Inland Revenue - Tax policy Tax Policy

News and information about the Government's tax policy work programme, including:
- proposed changes to the laws that Inland Revenue is responsible for
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Budget 2017

25 May 2017

The Government’s 2017 Budget has been announced today and contains proposed changes to tax thresholds and to Working for Families as part of the Government’s Family Incomes Package. The package also proposes discontinuing the Independent Earner Tax Credit.

Budget announcements also include the release of a consultation document proposing an improved tax treatment of feasibility expenditure for businesses.

For more information see the Budget 2017 announcements.


Budget 2017

Family Incomes Package

The Government’s 2017 Budget has been announced today and contains proposed changes to tax thresholds and to Working for Families as part of the Government’s Family Incomes Package.

  • From 1 April 2018, the $14,000 income tax threshold will increase to $22,000, and the $48,000 threshold to $52,000.
  • The Independent Earner Tax Credit will be discontinued.
  • Increase to the Family Tax Credit rates for children under 16, so that they align with the rates for children aged 16 to 18 years.
  • Increase the abatement rate for Working for Families Tax Credits from 22.5 cents to 25 cents in the dollar and decrease the abatement threshold from $36,350 per year to $35,000 per year.

Media statement – $2b Family Incomes Package to lift after-tax incomes (PDF 25KB, DOCX 32KB)

Fact sheet – Budget 2017 Family Incomes Package (PDF 25KB, DOCX 42KB)

Fact sheet – Budget 2017 Changes to Tax Thresholds and Independent Earner Tax Credit (PDF 25KB, DOCX 25KB)

Fact sheet – Budget 2017 Changes to Working for Families (PDF 295KB, DOCX 30KB) (updated 1 June 2017).

The Family Incomes Package proposals are contained in a Budget night Bill and are intended to come into effect on 1 April 2018.

Feasibility expenditure

Budget 2017 also includes a discussion document announcing proposals to improve the tax treatment of feasibility expenditure for businesses.

Media statement –  Budget 2017 addresses black hole expenditure (PDF 13KB, DOCX 28KB)

Discussion document – Black hole and feasibility expenditure

Full coverage of all Budget 2017 announcements can be found at http://www.treasury.govt.nz/budget/2017


Hon Steven Joyce
Minister of Finance

25 May 2017

$2b Family Incomes Package to lift after-tax incomes

The Government’s $2 billion per year Family Incomes Package will make changes to tax thresholds, Working for Families and the Accommodation Supplement to help Kiwi families get ahead, Finance Minister Steven Joyce says.

“It is important that Kiwi families directly share in the benefits of New Zealand’s economic growth,” Mr Joyce says. “The Family Incomes Package is carefully designed to especially assist low and middle income earners with young families and higher housing costs.”

The Budget 2017 Family Incomes Package benefits around 1.3 million families in New Zealand by, on average, $26 per week.

“The measures in this budget are expected to lift 20,000 households above the threshold for severe housing stress, and reduce the number of children living in families receiving less than half of the median income by around 50,000,” Mr Joyce says.

From 1 April 2018, the Package:

  • Increases the $14,000 income tax threshold to $22,000, and the $48,000 tax threshold to $52,000.
  • Discontinues the Independent Earner Tax Credit.
  • Increases the Family Tax Credit rates for young children to the level of those for children aged 16 to 18, while increasing the abatement rate and decreasing the abatement threshold.
  • Increases the Accommodation Supplement maximum amounts, and updates the Accommodation Supplement areas to reflect 2016 rents.
  • Increases the weekly payments of the Accommodation Benefit for eligible Student Allowance recipients by up to $20.

These changes mean, for example, a couple with two children under 13 and one partner working earning $55,000 will gain $41 per week plus any increase to their Accommodation Supplement.

Mr Joyce says that as wages have risen over the last seven years, people on lower and middle incomes have been faced with higher marginal tax rates.

