The Government’s 2024 budget was announced by Finance Minister Nicola Willis on 30 May. The focus of the Mrs Willis’s pitch was on fiscal responsibility and reining in the extraordinary ramp up in government spending which has seen Crown debt rise from 20% of GDP to 43% of GDP in the past 6 years.
Three aspects of the budget are especially relevant for trade business owners and self-employed people.
1. Tax threshold changes
While the individual tax rates do not change, there are changes to the tax bands (thresholds). This reduces the tax payable by salary and wage earners, including self-employed business owners.
Current threshold | New threshold 31 July 2024 | Tax rate |
$0-$14,000 | $0-$15,600 | 10.5% |
$14,001-$48,000 | $15,601-$53,500 | 17.5% |
$48,001-$70,000 | $53,501-$78,100 | 30% |
$70,001-$180,000 | $78,101-$180,000 | 33% |
$180,001 upwards | $180,001 upwards, no change | 39% |
Information retrieved from: https://www.ird.govt.nz/pages/campaigns/personal-income-tax-threshold-changes
2. Independent Earner Tax Credit (IETC)
The IETC is a tax credit of up to $10 per week for people earning between $24,000 to $48,000. The maximum annual credit is $520. From 31 July this band changes to $24,000 to $70,000, resulting in many more people being eligible for the credit. The ‘abatement threshold’ has also changed from $44,000 to $66,000, this being the level beyond which the credit starts to drop from the $10 maximum.
For self-employed tradespeople with income in this range, this credit will provide additional tax savings on top of the tax threshold changes mentioned above. Note that for many solo operators who pay themselves a shareholder salary rather than PAYE-deducted wages, this credit needs to be claimed in the annual IR3 return, as it is not paid automatically.
In my experience, eligibility for this credit can come as a pleasant surprise to clients, so be sure to check with your accountant if you believe you are eligible.
3. Extra funding for Inland Revenue
While the budget resulted in cuts to many government programmes, funding to Inland Revenue for “Compliance Activities” was boosted. An additional $29 million per year is allocated toward this purpose.
This means that Inland Revenue activity in terms of chasing overdue debt and tax returns may increase, along with audit activity. This is not an issue for tradespeople who are up to date and running a tight ship. For anyone who feels like their tax and bookkeeping affairs have become a bit loose, now is a good time to attend to any issues.
Tax savings
Overall, this budget offered self-employed tradespeople and small business owners some light tax relief. The greatest tax saving comes for those with incomes from $53,501 to $66,000. For these people, the annual savings from the changes to tax thresholds and the IETC threshold, is $1,319.50, or $50.75 per fortnight. This is a worthwhile sum for the many tradespeople and workers who are feeling the pinch as living costs continue rising.
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