As part of their budget for 2024, the government announced changes to our tax thresholds starting July 31st that year.
These new thresholds were designed to give us all a bit of financial breathing room by lowering the amount of income tax we owe.
But here’s where it gets a bit messy – since these changes kicked in partway through the financial year, working out your tax for financial year 2024/25 (FY) isn’t as straightforward as usual. We were essentially on old thresholds until July 30th, 2024, then switched to the new system on July 31st. This meant neither the old nor new rates were accurate for the entire financial year.
To address this, the IRD created a temporary system of transitional tax rates to help us all navigate this in-between period. But don’t worry – it’s all much simpler from FY 2025/26 onwards. Promise!
Understanding tax thresholds
Aotearoa uses a progressive tax system, meaning higher earners pay tax at a higher rate. Income levels are split into a series of tax brackets, with tax thresholds being the point at which one tax bracket ends and another begins.
💡 It’s important to remember this is a stacking system – reaching a higher tax bracket doesn’t mean all your income is taxed at that rate. Only the portion within each bracket is taxed at that bracket’s rate.
What the government did was raise the tax thresholds, meaning you have to earn more to qualify for a higher tax bracket. This translates to tax relief – you should owe less tax this year than last year on the same income amount (not taking into account earning amounts or business expenses).
Tax rates and thresholds for Financial Year 2025/26
| Old threshold | New threshold | Tax rate |
|---|---|---|
| <14,000 | <$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% |
| 180,001+ | $180,001 and over | 39% |
Why July 31st?
While initially planned for July 1st, 90 days after the financial year began, the implementation date was postponed to give payroll companies some much-needed time to adjust.
So, July 31st it was! 122 days into FY 2024/25. Which brings us to –
The transitional tax rates
With neither the old nor new systems being fully accurate, the IRD created what we might think of as the “Frankenstein’s monster” of tax solutions: transitional tax rates.
For FY 2024/25, we need this one-off transitional system that sits in between the old and new thresholds:
Tax rates and thresholds for Financial Year 2024/25
| Taxable income | Transitional tax rate | Income tax per range |
|---|---|---|
| $0 - $14,000 | 10.5% | $1,470.00 |
| $14,001 - $15,600 | 12.82% | $205.12 |
| $15,601 - $48,000 | 17.5% | $5,670.00 |
| $48,001 - $53,500 | 21.64% | $1,190.20 |
| $53,501 - $70,000 | 30% | $4,950.00 |
| $70,001 - $78,100 | 30.99% | $2,510.19 |
| $78,101 - $180,000 | 33% | $33,627.00 |
| $180,001 and over | 39% | + |
How to calculate your taxes for FY 2024/25
Ok, so being across the transitional tax rates is all well and good, but what does that mean in practice?
What you’re actually looking for is your effective tax rate – that is to say, the actual percentage of your income that you’ll pay as income tax. Your effective tax rate is essentially the average of all the income tax rates you qualify for, in one handy number.
The easiest way to calculate your effective tax rate? Using our tax calculator of course! Input your numbers for an estimation of what you might owe for financial year 2024/25:
*Assuming an average ACC work levy rate. For more information, check out our guide to ACC levies.
Disclaimer: Please note the numbers shown above are an estimate based on the figures you have provided. If you have any questions, please reach out to the team.
… and that’s it! Tax year 2024/25, done. We’ll see you in 2025/26!
DISCLAIMER: The information on our website is for general educational purposes only. It doesn’t cover all situations and circumstances, and shouldn’t be taken as direct tax advice. If you’re looking for specific help with your taxes, join Hnry and our team of experts can provide you with assistance tailored to your business needs.
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