Trust Rate Increase 

In what was one of the easiest predictions to make, the government has announced that the trust rate will be increasing from 33% to 39% from 1 April 2024. When the 39% top personal tax rate was introduced from 1 April 2021, the government had been advised by Inland Revenue that the trust rate should also increase to minimise incentivising taxpayers to make use of trusts to avoid the 39% top personal tax rate. Specific trusts, primarily for the benefit of disabled persons, will continue to be subject to the 33% rate. 

The increased trust rate, along with the increased compliance costs brought about through the trust disclosure rules and the Trustee Act 2019, means that the use of trusts is likely to become less popular. 

Minimal Extra Funding for Inland Revenue 

Inland Revenue is set to obtain an extra $46.8 million in funding to meet inflationary cost pressures, but apart from that, will not be receiving any extra substantial funding. Given the increasing complexity of the tax system, this is concerning as it makes accurate enforcement activity more challenging. 

Credit for Game Developers

Game developers will receive a 20% rebate. The final design of the scheme will be subject to consultation. This should go some way to counteract the Australian rebate for gamers.

Apprenticeships

The Apprenticeship Boost programme has been extended through to the end of 2024, with an extra $77.1 million in total operating expenditure. This will enable an estimated 30,000 apprentices to start or continue receiving support.

Māori Business

Several initiatives are planned for Māori business, which includes a potential capital investment fund. $92 million is anticipated to be spent on these initiatives.

Tax Revenue

The Budget Economic and Fiscal Update pointed out that tax revenue has increased by 7% in 2021/22, after a 21% increase in 2020/21, with growth expected to be 6% in 2022/23, mainly due to continued strong growth in source deduction revenue (e.g. PAYE). Of concern is the fact a quarter of source deduction revenue growth has been because of fiscal drag, which has seen many lower- and middle-income earners dragged into higher tax brackets. This is an issue Baker Tilly Staples Rodway has been concerned about for many years.

Economy

With New Zealand expected to dodge a recession, it almost seems certain that inflation will remain higher for longer, and consequently interest rates will also remain higher for longer, with major banks already forecasting the Official Cash Rate peak to be around 6%.

Comment

With the election less than five months away, it is becoming clearer that any substantial announcements in the tax front are waiting for the campaign trail. 

The increase in the trust rate is likely to see an increased interest in PIE investments, with the 11% tax rate differential being of more interest than the previous 5% tax rate differential. The devil is always in the detail, and we await the usual suite of bills that would see these proposals enacted – provided, of course, the election goes the government’s way.

If you have any queries, please contact your Baker Tilly Staples Rodway advisor.