500*	*21.64%*
$53,501 to $70,000	30%
*$70,001 to $78,100*	*30.99%*
$78,101 to $180,000	33%
$180,001 +	39%

In addition, there are also implications for:

FBT rates and thresholds – which will change from 1 April 2025, except where an employer chooses to calculate FBT using the attribution method for the 2024/25 year (for which the composite rates and thresholds can be used).

Employer Superannuation Contribution Tax (“ESCT”) rates and thresholds – these will also only change from 1 April 2025, meaning employer KiwiSaver contributions will not benefit from these changes until the 2025/26 year.

For business, don’t simply assume that your payroll software or payroll provider will have these changes under control. There are a number of practical issues to consider, including:

Ensuring your payroll / HR teams are aware of the composite tax rates and thresholds, as well as the consequential FBT / ESCT impacts, as there may well be questions from employees around how different remuneration components are taxed and the impact on their net pay (particularly if lump sum payments, such as bonuses, are expected towards the end of the tax year). The composite rates and thresholds could result in overpayments and underpayments of PAYE for the year, not anticipated by employees, which will need to be squared up through a tax return or as part of Inland Revenue’s auto-calculation.

Whether FBT should be calculated using the attribution option, rather than the standard rate, in the 2024/25 year to reduce the FBT costs? This is likely to depend on the types of benefits provided, the effective marginal rates of affected employees, and the compliance costs of the different FBT methods.

There is the ability for employers to deduct PAYE rather than ESCT on KiwiSaver contributions. However, as the ESCT thresholds are 20% greater than the PAYE thresholds, changing methods may not yield a better tax outcome for employees.

If you have questions about the tax measures in the Budget and their impact on your payroll function, please contact Lisa Knight and Nick Cooke.