TOPICAL ISSUES
BUDGET 2010 - SOME SURPRISES
On Thursday 20 May 2010, the Minister of Finance Hon. Bill English, presented his 2nd Budget to Parliament.
The overall objectives of the Budget are four-fold:
1. Lifting the long-term performance of the economy
2. Reform of the tax system
3. Better delivery of public services
4. Maintaining firm control of the government finances.
The government’s objective in reforming the tax system is to:
- Lift economic growth by improving incentives to work, save and invest
-
Improve the fairness, coherence and integrity of the tax system by reducing the opportunities to avoid tax (and/or unduly gain access to social assistance)
- Have a tax system that supports New Zealand’s competitiveness globally in a sustainable manner.
The major part of the tax reform package is a $4.5 billion p.a. tax reduction in income tax rates. These reductions will be funded by an increase in GST, an increase in tobacco excise tax and a broadening of the tax base and other tax integrity measures.
TAX RATE CHANGES - INDIVIDUALS
From 1 October 2010, all personal tax rates will decrease. The new rates will be:
|
|
New rate |
Current rate |
Composite rate |
|
Income up to $14,000 |
10.5% |
12.5% |
11.5% |
|
Income between $14,001 & $48,000 |
17.5% |
21.5% |
19.25% |
|
Income between $48,001 & $70,000 |
30.0% |
33.0% |
31.5% |
|
Income over $70,000 |
33.0% |
38.0% |
35.5% |
These reductions are greater than expected – especially for those in the $14,001 to $48,000 range.
GST will rise from the current 12.5% to 15% on 1 October 2010.
There will be a 2.02% increase in various benefits for 1 October 2010 to compensate for the rise in GST. These benefits include:
- New Zealand Superannuation or a Veterans Pension.
- All main benefits, such as the Unemployment Benefit, the Sickness Benefit, the Invalid's Benefit and the Domestic Purposes Benefit.
- The maximum rates of the Disability Allowance, Child Disability Allowance and Childcare subsidies paid through Work and Income.
- The Family Tax Credit and Minimum Family Tax Credit, which are part of the Working for Families scheme.
- Student Allowances.
TAX RATE CHANGES – NON-INDIVIDUALS
The tax rate for Companies will reduce from 30% to 28% commencing from 1 April 2011. This will mean that adjustments will be required for provisional tax payments due after 1 October 2010.
Rates of tax for trustee income will remain at 33% - this aligns the top personal tax rate with the trustee income rate. This means that there are now limited opportunities to reduce tax by diverting income into trusts.
OTHER CHANGES
-
From 1 April 2011, depreciation deductions will no longer be allowed for buildings with an estimated useful life of 50 years or more. This applies to both residential and commercial buildings. This restriction DOES NOT apply to commercial building fitouts and residential property chattels. Note that “ring-fencing” of residential property losses has not been included. So, if a residential property owner makes a loss (even with no building depreciation claim), then that loss can still be deducted from other income.
- The 20% depreciation loading on new assets will be removed from 21 May 2011.
-
Restrictions on using investment losses (e.g. residential rental losses) to reduce income for determining eligibility for Working for Families.
- Certain land transactions have been “zero-rated” for GST purposes.
-
Rules around 'loss attributing qualifying companies' often used by property investors to reduce their tax payments are being tightened.
- The redundancy tax credit (really a rebate) will be discontinued from 1 October 2010.
Government has allocated $120 million to Inland Revenue over the next 4 years to allow it to conduct more taxpayer audits. The IRD has signalled that the major areas to be targeted are property speculation and the “black” (i.e. cash) economy.
Please call us if you wish to discuss how these changes might affect your business or you personally.
PAYROLL GIVING – DONATIONS TO CHARITIES
Legislation passed in October 2009 and effective from 7 January 2010 now allows employers to (under certain conditions) to offer their employees a payroll giving scheme.
The scheme provides for a tax credit for gifts of money that are deducted from an employee’s salary or wages (through the employer’s payroll).
The benefits are that employees get an immediate reduction in tax by way of a tax credit of 33.3% of the amount given. It also means that employees do not have to keep receipts to claim the donations rebate at the end of the financial year.
It is important to note that the scheme DOES NOT replace the current end-year donation tax credit system – it operates alongside this.
How it works
- Participation is voluntary for both employees and employers
- The scheme is available only to employees whose employer files their Employer Monthly Schedule and PAYE deductions forms electronically using Inland Revenue ir-File system.
- There is no obligation on any employer to offer payroll giving
- Payroll donation must be made to a donee organization. For a list of these, see www.ird.govt.nz/donee-organisations/
- Employees are responsible for ensuring that the chosen charity is a donee organization – in practice, employers will be able to assist with this
- It is the responsibility of employers to ensure that payroll deductions are transferred to the chose donee organization within a specified time
- Employees who donate to donee organisations through payroll giving are not eligible for the end-of-year refund on their payroll donations.
For further information see
If you are interested in offering this to your employee, please give us a call.