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What the 2024 budget means for sole traders

If you’re not a fiscal nerd (read: us), you may be a bit confused about what the government’s new budget means for you specifically. That’s ok; we’ve combed through it, so you don’t have to.

You may remember that we’ve actually already talked about this before. Late last year, the government outlined their ideas for the economy in two separate coalition agreements, which we summarised in our tax plan article. But now that the 2024 budget has officially been released, we know for sure what the go is.

For sole traders, the headline news is that tax relief is on the way, through three different pathways:

  1. Changing the tax thresholds
  2. Broadening eligibility for the Independent Earner Tax Credit (IETC)
  3. Supporting families:
    • Increasing the in-work tax credit
    • Introducing the FamilyBoost childcare credit

Yeah, that’s still a bit jargony isn’t it? Let’s get into the weeds.

1. Changing the tax thresholds

Aotearoa operates on a progressive income tax system, meaning that the more you earn, the more you pay in income tax.

But because of wage increases, we’re actually paying more in income tax than we used to. Our thresholds haven’t really changed since 2010, even though salaries have increased dramatically. Not to mention our money’s worth less due to inflation!

To counter all this, the government is increasing our tax thresholds, meaning you’ll pay a lower rate of tax on more of your income. These new thresholds come into effect on the 31st of July:

Previous 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 and over $180,001 and over 39%

But wait, you may be thinking. We’re already midway through the financial year! How does that work?

Well, for starters, the new rates were actually supposed to come into effect at the beginning of June. It’s now been pushed back to the 31st of July, to give payroll companies and other affected organisations more time to prepare.

But for those of us who earn independently, the IRD has prepared a handy table of transitional tax rates just for this financial year. It’s basically a Frankenstein’s monster-esque mash up of the old and new rates, that’ll get you closer to your actual tax owed:

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% +

Whew! That’s definitely more calculation needed than usual, but may still be better than paying too much or too little in tax! The good news is that these new thresholds mean you get to keep more of your money than under the previous system.

Easier still, you could just use Hnry. We’re all over these changes, and we’ll help you get it right the first time round.

Hnry does the maths for you - try Hnry

2. Increasing eligibility for the IETC

This change is waaaay more straightforward.

The Independent Earner Tax Credit is a tax credit (duh) for people who don’t qualify for other kinds of assistance, like benefit payments, or the Working for Families credit. It’s basically a discount of around $520 on your final tax bill, if you’re entitled to the full amount.

Although it sounds like it’s just for “independent earners”, eg. sole traders, it’s actually for everyone earning an income.

To be eligible, you used to have to earn between $24,000 and $48,000 annually. Now, the government is increasing that upper limit to $70,000, so more people qualify.

The amount you’re entitled to will start reducing from $66,000, however, as opposed to $44,000 previously.

Tl;dr: If you make between $24,000 and $70,000 a year, you’re eligible for a discount of $520 maximum on your final tax bill. That works out to an extra $10 a week. Lucky you!

3. Support for families

Do you have children? These initiatives are for you!

Introducing FamilyBoost childcare payments

FamilyBoost is a new childcare payment to help families with their early childcare education costs.

From the 1st of July 2024, you’ll be able to claim a refund of 25% of your childcare fees, up to a maximum of $150 a fortnight. This will be paid back to you in a lump sum of up to $975 every three months.

Increasing the in-work tax credit

The in-work tax credit, available for low-to-middle income families, will be increased by up to $50 a fortnight, depending on the size of their family and income. This increase also comes into effect from the 31st of July.

To figure out how much you may be eligible for, you can use the tax calculator on the budget website.

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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