“The Budget 2017 Family Incomes Package will provide better rewards for hard work by adjusting the bottom two tax thresholds and lowering the marginal tax rates for low and middle income earners,” Mr Joyce says. “At the same time it will start simplifying the tax and transfer system by removing the separate Independent Earner Tax Credit which is claimed during the year by less than one third of those eligible.”

The tax threshold change provides a tax reduction of $10.77 a week to anyone earning more than $22,000 per annum, increasing to $20.38 a week for anyone earning more than $52,000 per annum.

People who lose the Independent Earner Tax Credit will be compensated in full by the lifting of the lowest income tax threshold from $14,000 to $22,000.

“The Family Incomes Package will also help lower income families with young children meet their living costs through changes to the Family Tax Credit, and it will improve the incomes for those with higher housing costs,” Mr Joyce says.

Some of the biggest gains in the Package are for people on lower incomes with young children. 

“Family Tax Credit rates increase by $9.25 a week for the first child under 16, while credits for subsequent children increase by either $17.75 or $26.81 per week depending on the age of the child,” Mr Joyce says.

Similarly there are significant increases for people on low incomes with high accommodation costs.

The maximum Accommodation Supplement rate for a two person household increases by between $25 and $75 a week, while the maximum for larger households increases by between $40 and $80 a week. In addition, changes to the Accommodation Supplement areas will provide further gains for some families.

The Accommodation Benefit, which is paid to Student Allowance recipients who experience housing stress, will also increase by up to $20 per week.

The Package will have flow-on effects, with around three quarters of a million superannuitants benefiting because of the link between New Zealand Superannuation and after tax wages. The couple rate for superannuitants will increase by $13.12 per week on 1 April next year in addition to the normal adjustments.

“Budget 2017 is about delivering for New Zealanders. This Family Incomes Package is the first step in allowing Kiwi families to spend more of their own money, so they can make the decisions that are best for them,” Mr Joyce says.

The Family Incomes Package Calculator is available here:

www.budget.govt.nz/budget/2017/family-incomes-calculator


Fact Sheet – Family Incomes Package

Summary

From 1 April 2018:

The $2 billion per year Family Incomes Package will provide better rewards for hard work, help lower-income families with young children meet their living costs, and improve incomes for people with high housing costs.

The Family Incomes Package will benefit 1,340,000 families by an average of $26 per week. Around 750,000 superannuitants and 41,000 students will also benefit from the Family Incomes Package.

The measures in this Package are expected to lift 20,000 households above the threshold for severe housing stress, and reduce the number of children living in families receiving less than half of the median income by around 50,000.

The following elements make up the Package:

  • Increasing the bottom two income tax thresholds:
    • From $14,000 to $22,000; and
    • From $48,000 to $52,000.
  • Discontinuing the Independent Earner Tax Credit (IETC).
  • Family Tax Credit (FTC):
    • Increasing payment rates for children aged under 16, so that they align with the rates for children aged 16 to 18 years; and
    • Increasing the abatement rate from 22.5 cents to 25 cents in the dollar and decreasing the abatement threshold from $36,350 a year to $35,000 a year.
  • Housing costs:
    • Increasing the maximum Accommodation Supplement (AS) payments and updating locations of Accommodation Supplement areas to reflect increases in housing costs; and
    • Increasing the weekly payments of Accommodation Benefit for eligible Student Allowance recipients by up to $20.

Superannuitants will gain from the tax threshold increases and some will also gain from the Accommodation Supplement increases.
The impact of the Family Incomes Package on any given family or individual will depend on their particular circumstances, including the types of supplementary assistance they may receive.

Impact on family incomes

Tax threshold changes and discontinuing IETC

The tax threshold changes provide a tax reduction of $10.77 a week to anyone earning more than $22,000 per annum, increasing to $20.38 a week for anyone earning more than $52,000 per annum.

These changes are likely to increase work incentives. Working families and individuals not receiving a benefit will gain from the tax threshold changes if their individual incomes are above $14,000.

