Income tax changes 2025

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Title: Income Tax webinar

Changes coming in April 2025

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Kia ora everyone and welcome to this webinar.

My name is Helen Mitchell with me today is Vicki Cronin. We are both Relationship Managers at Inland Revenue.

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Nau mai

Haere mai

Welcome

Topics

• Trust changes
• Updated rates
• Personal income tax changes
• Backdated lump sum payments
• Other

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Today we’ll be taking you through the Income tax changes that are proposed to come into effect on or before 1 April 2025 – this will cover Trust changes, Updated rates, Personal income tax changes, Backdated lump sum payment changes, and Other income tax changes that may be of interest.

Please note: The information in this presentation is current as at 7 March 2025 and may be subject to change.

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Title: Trust changes

Image: A fountain pen signing a document

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Let’s look at the changes for trusts.

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Title: Trust disclosure

Sub-title: Post - implementation review simplifications

IR6 Return

• Annual value of land and buildings is now a combined figure
• Method of valuation of land and buildings is combined

IR6S Settlor disclosure

• Settlements of land and buildings combined
• Nil value settlements are no longer required and box 13 will be removed.

IR6B Beneficiary details

• Accounting income and other distributions box is renamed Distributions that are taxable.
• The following distributions boxes are combined into one box - Corpus, capital, use of trust property for less than market value, distribution of trust assets, forgiveness of debt
• The combined box becomes Distributions that are not taxable.
• Nil value beneficiary distributions are no longer required box Q27T will be removed.

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A review of Trust disclosure requirements has been undertaken and as a result the disclosure of certain information has been simplified.

IR6 Return. Annual value of land and buildings is now a combined figure, Method of valuation of land and buildings is combined

IR6S Settlor disclosure. Settlements of land and buildings combined, Nil value settlements are no longer required and box 13 will be removed.

IR6B Beneficiary details. Accounting income and other distributions box is renamed Distributions that are taxable. The following distributions are combined into one, Corpus, capital, use of trust property for less than market value, distribution of trust assets, forgiveness of debt, and the Box becomes Distributions that are not taxable. Nil value beneficiary distributions are no longer required. Box Q27T will be removed.

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Title: Trustee tax rate changes

The Trustee tax rate changes that came into effect from 1 April 2024 will now be reflected in the IR6 – Annual Trust and Estate Income Tax Return.

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The Trustee tax rate changes that came into effect from 1 April 2024 will be reflected in the IR6 – Annual Trust and Estate Income Tax Return.

For a recap of those changes refer to the Inland Revenue website IRD.govt.nz – Trustee income tax rates.

That’s the end of the trust changes.

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Title: Updated rates

Table of updated rates.

Student Loan thresholds. Student loan annual repayment threshold from $24,128 no change. Annual interest rate from 3.3% to 4.9%. Late payment interest rate from 7.3% to 8.9% annually. Rate of reduced LPI 5.3% annually to 6.9% annually. Significant over-deduction threshold from $60 to $70.

ACC Levy rates. ACC earners levy from 1.60% to 1.67% GST inclusive. Maximum earnings from $142,283 to $152,790. Maximum levy from $2,276.52 to $2,551.59.

Working for Families Tax Credits rates. The Working for Families rates are not changing from 1 April 2025.

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A number of rate and threshold changes come into effect on 1 April 2025.

For Student loans:

• The annual repayment threshold is not changing
• The annual interest rate will increase from 3.3% to 4.9%
• The late payment interest rate will increase from 7.3% annually to 8.9% annually
• The rate of reduced late payment interest will increase from 5.3% annually to 6.9% annually and
• The significant over deduction threshold will increase from $60 to $70

The ACC earners levy will increase from 1.60% to 1.67% (GST inclusive) with Maximum earnings increasing from $142,283 to $152,790 and the Maximum levy increasing from $2,276.52 to $2,551.59

The Working for Families rates are not changing from 1 April 2025.

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Title: Personal income tax changes

Image: Close up of person writing in a book

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Next up is the personal income tax changes.

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Title: Personal Income Tax

Sub-title: Tax rates for the 2026 income year

Table of Income ranges and Tax rates from 1 April 25 to 31 March 2025.

