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New Tax Year, New Tax Changes
As one tax year finishes a new one begins and with the 2025 tax year now in full swing it’s time to have a look at some of the changes ahead.
Several changes had been proposed when the new government was being formed, and variations were made to these in the months that followed. Legislation was finally enacted on 28 March 2024 and we can now confirm these changes are set in stone:
Trusts and Estates
As expected, the Trustee tax rate for the 2024-25 tax year has increased from 33% to 39%. This rate applies to Trustee income retained by the Trust after any beneficiary allocations have been made for the year. However, a concession has been made by the Government that if Trustee income for the year (the remaining income after beneficiary allocations) is under $10,000 the tax rate will remain at 33%.
Deceased Estates will still be taxed at 33% for the year of death and the three subsequent tax years. If the Estate has not been wound up and distributed after the three years, the tax rate will increase to 39%. An Estate however can still qualify for the 33% concession rate if annual income is under the $10,000 de-minimis level mentioned above.
The impact of these changes will be in the 2025 and future income years (from 1 April 2024). We will contact all clients with Trusts to discuss the implications of these, and strategies to mitigate these in the coming months.
Commercial Property
Depreciation on commercial buildings has been removed for the 2024-25 income tax year – where previously a 2% annual depreciation claim was permitted this rate will now revert to 0%.
In practical terms, clients with commercial properties that have been depreciating will have higher taxable income in the 2025 and future years. This will impact the level of provisional tax payments needed for these years, rent reviews and cashflow planning will need to be considered.
We will be in touch with clients who have commercial rental properties to discuss the impact of these changes.
Residential Rental Property
There has been a lot of publicity around proposed changes to interest deductions on rental properties, please disregard anything you have previously read and follow these guidelines.
Interest limitation rules for residential rental properties have changed. From 1 April 2024 to 31 March 2025 an 80% claim for interest costs will be deductible for all residential rental loans. From 1 April 2025 this will increase to a 100% deduction.
Unfortunately, for the year to 31 March 2024 the old rules still apply and only those with loans drawn down prior to 27 March 2021 will be allowed a 50% deduction.
The new Brightline two-year rule comes into effect from 1 July 2024. If a person was to sell their residential property after this date it would be subject to the 2-year bright-line rule, rather than the outgoing 5- or 10-year periods. An important point to note is that the bright-line end date is not when title transfers but will usually be the date a person enters into a contract for sale for properties sold. If you are considering selling your rental property, please get in touch with us so we can review this for you.
The impact of changes to interest deductions applies from the 2025 year, we will discuss this with clients who have residential rental properties when we complete your 2024 financial statements.
Best of the rest
Other changes in the legislation include the tax treatment of lump sum payments received from ACC and MSD, GST changes for electronic platforms like Uber and Air BnB and Government contributions to Kiwisaver while on Paid Parental Leave.
If you would like to discuss any of these changes above and how they may impact on you, please feel free to get in touch with our team as we will be happy to help.