Individuals who receive the Independent Earner Tax Credit of up to $10 per week will be fully compensated by the increase in the $14,000 tax threshold. Only 32 per cent of those eligible claim this credit during the tax year.

New Zealand Superannuation recipients will gain from the tax threshold increases, and from the link between Superannuation rates and after-tax average wages.

Changes to Family Tax Credit

Eligible families with children aged under 16 will gain further from the increases to the Family Tax Credit rates for younger children.

Family Tax Credits increase by $9.25 a week for the first child under 16, while credits for subsequent children increase by between $17.75 and $26.81 per week.

A small number of families may be disadvantaged by the changes to Family Tax Credit abatement settings but in nearly all cases this will be more than offset by the tax threshold changes. Transitional assistance will be available for any families experiencing overall losses of more than $3 per week as a result of the changes across the Family Incomes Package.

Changes to accommodation payments

The maximum Accommodation Supplement rates for a two person household will increase between $25 and $75 a week, while larger households will gain up to between $40 and $80 a week in accommodation support, depending on where they live. In addition, the make-up of the four Accommodation Supplement areas will be updated so families in areas where housing costs have increased the most will receive further gains.

Families and individuals who are entitled to receive Accommodation Supplement at the maximum payment rate will gain from these changes.

Student Allowance recipients who are eligible to receive Accommodation Benefit at the current maximum weekly rate of $40 may now receive up to $60 per week. This will help around 41,000 students with high accommodation costs.

Average impacts

The package as a whole is expected to benefit around 1,340,000 families by an average of $26 per week.

The table below shows the impacts across the population for those families who gain from the Family Incomes Package. These are approximate changes by income quintile, and indicate how a family’s average gain is distributed across the elements of the package.

Table 1: Distribution of gains by element[1]

Quintile Minimum
income
in range
Number of
Families
who gain
Average change in: Average gain
from all
elements[2]
Tax IETC WFF AS
1 * 154,000 $5.13  ($0.10) $16.63  $17.04 $35.32
2 $24,000 296,000 $11.07 ($5.73) $6.10  $3.81 $15.11
3 $51,000 296,000 $20.90  ($2.32) $2.98 $2.14 $23.69
4 $84,000 298,000 $28.12 ($3.77 $1.65 $0.25 $26.24
5 $127,000 298,000 $34.65 ($1.43) $0.00 $0.00 $33.22
Total   1,342,000 $21,58 ($2.94) $4.28 $3.32 $25.81

There will be flow-on gains to around 750,000 superannuitants and 41,000 students who also benefit from the Family Incomes Package.

What is the economic effect of the package?

In the short term, household consumption is expected to increase, increasing employment growth and reducing the unemployment rate by around 0.1 percentage points. Overall, the package results in a cumulative $3 billion increase in nominal GDP across the five years to June 2021. It is expected to have a modest, positive impact on GDP in the long run.

How much does the package cost?

The total net cost of the Family Incomes Package is on average $2 billion per year, and about $6.5 billion over the four-year Budget forecast period.

Table 2: Cost by element of the Family Incomes Package

$million 2017/18 2018/19 2019/20 2020/21
Reduction in Tax Revenue including IETC  486.000 1,896.000 1,895.000 1,976.000
Working for Families 97.000 373.000 318.000 310.000
Accommodation Supplement 87.559 361.583 380.296 399.723
Accommodation Benefit 6.300 19.500 19.500 19.800
Transitional Fund 1.063 0.500  0.400 0.250
Consequential Impact[3] -74.33 -575.24 -760.90 -693.736
Operating balance impact 603.584 2,075.33 1,852.29 2,012.037

The cost is lower in 2019/20 because indexation of the younger-child rates for the Family Tax Credit and abatement changes (part of the Working for Families tax credits) were expected to occur on 1 April 2019 and was therefore included in previous forecasts.

More information

All changes in the Family Incomes Package will commence from 1 April 2018. Until then taxes and payments are unaffected.

