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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