$0 to $15,600 tax rate 10.5%

$15,601 to $53,500 tax rate 17.5%

$53,501 to $78,100 tax rate 30%

$78,101 to $180,000 tax rate 33%

$180,001 and above tax rate 39%

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There will be no changes to the personal income tax rates or the income thresholds on 1 April 2025.

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Title: Personal Income Tax

Sub-title: Calculations for 2025 income year

Table of Income ranges, Tax rate 1 April 24 to 30 July 24, Tax rate 31 July 24 to 31 March 25, Annual tax rates for 2025.

$0 to $14,000, 10.5%, 10.5%, 10.5%

$14,001 to $15,600, 17.5%, 10.5%, 12.82%

$15,601 to $48,000, 17.5%, 17.5%, 17.5%

$48,001 to $53,500, 30%, 17.5%, 21.64%

$53,501 to $70,000, 30%, 30%, 30%

$70,001 to $78,100, 33%, 30%, 30.99%

$78,001 to $180,000, 33%, 33%, 33%

$180,001 and above, 39%, 39%, 39%

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While the income tax rates and thresholds for the 2026 income year aren’t changing, the thresholds did change back on 31 July 2024.

Due to the change part way through the tax year the annual assessments for the 2025 income year will use annual tax rates. Annual tax rates are an average of the new and old rates applied across the entire year.

As a result of this, some customers may end up with a bill (or a refund) that they are not expecting.

A refund or bill is most likely to happen when someone’s income has fluctuated or changed throughout the year, as it can mean that some of their income has been taxed at a rate that is lower or higher than the annual tax rates.

Situations that may result in a customer receiving a refund include:

• if they worked before 31 July but not after (e.g. if they were a student with a holiday job), or
• if they worked overtime before 31 July but not after 31 July.

Situations that may result in a bill include:

• if they worked after 31 July but not before
• if they worked overtime after 31 July but not before, or
• if they received a pay rise after 31 July.

Note that these scenarios are not the only reason a bill or refund may occur. Other reasons include incorrect tax codes or rates for income sources and investments

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A number of other consequential changes will also apply from 1 April 2025.

The Portfolio investment rates (PIR) thresholds will be updated to reflect the earlier income tax threshold changes.

Investors are encouraged to review their rate each year to make sure it's correct. The ‘Find my prescribed investor rate tool’ and IR861 worksheet are available on the IR website for customers to use.

The Employer Savings Contribution Tax (ESCT) & Retirement Savings Contribution Tax (RSCT) thresholds are also being updated to reflect the earlier income tax threshold changes:

PAYE tables, PAYE specifications and guides will all be updated to reflect the new thresholds.

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A number of other consequential changes will also apply from 1 April 2025.

The Portfolio investment rates (PIR) thresholds will be updated to reflect the earlier income tax threshold changes.

Investors are encouraged to review their rate each year to make sure it's correct. The ‘Find my prescribed investor rate tool’ and IR861 worksheet are available on the IR website for customers to use.

The Employer Savings Contribution Tax (ESCT) & Retirement Savings Contribution Tax (RSCT) thresholds are also being updated to reflect the earlier income tax threshold changes:

PAYE tables, PAYE specifications and guides will all be updated to reflect the new thresholds.

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Title: Personal Income Tax

Sub-title: Consequential changes resulting from the income tax threshold change in July 2024

Table of Fringe Benefit Tax (FBT) – Alternative rate calculation:

Range of dollar in all-inclusive pay $0 - $13,962, Tax rate 11.73%

Range of dollar in all-inclusive pay $13,963 to $45,230, Tax rate 21.21%

Range of dollar in all-inclusive pay $45,231 to $62,450, Tax rate 42.86%

Range of dollar in all-inclusive pay $62,451 to $130,723, Tax rate 49.25%

Range of dollar in all-inclusive pay $130,724, Tax rate 63.93%

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The Fringe Benefit Tax - Alternative rate calculation thresholds will also be updated to reflect the earlier income tax threshold changes.

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Title: Extra pay write off threshold

Customers who receive an IITA and have an amount of tax owing solely because they received an extra pay during the year (e.g. 53 weekly pays instead of 52) may be eligible for an automatically applied write-off of the tax owing.

For the 2025 income year, these thresholds have been calculated accounting for the tax rates which changed from 31 July 2024.

