Accounting and Tax

Budget 2024: New tax rates and investor considerations

Richard Muth Richard Muth
6 June 2024
4 min read

The New Zealand Budget announced that from 1 August 2024, the income tax brackets that dictate what tax rate applies to income earned by individuals will change.

This, combined with the increase in the tax rate applicable to Trustees to 39% which came in on 1 April, will lead to some decisions for investors, particularly around resident withholding tax rates and Portfolio Investment Entities (PIEs).

Individuals will be asked to reassess their resident withholding tax rate.

For some, where the same tax rate applies, there is nothing to do. For others, they may want to change to a new tax rate that better reflects the tax bracket they will shift into.

Combined with this, investors are also likely to be offered investments in a PIE. PIEs typically offer a lower tax rate for investors than their marginal tax rate.

Those who invest in PIEs through companies and those who are not New Zealand tax residents get little benefit as their rates are fixed at 0% and 28% respectively, regardless of their income level.

For most trustee investors, two rates may be chosen: 17.5% or 28%. If no rate is selected, a 0% rate is applied.

The 17.5% Prescribed Investor Rate (PIR) may be beneficial in a limited number of instances. This will be most beneficial where the PIE income will be distributed to beneficiaries and the beneficiaries’ tax rates are all 10.5% or 17.5% - i.e., they earn under $53,500 with the new tax bracket applied.

However, for others, there is no tax rate benefit to investing through a PIE with a PIR of 17.5% as the income will be taxed at either the trustee’s tax rate of 39% or the recipient beneficiaries’ marginal tax rate, while losses will generally be subject to the lower 17.5% rate. Instead, these trustee investors should be looking to apply a 28% PIR which becomes a final tax for them and any beneficiaries the PIE income is distributed to.

For individuals, there are new bands for PIRs as well, which will apply from 1 April 2025:

  • Income up to $15,000 and, when combined with PIE income, up to $53,500, the PIR is 10.5%

  • Income up to $53,500 and, when combined with PIE income, up to $78,100 and not in the above bracket, $17.5%

  • Those not in the above bands, 28%

These bands are applied to the previous two years’ income and it is the lower tax rate from the prior two years that are applied.

For those individuals, particularly at the margins of the bands, investing in PIEs may no longer be that beneficial. However, for some of these individuals, PIE income cannot be avoided – KiwiSaver schemes are all PIEs. For other individuals, the substantial difference between a 39% tax rate and a 28% tax rate remains great value, particularly if there is no difference to the return being obtained.

If you are uncertain about these changes and what rate would be best for you, we urge you to talk to your tax advisor.

The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex.

This document contains general information and is not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.

The title 'Partner' conveys that the person is a senior member within their respective division and is among the group of persons who hold an equity interest (shareholder) in its parent entity, Findex Group Limited. The only professional service offering which is conducted by a partnership is external audit, conducted via the Crowe Australasia external audit division and Unison SMSF Audit. All other professional services offered by Findex Group Limited are conducted by a privately-owned organisation and/or its subsidiaries.

June 2024

Richard Muth
Author: Richard Muth | Senior Manager