Over the recent weeks and months, I’ve been asked the question frequently, “Dave, which party’s tax policies would be better or worse for me, as a US citizen in New Zealand?”.
Well, as many of us now know (or don’t know), there appears to be a large element of murkiness around the actual tax policies proposed by each party.
Here, we’ll look at a high level overview of the tax changes proposed by major parties currently expected to gain a seat in parliament, and how it would impact a US tax return.
I have only included parties which:
a) Predicted to gain a seat according to the TVNZ Vote Compass
b) Have a clear (or mostly clear) tax policy published in their manifesto, that I was able to locate
- ACT
- Labour
- National
- Greens
- Te Pāti Māori
We’ll begin with the ACT Party.
It must be noted that this is a very high level overview, and does not take into account any possible US tax credits. This is not intended to reflect any personal political opinion, and it is possible that I have made errors with regards to party policy, where it is unclear.
ACT
Proposed tax changes:
Cut the 30 percent tax rate to 17.5 percent
Cut the 39 percent tax rate to 33 percent
Reverse the Government’s interest deductibility change
Possible total removal of Bright Line (capital gains tax)
We can make the assumption that the new NZ tax rates would be as follows:
Up to $14,000 10.5%
Over $14,000 and up to $70,000 17.5%
Over $70,000 and over 33%
For a US citizen income earner of $100,000 annually, this would result in an NZ tax liability of NZD$21,170.
This is roughly $12,558USD.
The equivalent US tax liability on this income $8359 USD
Brightline test – Rental property sold after more than 2 years of ownership would be subject to full US capital gains tax of 15-20% rate, plus depreciation recapture. No NZ taxes to offset US capital gains tax.
Example Current Tax – Property sold after 5 years of ownership, $400,000 capital gain – total NZ tax on gain (assuming the same $100k annual salary) - $151,200.
Equivalent USD- $89,717.54
Equivalent US tax rate - $60,000
Summary – No change for income tax – US citizens in NZ would (in this instance) be able to offset their US tax liability in full. – Capital gains on Brightline/US Capital Gains Tax using example above
US Tax payable increase of $60,000USD –It should be noted however of an NZ tax saving on capital gains of - NZD$50,096.47
Labour
Proposed tax changes:
Remove GST on fresh fruit and vegetables
Current NZ tax rates would remain the same:
Up to $14,000 10.5%
Over $14,000 and up to $48,000 17.5%
Over $48,000 and up to $70,000 30%
Over $70,000 and up to $180,000 33%
$180K+ 39%
For a US citizen income earner of $100,000 annually, this would result in an NZ tax liability of NZD$23,920.
This is roughly $14,196USD.
The equivalent US tax liability on this income $8359 USD
Summary – No change – US citizens in NZ would (in this instance) be able to offset their US tax liability in full.
National
Proposed tax changes:
Increase income thresholds for current tax rates from 1st July 2024
Change Brightline test from 10 years property ownership back to 2 years
New NZ Tax Rates
Earnings up to $15,600 10.5%
From $15.6k to $53.5k 17.5%
From $53.5k to $78.1k 30%
From $78.1k to $180k 33%
$180k+ 39%
For a US citizen income earner of $100,000 annually, this would result in an NZ tax liability of NZD$22877.50.
This is roughly $13,573.22USD
The equivalent US tax liability on this income $8359 USD
Brightline test – Rental property sold after more than 2 years of ownership would be subject to full US capital gains tax of 15-20% rate, plus depreciation recapture. No NZ taxes to offset US capital gains tax.
Example Current Tax – Property sold after 5 years of ownership, $400,000 capital gain – total NZ tax on gain (assuming the same $100k annual salary) - $151,200.
Equivalent USD- $89,717.54
Equivalent US tax rate - $60,000
Current situation, NZ taxes offset US tax in full.
Change under National – No NZ Tax in above situation – US tax applies of $60,000
Summary – No change for income tax – US citizens in NZ would (in this instance) be able to offset their US tax liability in full. – Capital gains on Brightline/US Capital Gains Tax using example above
US Tax payable increase of $60,000USD –It should be noted however of an NZ tax saving on capital gains of - NZD$50,096.47
Greens
Proposed tax changes (not entirely clear):
Tax free threshold of 10%
Wealth tax of 2.5% of net assets over $2m
A new top rate of income tax of 45% on income over $180,000
Proposed tax change:
Up to $10,000 0%
Assuming $10,000 and up to $48,000 17.5%
Over $48,000 and up to $70,000 30%
Over $70,000 and up to $180,000 33%
$180k+ 45%
For a US citizen income earner of $100,000 annually, this would result in an NZ tax liability of NZD$23150.
This is roughly $13709USD.
The equivalent US tax liability on this income $8359 USD
Summary – No change for income tax – US citizens in NZ would (in this instance) be able to offset their US tax liability in full. – Wealth Tax – There is no such wealth tax in the USA, so this tax could not be used to offset any US taxes. For those with assets worth greater than $2m NZD, the 2.5% paid to IRD would be an additional cost.
Te Pati Maori
Proposed tax changes (not entirely clear):
Changed Income Tax thresholds
Removing GST on food
Varying wealth tax
A new top rate of income tax of 45% on income over $180,000
Proposed tax change:
0% Income of $30,000 or less 15% Income of $30,001 and up to $60,000 33% Income of $60,001 and up to $90,000 39% Income of $90,001 and up to $180,000 42% Income of $180,001 and $300,000 48% Income of $300,001 and above
For a US citizen income earner of $100,000 annually, this would result in an NZ tax liability of NZD$17,399
This is roughly $10303USD.
The equivalent US tax liability on this income $8359 USD
Summary – No change for income tax – US citizens in NZ would (in this instance) be able to offset their US tax liability in full. Depending one exchange rate change however, it is possible that taxes for low earners in NZ would dip beneath US tax rates, and foreign tax credit would not fully offset US tax liability (resulting in top up to USA). – Wealth Tax – There is no such wealth tax in the USA, so this tax could not be used to offset any US taxes.
Overall Summary
Only ACT and National propose any change which would result in US citizens paying tax to the IRS, which they do not currently pay (through removal or partial removal of NZ Bright Line Tax). It should be noted however, that whilst US citizens may pay capital gains tax to the IRS as a result of the removal of bright line, it would be an overall saving (US capital gains tax rates vs bright line rates).
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