For more information about the Family Incomes Package, see www.budget.govt.nz and www.msd.govt.nz/about-msd-and-our-work/newsroom/2017/budget-2017.html.

To find out what the Family Incomes Package means for you, see the Family Incomes Package Calculator at:

www.budget.govt.nz/budget/2017/family-incomes-calculator

 

[1] The Treasury recommends the following caveats be noted when interpreting this analysis. To ensure the sample is representative of the New Zealand population, sample weights have been modified to match the administrative characteristics of the Accommodation Supplement recipients. This has been done as an aggregate level adjustment. The impact of Temporary Additional Support is excluded from Table 1. Accommodation Supplement area changes have been included at the Urban Area (2001) level, however, subsequent changes have been made at the Area Unit level. Area Unit data is not available in Treasury’s microsimulation model, so these changes have not been included. Table 1 excludes New Zealand Superannuation recipients and independent students.

[2] Some interactions between the tax and transfer system are not presented. Therefore the Tax, IETC, WFF and AS columns are not intended to sum to the average gain from all elements column.

[3] Consequential impacts include, for example, increased GST revenue as people spend their additional after-tax income, a reduction in gross benefit expenditure (as the net payments to benefit recipients are unchanged), partially offset by increases in New Zealand Superannuation payments due to an increase in the after-tax average wage (to which it is linked).


Fact Sheet – Changes to Tax Thresholds and the Independent Earner Tax Credit

Summary

From 1 April 2018:

  • Working families with incomes above $14,000 will gain from increases to the two bottom thresholds. The $14,000 income tax threshold will increase to $22,000, and the $48,000 threshold will increase to $52,000.
  • The change above means anyone earning more than $22,000 annually will receive a tax reduction of $10.77 a week, and anyone earning more than $52,000 will receive a tax reduction of $20.38 per week.
  • The Independent Earner Tax Credit of up to $10 per week will be discontinued. Individuals who currently receive the tax credit will be fully compensated by the increase in the $14,000 tax threshold to $22,000.

What is changing?

From 1 April 2018, the $14,000 income tax threshold will increase to $22,000, and the $48,000 threshold to $52,000.

Table 1: Current and new personal income tax thresholds

Current Bracket ($) New Bracket ($) Rate
1 – 14,000 1 – 22,000 10.5%
14,001 – 48,000 22,001 – 52,000 17.5%
48,001 – 70,000 52,001 – 70,000 30%
70,001+ 70,001 33%

The Independent Earner Tax Credit, which is a maximum of $520 a year ($10 per week), will be discontinued. It is currently available to individuals with taxable income between $24,000 and $48,000 who are not eligible to receive benefits, New Zealand Superannuation or Working for Families tax credits.

Why are the changes being made?

The average wage has risen from $49,500 to $58,900 over the last seven years. As incomes rise, the marginal tax rates that individuals face also increase. This weakens work incentives by reducing the rewards of extra work. Increasing tax thresholds provides greater rewards for low and middle income earners, and is expected to support long-run economic performance.

The increase of the $14,000 tax threshold will provide greater incentives for people to enter work; in particular, for those receiving a benefit. The increase of the $48,000 tax threshold will provide greater incentives for people already in work to increase work hours and earn more income.

Table 2: Examples of families without entitlement to Working for Families

Primary income (annual) Secondary income (annual) Weekly tax reduction Weekly IETC change Weekly income change
$33,000 $33,000 $21.54 -$20.0 $1.54 increase
$60,000 $60,000 $40.77 n/a $40.77 increase
$60,00 - $20.38 n/a $20.38 increase

The Independent Earner Tax Credit has had less uptake than expected. Of those individuals who are eligible to receive it, only 32 per cent claim it during the year.

Individuals who currently receive the tax credit will be fully compensated by the increase in the $14,000 tax threshold to $22,000. Discontinuing the tax credit will help to simplify the system, as individuals will not have to file a tax return at year-end or use a different tax code to claim it.