The new composite write-off thresholds are as follows:

Pay frequency Weekly, if income is up to and including $180,000 $240, If income over $180,000 $450.

Pay frequency Fortnightly, if income is up to and including $180,000 $390, If income over $180,000 $810.

Pay frequency 4-weekly, if income is up to and including $180,000 $740, If income over $180,000 $1580.

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Customers who receive an individual income tax assessment and have an amount of tax owing solely because they received an extra pay during the year, e.g. 53 weekly pays instead of 52, may be eligible for an automatically applied write-off of the tax owing.

For the 2025 income year, these thresholds have been calculated accounting for the tax rates which changed from 31 July 2024.

The new composite write-off thresholds are based on the customers pay frequency and whether their income is over $180,000 – the table on screen shows you the different thresholds.

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Title: Additional criteria for IR

Sub-title: IR can issue assessment when no response to query on expenses for automatic individual income tax assessments

Will allow the Commissioner to make a new assessment without the need to issue a notice of proposed adjustment (NOPA) when a customer does not respond to the request for additional information within the response time of two months.

The customer still has the right to dispute the assessment. If they disagree, they can respond with a NOPA.

Applies from 1 April 2025

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The next change also relates to individual income tax assessments.

In many cases we do not receive a response to our request for additional information, and currently we have no ability to issue an assessment and resolve the case without issuing a Notice of proposed adjustment (NOPA), which can be challenging due to the lack of information.

From 1 April, IR will be able to make a new assessment without the need to issue a notice of proposed adjustment when a customer does not respond to the request for additional information within the response time of two months.

The proposed change will not alter the taxpayers’ right of appeal - the customer still has the right to dispute the assessment. If they disagree, they can respond with a NOPA.

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Title: Taxation of extra pay when employment ends

Sub-title: Calculation method for extra pays on termination

A change to the way extra pays on termination of employment are calculated should result in more accurate figure of PAYE tax being deducted.

Amendment would:

replace the existing PAYE calculation method for extra pays when employment ends with the annualisation of the amount received for the last two paid pay periods before the payment of the extra pay.

clarify that the same tax treatment is applied to amounts of extra pay which are paid together with an extra pay that arises from the ending of employment.

This applies from 1 April 2025

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From 1 April 2025, the method for deducting tax from extra pay when employment ends will change.

This aims to simplify calculations and ensure more accurate PAYE tax deductions.

The new method will annualise the amount received in the last two pay periods before the extra payment, a calculation that better reflects the employee's actual marginal tax rate.

It also clarifies that the same tax treatment applies to all extra pay amounts paid together when one of the extra pay amounts arises from the end of employment.

I will now hand you over to Vicki

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Title: Backdated lump sum payments

Image: Collection of New Zealand currency

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Thanks Helen Now we’ll move on to the changes for back-dated lump sum payments.

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Title: Backdated lump sum payments

Sub-title: Updating Return and auto calculations to support BLSP from ACC and MSD legislation

System changes are being implemented to ensure customers who receive these qualifying backdated lump sum payments will be able to file a return (myIR) with the correct tax treatment applied to this income.

For Returns filed via paper or Gateway (using software), IR will complete the correct tax calculation.

Applies for the 2024-25 income return

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Backdated lump sum payments from ACC and MSD tax calculations

System changes are being implemented to ensure customers who receive these qualifying backdated lump sum payments will be able to file a return with the correct tax treatment applied to this income.

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Title: Veteran affairs backdated lump sum payments

Sub-title: Reduce the high marginal tax rate on Veteran Affairs lump sum payments

Backdated lump sum payments from Veteran’s Affairs made to cover multiple income years, are to be taxed at the recipient’s average tax rate for the four prior years from the payment.

This income will be included separately as part of a person’s annual income in the end of year square up but only to confirm the correct alternative tax rate applied.

These payments require a separate calculation that is complex. Customers with this type of payment will need to file in myIR otherwise calculation will be as part of the Return assessment process.

Applies retrospectively the day after the Bill gets assent to cover the 2024-25 income return

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In addition to the changes for ACC and MSD, there will also be changes for Veteran affairs backdated lump sum payments

Qualifying backdated lump sum support payments from Veteran’s Affairs made to cover multiple income years to be taxed at the recipient’s average tax rate for the four prior years from the payment.

