What’s been happening in the markets (June 2024) – How will the tax cuts work?

In June 2024’s What’s been happening in the markets article we cover Sharesies’ latest product, examine how the upcoming tax cuts will work, and look at whether investors should be concerned over the legal action against Booster.

This article covers:
1. Product updates
2. Market Movements
3. What we’ve been up to

1. Product updates

Income tax changes

Personal income tax is changing from 31 July 2024, which will impact how income from your job as well as investment income such as interest and dividends will be taxed. The changes involve small adjustments to the income tax thresholds (the percentage rates are not changing):

Old thresholdsNew thresholdsTax rate
$0-$14,000$0-$15,60010.5%
$14,001-$48,000$15,601-$53,50017.5%
$48,001-$70,000$53,501-$78,10030%
$70,001-$180,000$78,101-$180,00033%
$180,000+$180,000+39%

The changes will result in slight tax cut for most individual taxpayers as more of your income will fall under and be taxed under the lower tax brackets. To illustrate this let’s look at an example of someone earning $60,000 per year. For simplicity, we’ll be ignoring factors like KiwiSaver, tax credits, and student loans in this example.

Under the old thresholds:

  • The first 14,000 dollars you earn each year would be taxed at 10.5%. That’s $1,470 per year in tax paid under this bracket.
  • The 14,001st to 48,000th dollars you earn each year would be taxed at 17.5%. That’s $5,950 per year in tax paid under this bracket.
  • The 48,001st to 60,000th dollars you earn each year would be taxed at 30%. That’s $3,600 per year in tax paid under this bracket.

Altogether you’d pay $11,020 in income tax per year, or $211.92 per week.

Under the new thresholds:

  • The first 15,600 dollars you earn each year would be taxed at 10.5%. That’s $1,638 per year in tax paid under this bracket.
  • The 15,601st to 53,500th dollars you earn each year would be taxed at 17.5%. That’s $6,632.50 per year in tax paid under this bracket.
  • The 53,501st to 60,000th dollars you earn each year would be taxed at 30%. That’s $1,950 per year in tax paid under this bracket.

Altogether you’d pay $10,220.50 in income tax per year, or $196.55 per week. That’s a decrease of $15.37 per week under the new thresholds. You don’t need to do anything to receive this tax cut – If you’re an employee, your take home pay will automatically increase to reflect the lower amount of tax deducted from your salary or wages.

Prescribed Investor Rates (PIRs) and thresholds which apply to PIE investments aren’t changing for now. Any changes to these will come into effect on 1 April 2025. While there has been talk of rate changes for PIEs, there hasn’t been anything confirmed at this stage.

Further Reading:
What taxes do you need to pay on your investments in New Zealand?


Sharesies launches car insurance

Sharesies has officially launched their first insurance product, partnering with Cove to offer car insurance. The product is identical to Cove’s comprehensive car insurance (i.e. you get the same cover regardless of whether you buy a policy through Sharesies or directly through Cove), though Sharesies is offering a couple of special benefits including a 5% discount on premiums and 1 month free cover (up to the value of $100).

Despite the perks, there is no guarantee that Sharesies’ insurance will be cheaper or better than other providers. As with any insurance, it pays to shop around. In addition, you’ll need to have an active Sharesies account to access the special benefits. If you’re interested in checking out Cove for car insurance but don’t want to sign up for a Sharesies account, you can still get a month’s free cover (up to the value of $100) by using our link.

Further Reading:
A beginner’s guide to insurance in New Zealand – Is it gambling?


Booster in hot water?

Fund manager Booster is facing legal action from the Financial Markets Authority relating to Booster Wine Group, a wine investment company closely associated with themselves. Many of Booster’s funds invest into Booster Wine Group where it’s alleged that the investment wasn’t in the best interest of their clients, but rather to support the underperforming wine business. It’s also alleged that Booster failed to follow the correct processes to invest in a closely related business, and that Booster Wine Group didn’t even meet the investment criteria of their own funds.

While Booster disputes these allegations, this legal action is sure to raise alarm bells among people investing their money through the fund manager. The good news is that these legal issues don’t pose a substantial risk to your money. You’re investing through Booster, not in Booster, and any money you invest through them is held by an independent custodian – so if Booster were to go down, your assets would be safe. In addition, Booster Wine Group only makes up a small proportion of their funds, so if that investment were to fail, it wouldn’t have a disastrous impact on your fund’s performance. But if you are concerned about Booster, it’s super easy to switch your investments to another fund manager. If you’re looking for a new KiwiSaver provider, we cover the options in the article below.

Further Reading:
The ultimate guide to KiwiSaver funds and schemes
What happens to your money if InvestNow or Sharesies go bust?

2. Market Movements

Here’s how the markets have performed in June 2024 (as at 30 June), in both their local currencies and in NZ dollar terms:

Local currencyNZD
NZ shares (S&P/NZX 50)-1.26%-1.26%
Australia shares (S&P/ASX 200)0.85%3.25%
US shares (S&P 500)3.47%4.57%
Japan shares (Nikkei 225)2.85%2.70%
UK shares (FTSE 100)-1.34%-0.98%
Bitcoin-8.88%-7.90%

The US market continues its outstanding year with the “Magnificent 7” (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla) having good gains over the month. Meanwhile the NZ market continues to lag behind, being a highly interest rate sensitive market. There’s also plenty of pessimism out there over the economy, job losses, and a weak housing market, and we’re seeing some of that reflected in earnings downgrades from companies like SkyCity and The Warehouse.

Here are the year-to-date results:

Local currencyNZD
NZ shares (S&P/NZX 50)-0.45%-0.45%
Australia shares (S&P/ASX 200)2.33%3.83%
US shares (S&P 500)14.48%18.74%
Japan shares (Nikkei 225)18.28%7.47%
UK shares (FTSE 100)5.57%8.83%
Bitcoin45.39%50.81%

3. What we’ve been up to

This month we have a few small updates to our finances:

  • We’ve accumulated enough cash in our emergency funds and our other investment buckets are building up well, so we’re starting to redirect some cash towards increasing our extra repayments on our mortgage. Every extra dollar we pay down the mortgage gives us a return in the form of less interest accruing on the loan.
  • Despite being in the very fortunate position to be able to pay our home loan off so aggressively, we’re getting hit by a bunch of rising costs. Many of our expenses (including rates, water, and electricity) will be increasing in the coming months. We plan to direct the extra money earned from our tax cuts to cover these increased costs.
  • We’re buying more shares in Infratil as part of their capital raise. Infratil is one of our earliest and most successful investments, and one of our few individual companies we aren’t planning to sell off. We always add a few thousand dollars to our investment every time they do a capital raise, and are happy to increase our exposure to the company given the attractive sectors they deal in, and the fact that our index funds have limited exposure to them.

Outside of investing we’ve been spending a lot of time doing cleaning and maintenance around the home and garden, cooking new dishes, and trying out new eateries. Our food highlights for this month include Persian cuisine at Rumi in Parnell, pastries at Dusty’s Depot in St Johns, and Japanese baked goods at Mizu Bread.

Thanks for reading and your ongoing support!

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Disclaimer

The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.


Comments

  1. Booster funds may struggle with bad reputation/media and people selling out of their funds. Am I correct in that or is that underlying investments that will maintain the value of the funds?

    1. The performance of their funds shouldn’t be affected. It is the performance of the underlying assets of their funds that determines whether the funds go up or down in value, rather than investors inflows or outflows.

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