Personal Tax Cuts
Lower Tax Rate Thresholds lifted
From 1 April 2018 the two lower rate income thresholds are being increased from $14,000 to $22,000 (tax rate 10.5%) and from $48,000 to $52,000 (tax rate 17.5%). For someone earning over $52,000 this change will provide an extra $20.38 per week in their hand.
This is a tax cut which will also benefit families who were not eligible for Working for Families Tax Credits.
Independent Earner Tax Credit Removed
The Independent Earner Tax Credit is to be discontinued. It allowed a tax credit of $520 per year to eligible individuals and was originally introduced to compensate individuals who were not otherwise eligible for Working for Families Tax Credits. It appears that only 32% of eligible applicants were claiming the credit - perhaps because they were not filing a year-end tax return or using a different tax code for PAYE.
Impact on Provisional Tax
Provisional tax for the 2018-19 income year is to be calculated without an uplift on the tax paid in the prior year. This is a temporary reduction in the prior year uplift of 5% to a zero uplift for the year. This will enable provisional taxpayers to benefit from the changes without having to go into the estimation regime.
Impact on Other Rates
FBT rate thresholds will be updated to neutralise any difference between PAYE and FBT.
Investors in PIEs will need to update their prescribed investor rate (PIR) if the changes mean they will face a lower marginal tax rate.
There will be no change to the student allowance payment rate.