Tax Changes
(posted 24/03/2006)
Parliament passes a major tax bill bringing tax cuts to NZ business.
Revenue Minister Peter Dunne claims that the new Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Bill that was passed without opposition by Parliament March 23rd will give tax cuts to NZ Businesses of $1.1 billion over four years. The bill will bring into effect the most comprehensive business tax cuts for nearly two decades, and is amid at a wide-ranging legislation package of “business-friendly” tax measures in an endeavour to promote economic growth.
Depreciation, R&D, venture capital
The tax depreciation rules have been changed to try and encourage more productive use of capital by reducing biases in the rules that distort investment decisions. Most of the changes to the depreciation rules will apply from the 2005-06 income year.
Depreciation rates for buildings have been lowered and the rates for short-life plant and equipment have been raised. The cost threshold that determines which assets must be accounted for on fixed asset registers has been raised from $200 to $500, which will reduce both the number of assets that must be accounted for and the number of tax adjustments required when a business disposes of an asset. The new threshold is effective from 19 May 2006, when the bill will be introduced.
On the Venture capital front companies that bring in new equity investors will have better access to tax deductions for research and development expenditure, and non-resident investors will be exempt from tax on gains on the sale of shares in companies they have invested in alongside the New Zealand Venture Investment Fund.
Small business changes
By enlarge the changes here are mainly designed to make existing tax easier for small business, by reducing the number of different tax payment dates. For example as from 1 April 2007, the GST due date will become the 28th of the month, in preparation for the later alignment of GST and provisional tax payments, which will take effect from the 2008-09 income year. From that date businesses will also be able to choose to base their provisional tax payments on a percentage of their annual GST turnover. This has been done to encourage small businesses to take advantage of the help that payroll agents can give them, that will come into effect on 1 October 2006.
Fringe benefit tax
The fringe benefit tax rules have been amended to reduce compliance costs and remove anomalies in the rules that had built up over a number of years. The changes apply from 1 April 2006, for employers who pay FBT on an income year basis, from the income year beginning on or after that date. Many of these changes are related to motor vehicles. The valuation rate on motor vehicle fringe benefits will drop from 24% to 20%. An example of this effect could see companies saving over $1000 in fringe benefit tax on a $40,000 vehicle. Employees' private use of day-to-day work tools such as cell phones and laptops will be exempt from FBT if the tool costs less than $5000 and is used primarily for business. The thresholds in relation to unclassified fringe benefits are also being raised.
There are some other changes
There are some Tax incentive changes in the area of attracting skilled people to return or immigrate to New Zealand. Some changes to the rules on Share – Lending to come in line with other commercial transactions and with other countries such as Australia. New record-keeping requirements for New Zealand-resident trustees of foreign trusts, tax deductibility of the re-grassing and fertilising costs associated with farm conversions, certain types of payouts from co-operatives are effected, racing industry tax changes will include a reduction in gaming duty and accelerated write-down for bloodstock.
There are also some IRD compliance changes
Such as maintenance changes which are designed to prevent avoidance of GST by using third parties to import goods, and changes giving Inland Revenue greater flexibility in the application of shortfall penalties for taking an unacceptable tax position.
These are only some of the tax changes we will see emerge from this massive taxation bill which will become law once the new legislation has received Royal assent.
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