2025 New Zealand taxpayers will change how they pay income tax. Last year, the government already announced new tax brackets, which would take effect on 31st July 2024. However, changes to PAYE, FBT, ESCT, Retirement, and RWT thresholds will change from 1st April 2025. This has created confusion among taxpayers, payroll providers, and employers about how to adjust their systems and ensure compliance with the new regime.
Additionally, 2025 will also witness new compliance rules for small businesses and large enterprises. With the implementation of GloBe rules, DST, and trust tax, businesses in New Zealand are going to have a hard time aligning their systems. Plus, the government has made climate-related disclosures mandatory for corporations. Now the organizations will have to prepare annual climate statements that disclose how climate change impacts their business operations.
This blog will decode all major and minor tax changes that are going to take effect in 2025. This will help you navigate the complexities of the new tax regime, compliance, and regulatory rules so your company adapts to new rules seamlessly.
Introduction Of New Tax Brackets New Zealand For 2024-25 & 2025-26 Financial Year
The New Zealand government announced new tax cuts in the 2024–25 financial year. The changes in the new tax brackets were aimed at reducing the tax burden on lower and middle-class people. As per reports, the new tax brackets will reduce the amount of personal income tax payable by an average taxpayer by NZ$30 per week.
The new PAYE tax brackets effective from 31st July 2024 are as follows:
| Current Brackets (NZD) | New Brackets (NZD) | 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% |
| Over 180,000 | No change | 39% |
With these newly introduced tax thresholds, the government is aiming to offer tax relief to approximately 1.9 million households.
However, the above tax brackets are not as simple as they look. Here are a few things that you need to understand about the new tax regime.
- New Zealand has a very straightforward and fair tax system. It goes by—people with higher income will pay more PAYE tax.
- These tax brackets divide your income into chunks and apply a certain tax percentage to each income component.
- For example, if you are in the $60,000 tax bracket, it doesn’t mean that you will have to pay 30% tax on your entire earnings. Instead, you will have to pay 10.5% on the first $15,600, then 17.5% on $15,600 to $53,500, and finally 30% on the amount over $53,000.
- If you fall in the $30,000 tax bracket, then you will have to pay 10.5% on $15,600 and 17.5% on amounts over $15,600.
Please note that these new tax brackets will take full effect from 1st April 2025. As the amendments in tax thresholds came mid-financial year, the Inland Revenue came up with new composite tax rates applicable for the 2024–25 financial year.
The composite PAYE tax rates are:
| Composite income tax threshold (NZ$)5 | Composite income tax rates |
| $0 – $14,000 | 10.5% |
| $14,001 – $15,600 | 12.82% |
| $15,601 – $48,000 | 17.5% |
| $48,001 – $53,500 | 21.64% |
| $53,501 – $70,000 | 30% |
| $70,001 – $78,100 | 30.99% |
| $78,101 – $180,000 | 33% |
| $180,001+ | 39% |
Moreover, the government has also made changes to Independent Earner Tax Credits and In-work tax credits, which will significantly reduce your taxes.
The eligibility cap for the Independent Earner Tax Credit has been raised from NZ$48,000 to NZ$66,000. This tax credit, which offers up to NZ$520 annually to qualifying individuals, will now extend to workers earning up to the New Zealand median wage, surpassing the full-time minimum wage threshold. As a result, an additional 420,000 New Zealanders are expected to qualify for the credit.
For families, the Budget introduces modest increases to the in-work tax credit and the minimum family tax credit, both components of the Working for Families tax credit package. These changes are anticipated to benefit around 160,000 families, providing an average of NZ$50 extra per week.
Furthermore, the budget includes the FamilyBoost tax credit, enabling parents with young children in registered early childhood care to claim a refund of up to 25% of their childcare costs. This credit will be available quarterly and will fully phase out for families earning over NZ$180,000.
How Will The Tax Changes Affect Small Businesses and Corporates in New Zealand?
The new tax changes also come with new regulatory and compliance amendments for businesses in New Zealand.
Employee Share Scheme
The new regulations in New Zealand will increase the shares offered to employees from NZD 5000 to NZD 7500. Also, the maximum tax-exempt benefit provided to employees has increased from NZD 2000 to NZD 3000. This will be helpful for small businesses to retain by offering company stakes without adding extra tax liabilities.
Compliance Requirements
Small businesses will face additional compliance and regulatory compliance challenges as they adapt to new regulations. Plus, the mid-year tax changes will also affect payroll systems and tax calculations that necessitate changes in accounting practices.
Increased Cost
The tax cuts will leave extra money in the hands of the individuals, leading to more spending and increased costs. Also, the businesses will have to bear the brunt of rising operational costs due to amendments in compliance rules and employee compensation.
Global Minimum Tax
New Zealand will be implementing new GloBE rules effective from 2025. This will require multinational enterprises with global revenue of over EUR 750 million (approximately NZD 1.3 billion) to pay a 15% tax on their income in each jurisdiction they operate.
Trust Tax
The trust tax rate for corporate beneficiaries will be set at 39%, affecting how corporations use trusts for tax planning purposes. Now companies will have to restructure the funds they allocate to trusts and income.
Digital Services Tax (DST)
The government will also implement a 3% Digital Tax on large foreign digital service providers with high revenue from New Zealand. This will affect companies operating in the digital space, pushing them to increase costs and subscription strategies.
Climate-Related Disclosures
The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 mandates climate-related disclosures for around 200 organizations, including large publicly listed companies, banks, insurers, and investment managers. This legislation aligns with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), making New Zealand one of the first countries to enforce such requirements.
Conclusion
The tax reforms represent a significant shift in New Zealand’s tax policy aimed at supporting low- and middle-income earners while stimulating economic activity through increased disposable income.
Overall, while the personal income tax cuts may stimulate consumer spending benefiting small businesses, the new regulations introduce complexities that could increase compliance costs and operational challenges for both small businesses and corporates. Companies will need to navigate these changes carefully to optimize their tax positions while adhering to new requirements.
Indian Muneem is a leading accounting firm that specializes in corporate tax preparation and planning and payroll management. We have over 460+ CAs, CPAs, and accountants experienced with international tax regimes and stay up-to-date with new amendments to help you align your systems and stay compliant always.
