Here are some of the tax changes to expect this year

Tuesday, 23 January 2024

Tax changes lie ahead this year as the new Government beds in its policies, progresses some of the previous Government’s, and works through resulting fallout.

Here are some of the biggest changes we can expect.

Income tax threshold changes

Finance Minister Nicola Willis confirmed in the pre-Christmas “mini-Budget” that personal tax rate changes will be announced in this year’s Budget.

During the election campaign, National said it would enact its plan to shift the income tax brackets to compensate for inflation from July 1.

It would move the $14,000 threshold for the 17.5% rate to $15,600, the 30% threshold from $48,000 to $53,500 and the 33% threshold from $70,000 to $78,100.

Deloitte tax partner Robyn Walker said an introduction part-way through the tax year, which starts April 1, would create administrative and compliance issues. She said it would be preferable for the rate change to take effect at the start of a tax year, or half-way through.

She said a July 1 start data would mean a “very compressed timeframe” for legislation to be enacted and payroll software providers to update their services, assuming the Budget was mid-May. “Regardless of start dates, it’s important that any legislative change is made as soon as possible in order to allow lead time for software updates to be made.”

FBT, ESCT, RWT, PIR

Walker said the changes in personal tax rates would flow through to other taxes on individuals, including fringe benefit tax (FBT), employer superannuation contribution tax (ESCT), resident withholding tax and prescribed investor rates (PIR).

She said, because they were all driven by the same income tax thresholds, the new bands would mean new calculations would need to be made.

“If you were on a 33% rate and the threshold moves and that pushes you back to a 30% rate, your PAYE will change but your rate of ESCT will change to a lower amount – FBT for someone doing a full attribution calculation will also change. Everything gets lowered slightly for people on the cusp.”

People would need to check their PIR was still right, she said.

“If their earnings are on the cusp between one rate and the other, they’ll need to check ‘can I downgrade my PIR to the next lowest rate?’

“There is a lot of work associated downstream, issues that need to be dealt with when you're moving rates and thresholds.”

Bright-line test

Willis reiterated that the bright-line test would be brought back to two years for all properties from July 1.

“In effect, any property purchased before July 1, 2022 will then be off the hook for capital gains tax, regardless of the prevailing test period when it was bought,' CoreLogic chief property economist Kelvin Davidson said.

“This change might bring back a few more investors to the market, given reduced risk that any rental property purchases will face capital gains tax. But it’s unlikely to be a major shift, given that some other key factors haven’t changed – namely low rental yields and high mortgage rates, meaning that significant top-ups out of other income are still required on a ‘typical’ investment purchase, whether a new-build or existing property.

“Of course, mortgage interest deductibility will be phased back in too, and that will help cashflow. But it’s not back to 100% for a while yet, and in the meantime, some investors may be taking the hit on cashflow just to avoid paying a hefty capital gains tax bill. Indeed, it wouldn’t be a surprise if the shorter Brightline Test actually drives some extra listings and sales from landlords, as they look to stop the top-ups and avoid a large tax bill at the same time.”

Interest deductibility

The move to phase back in investors’ ability to claim home loan interest against their rental income for tax purposes will be added to existing tax legislation.

There has been some confusion about when this would start. Walker said a Government press release implied that it would start from April 2024, while the coalition agreement had suggested the change would take effect from the 2023/24 year.

Building depreciation

The Government will remove the ability to claim commercial building depreciation deductions.

Walker said this would take some adjustment. “It creates a whole lot of horrific financial reporting consequences… it creates what is called a deferred tax liability that the business then needs to recognise in its financial statements.”

She said when this last happened in 2010, a number of businesses had “huge” extra liabilities come on to their balance sheets and had to make numerous disclosures to the market about what was going on and why.

Trustee tax rate change

Walker said, while people might have expected the previous Government's change to the trustee tax rate might be off the table, it was still coming.

“It’s still intended that law change will go through – the 39% tax rate will apply to trustees from April 1. It would be an additional amount of tax revenue the new Government would need to find it they were not to go ahead with it.”

She said the bill including the change had been reinstated and was with the Finance and Expenditute Committee. Oral hearings are on January 31.

“The bill will likely be reported back from FEC in late February and that’s when we’ll see whether there are any proposed changes or compromises in who the new 39% rate applies to. Currently there are only exemptions for estates and disability trusts.”

App tax

The Government had talked about repealing the “app tax' but now looks set to go ahead with it.

From April 1, platforms involved in ride-sharing, food delivery or short-term accomodation will need to charge GST even if the underlying owner or driver does not make $60,000 a year.

Walker said some people might not have given this much thought, expecting it to be repealed. “Now they’ll need to start thinking about it and understanding precisely what they need to do.”

The key requirements would be on the platform providers themselves, she said. 'The platform will be charging GST, inserting themselves into the transaction, charging GST and passing the notional input tax credit to the person delivering the accommodation.”

People who had a house listed on Airbnb, for example, would need to decide whether to put their price up to cover the GST component, she said. “The platform will be charging 15% GST but then giving back 8.5% to recognise the GST that they are paying on all their costs.”