This income will be included separately as part of a person’s annual income in the end of year square up but only to confirm the correct alternative tax rate applied.

These payments require a separate calculation that is complex and cannot be done on a paper return, so customers with this type of payment will need to file in myIR or gateway services.

The change applies retrospectively the day after the Bill gets assent to cover the 2024-25 income return.

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Title: Other changes

Image: Pile of colourful folders

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Now we’ll look at other income tax changes that may be of interest to you.

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Title: Fields for income tax return types – for removal

Table of Return Type, Field description (KP number), Rationale

IR3, Family tax credit from Work and Income (KP11), IR receives this information directly from MSD, so it is no longer required to be provided by the customer on their tax return.

IR3NR, Did you work in New Zealand at any time (KP34), The information provided was used to calculate tax credit that has since been repealed

IR4, Did the company pay insurance premiums to any overseas insurer not carrying out business in New Zealand? (KP23), All overseas insurer information has been replaced by IR1215 return

IR7, Attributed PIE income/loss and PIE tax credit, Partners or Look Through Company owners should be declaring any PIE income/losses under their individual IR3 returns.

IR3NR, Name of payer etc under New Zealand interest, Name of payer etc under New Zealand dividends, Name of partnership etc under New Zealand partnership income, Name of estate or trust etc under New Zealand estate or trust income, This information should already be available e.g. interest is received from bank data and partnership income is received from partnership IR7 returns, etc.

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Removal of fields on income tax returns.

We’ve been reviewing Income tax returns and some key point fields that are not necessary will be removed from returns for the 2025 year and onwards.

This will take place across IR3, IR3NR, IR4, IR6, IR7, IR8, IR9 and IR44 and across different return platforms.

This table shows some examples of key points that are being removed and the rationale behind the removal.

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Title: Statement of Position

Sub-title: Deemed acceptance

During the disputes process, a customer can issue the following forms to Inland Revenue:

A notice of proposed adjustment (NOPA)

A statement of position (SOP)

Failure of IR to respond to a Statement of Position (SOP) made by a customer within the required two-month response time will result in “deemed acceptance” of the customer’s position.

Applies from 1 April 2025

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Statement of Position

During the disputes process, a customer can issue the following forms to IR:

A notice of proposed adjustment (NOPA), which allows the customer to formally dispute one or more tax assessments, or

A statement of position (SOP), which allows a customer to finalise their viewpoint after they receive a disclosure notice from IR.

If IR does not respond to the NOPA within the designated timeframes, IR is deemed to have accepted the customer’s position. Currently that same process does not apply to the SOP.

The proposed amendment will mean that failure of IR to respond to a SOP within the required two-month timeframe will result in “deemed acceptance” of the customer’s position.

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Title: GST on listed services

Sub-title: Flat-rate credits and income tax

Sellers (drivers, deliverers and accommodation owners) will have the option to treat flat-rate credits as assessable income or as excluded income

Choosing to include flat-rate credits as assessable income - deduct all expenditure on a GST-inclusive basis

Choosing to treat flat-rate credits as excluded income:

Backdated to apply from the 2024-25 income year

New factsheet AD283 will provide more information and examples

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GST on listed services – flat rate credits and income tax

Sellers, that is drivers, deliverers and accommodation owners, who provide listed services through an online marketplace, will have the option to treat flat-rate credits as assessable income in their income tax return or to exclude them.

Choosing to include flat-rate credits as assessable income will mean they will be able to deduct expenditure on a GST-inclusive basis. This removes the need for complex apportionment calculations. However, for this to be an option, they can’t be registered for GST at the time they received the flat-rate credits.

If they choose to treat their flat-rate credits as excluded income, they must:

• Claim expenses relating to online marketplace sales on a GST-exclusive basis
• Claim expenses relating to sales made in other ways on a GST-inclusive basis

This means, expenses relating to income from the sale of listed services made through an online marketplace and in other ways will need to be apportioned.

This choice will apply from the 2024-25 income year.

We are creating a new fact sheet - Flat-rate credits and income tax AD283. This will provide more information and examples showing how to work out deductible expenses under both options. It also illustrates appropriate apportionment methods for short-stay accommodation and ride-sharing.