For example, a person on an annual income of $33,000 who currently qualifies for the Independent Earner Tax Credit will no longer receive the $10 per week tax credit from 1 April 2018, and will pay $10.77 less per week in income tax in the year, resulting in an increase in after-tax income of $0.77 per week. This example does not include other elements of the Family Incomes Package, such as changes to the Accommodation Supplement rates.

More information

The changes to the tax thresholds will have impacts on how provisional tax payments are calculated for the 2018-19 tax year and other taxes that are linked to the personal income tax thresholds.

  • The uplift factor for provisional taxpayers using the uplift method will temporarily be reduced from 105 per cent to 100 per cent (zero uplift) to ensure those taxpayers benefit from the tax changes during the year.
  • Extra pay thresholds will adjust to reflect the change in income tax thresholds.
  • Fringe benefit tax thresholds will adjust to reflect the change in income tax thresholds.
  • Individuals may need to update their prescribed investor rate (PIR) with their bank or financial institution if the change in thresholds means that they face a lower marginal tax rate.
  • The tax changes will not affect the Student Allowance payment rate or the main benefit rates.

Fact Sheet – Changes to Working for Families

Summary

From 1 April 2018:

  • The Family Tax Credit rates will be updated so they are the same regardless of age. There will be one rate for the eldest child, $101.98 a week, and one rate for all subsequent children, $91.25 a week.
  • Low to middle income families with an eldest child aged under 16 will get up to $9.25 more a week in Working for Families, depending on their income, and up to $26.81 a week more for subsequent children, depending on their income and age of child.
  • Around 310,000 families will benefit from the changes to the Family Tax Credit.
  • The abatement rate for Working for Families Tax Credits will be increased from 22.5 cents to 25 cents in the dollar. The abatement threshold will decrease from $36,350 a year to $35,000 a year. This brings forward changes already planned to progressively occur by 2025 based on expected movements in the Consumers Price Index.

What is changing?

From 1 April 2018, two elements of Working for Families will change:

1. The Family Tax Credit rates for children aged under 16 are increasing, so that they align with the rates for children aged 16 to 18 years.

Annual Rate Current 1 April 2018
Eldest child, 16-18 $5,303 $5,303
Eldest child, 0-15 $4,822
Subsequent child, 16-18 $4,745 $4,745
Subsequent child, 13-15 $3,822
Subsequent child, 0-12 $3,351

The base rate of the Family Tax Credit for the eldest child aged under 16 will increase from $92.73 to $101.98 a week – an increase of $9.25 a week, or around 10 per cent.

The base rate of the Family Tax Credit for a subsequent child aged under 13 will increase from $64.44 to $91.25 a week – an increase of $26.81 a week, or around 42 per cent.

The base rate of the Family Tax Credit for a subsequent child aged 13 to 15 will increase from $73.50 to $91.25 a week – an increase of $17.75 a week, or around 24 per cent.

2. The abatement rate for Working for Families will increase and the abatement threshold will decrease.

The abatement rate for Working for Families Tax Credits will be increased from 22.5 cents to 25 cents in the dollar. The abatement threshold will decrease from $36,350 a year to $35,000 a year. This brings forward changes already planned to progressively occur by 2025 based on expected movements in the Consumers Price Index.

Most Working for Families payments start reducing (abating) when a family’s income exceeds the abatement threshold. Payments currently reduce by 22.5 cents for each dollar earned over $36,350 of family scheme income (gross income with some adjustments).

Why are changes being made?

The Government wants to help lower income families with young children to meet their living costs. The Family Tax Credit rates for young children have not been increased since 1 April 2012.

The Government also wants to start simplifying the rules for payments to families to make them easier to understand. Currently there are five different Family Tax Credit rates for children. If a child changes from one age band to another during the year, the family is paid a composite rate based on when in the year the child’s birthday was. Removing the age bands will start to simplify the system.

