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Tax threshold changes for sole traders 2024

In their 2024 budget, the government announced that our tax thresholds will be changing as of July 31st this year. The idea is that these new thresholds will help with the cost of living crisis by reducing the amount of tax we owe overall. Great! But what does this actually mean in practice?

Well, for starters, it means that Financial Year 2024/25 is going to look a little different, when it comes to income tax. Our old tax thresholds are no longer accurate, but because we’re changing things up midway through the financial year, the new thresholds won’t cut it either.

So instead, the IRD has prepared what we’re thinking of as a series of transitional tax rates, to help payroll providers and sole traders (that’s you!) calculate and pay the right amount of income tax.

Fair warning, it’s going to involve a bit of maths. Grab a cuppa, and let’s dig in.

What are tax thresholds, and why are they changing?

Great questions, all.

Without getting too into the weeds, Aotearoa operates using a progressive tax system for income tax, meaning that you pay more in tax the more you earn.

The way we do this is through a system of tax rates and brackets. Lower earners will owe less on their income, but as you earn more, the rate at which you pay tax increases.

It’s important to note that it’s a stacking system – if you earn in the 33% tax bracket, say, that doesn’t mean you owe 33% in tax on all your income. Instead, you’ll owe 33% on income earned within that bracket.

💡If you’re getting a bit lost (and we wouldn’t blame you), we explain all this in more detail in our guide to tax rates for sole traders.

Now, tax thresholds are simply the point at which you go from one tax bracket to the next. For example, say that the tax threshold is $100, with a tax rate of 10%. What that means is that you’d owe 10% of all income you make, until you earn $100. Your next dollar is above the threshold, meaning it’ll be subject to a different, higher rate of tax. With us so far?

In raising the tax thresholds, the government is allowing you to earn more without paying a higher rate of tax on your earnings. What this translates to in real terms is tax relief – putting aside tax deductions etc, you should in theory owe less tax this year than you did last year.

Why are the thresholds changing on the 31st of July?

The initial plan was for these changes to go live on the 1st of July, the first month after the budget announcement. But there was some concern that payroll companies wouldn’t be able to switch things up that fast, which is why the live date was postponed.

Starting the 31st of July means we’ll use the old tax thresholds for exactly 90 days of the financial year, and the new thresholds for the rest, making it a lot cleaner to calculate income tax owed.

But, you may be wondering. If the old rates and new rates are out, what’re we left with? Well, may we present the Frankenstein’s monster-esque solution of the tax world: transitional tax rates.

The current and future tax thresholds

To recap: the old thresholds aren’t accurate, and neither are the new rates. So what do we do? We (rather, the IRD) mash them both together to create a temporarily more complicated, but more accurate, system of thresholds and rates.

Just for this financial year, we’ll need to use this one-off system. Then, once this year is over, we can switch to using the new thresholds only.

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% +

For context, this is the new system – much simpler!

Tax rates and thresholds for Financial Year 2025/26

New threshold Tax rate
<$15,600 10.5%
$15,601 - $53,500 17.5%
$53,501 - $78,100 30%
$78,101 - $180,000 33%
$180,001 and over 39%

New tax calculator for financial year 2024/25

Want to see what this looks like in practice, including any other taxes and levies you may owe? Don’t worry, we gotchu.

Tax calculator for Financial Year 2024/25

And as a sneak preview, we’ve also set up a tax calculator for the following financial year, which uses the new rates set to go completely live 1st April 2025. Go on, plug your numbers in and have a play!

Tax calculator for Financial Year 2025/26

Note: These calculators are based on information released by the government. Rates and thresholds are subject to change.

If you’re really, really curious, you can use our old tax calculator to see what you would have owed, if nothing changed.

Tax calculator for Financial Year 2023/24

Lost in the maths? Hnry can help

You can get your calculator out, start messing around with decimals and percentages and whatnot – or you could ditch the lot and just use Hnry instead. We’re already all over these changes, and we’ve got you covered.

Plus, we don’t just calculate your tax – we set it aside and send it to the IRD on your behalf. Everything that ends up in your personal bank account is yours to spend.

For just 1% + GST of your self-employed income, capped at $1500 a year, Hnry will calculate and pay all your taxes, levies and whatnot for you, including:

We also file your annual tax return – it’s all part of the service! You also get access to unlimited quotes and invoices through the Hnry tab, and we manage your expenses for you, giving you tax relief in real-time. Using the Hnry platform costs less than using a traditional accountant, and is entirely tax deductible.

So what are you waiting for? Ditch the maths, join Hnry today and never think about tax again!

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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