Raising the abatement rate to 25 cents in the dollar and lowering the abatement threshold to $35,000 means that assistance is better targeted to lower income families.

How do these changes affect people’s incomes?

As a result of these changes to Working for Families:

  • Families with one child aged under 16 and a family income less than $35,000 a year, including beneficiaries, will get $9.25 extra a week per child.
  • Families with one child aged under 16 and another child aged under 13 with a family income less than $35,000 will get $36.06 extra a week.
  • Families that only have children aged 16 to 18 years, earning less than $35,000 a year in family scheme income, including beneficiaries, will see no change in Family Tax Credit payments.
  • Higher income families or families earning more than $35,000 who only have children aged 16 to 18 years will receive slightly less from Working for Families. Nearly all of those changes are compensated for through other elements in the Family Incomes Package.

Examples of Family Tax Credit changes

Table 1: Examples of Family Tax Credit annual payment rates as incomes increase

Annual family income $

 

One child family Two child family Two child family
Child aged under 16 Eldest child over 16 and youngest under 13 Eldest child under 16 and youngest under 13
Current settings From 1 April 2018 Total change Current settings From 1 April 2018 Total change Current settings From 1 April 2018 Total change
<30,000 4,822 5,303 481 8,654 10,048 1,394 8,173 10,048 1,875
35,000 4,822 5,303 481 8,654 10,048 1,394 8,173 10,048 1,875
40,000 4,001 4,053 52 7,833 8,798 965 7,352 8,798 1,446
45,000 2,876 2,803 -73 6,708 7,548 840 6,227 7,548 1,321
50,000 1,751 1,553 -198 5,583 6,298 715 5,102 6,298 1,196
55,000 626 303 -323 4458 5048 590 3,977 5048 1,071
60,000 0 0 0 3333 3798 465 2,852 3798 946
65,000       2208 2548 340 1,727 2548 821
70,000       1083 1298 215 602 1298 696
75,000       0 48 48 0 48 48
80,000       0 0 0 0 0 0

Table 1 only shows changes to Family Tax Credits. Families will benefit from the changes to the income tax thresholds and some will also benefit from increases to the Accommodation Supplement. Transitional financial assistance will be available to the small number of households who may see overall losses of more than $3 a week as a result of the changes across the Family Incomes Package.

More information

Inland Revenue and Work and Income will contact Working for Families recipients in February 2018 to inform them of their likely entitlement for the 2018-19 tax year.


Hon Judith Collins
Minister of Revenue

25 May 2017

Budget 2017 addresses black hole expenditure

Many business expenses currently written off as black hole expenditure would become tax deductible under proposals released as part of Budget 2017, Revenue Minister Judith Collins says.

“Some costs of investigating the viability of a new proposal or project – that is, feasibility expenditure – are currently neither immediately tax deductible, nor depreciable. As a result, it falls into what businesses describe as the black hole,” Ms Collins says.

“Tax consequences should not be an obstacle to businesses innovating and pursuing opportunities for growth. The discussion document we are releasing today therefore proposes improved tax treatment for feasibility and black hole expenditure.

“Where no asset is created on the balance sheet, feasibility expenditure would be immediately deductible for income tax purposes. Where an asset is created we’re proposing that the feasibility expenditure would be capital expenditure for tax purposes.

“In addition, capitalised feasibility expenditure and other expenditure on an asset abandoned part way through construction would become immediately deductible if it is also expensed under International Financial Reporting Standards.

“We’re asking for views on a range of aspects of the proposals including the timing for application. If businesses are not making investments today because of the current treatment, we welcome feedback on making the change retrospective. Doing so would give businesses certainty that investments currently being considered would be in line for this improved tax treatment,” Ms Collins says.

“The Government has already resolved many types of black hole expenditure over the past few years to improve productivity and remove a tax impediment to growth. These proposals will allow an even wider range of costs to be deductible for tax purposes.”

Public feedback on Black hole and feasibility expenditure at www.taxpolicy.ird.govt.nz is open until 6 July.